The Affordable Care Act and the Unexpected Higher Costs

MedPage Today by David Pittman -

March 8, 2013

Higher-than-expected costs for the Affordable Care Act's (ACA) preexisting condition risk pool are a sign that the law will cost more than first expected, according to some lawmakers and analysts.

The Centers for Medicare and Medicaid Services (CMS) last month told states that it was suspending enrollment in the Pre-Existing Condition Insurance Plan (PCIP), a program created under the ACA to help provide health coverage to those with preexisting medical conditions before other aspects of the law take effect in 2014.

CMS said it would no longer enroll individuals because of financial constraints in the $5 billion program, even though enrollment has been lower than expected.

"This is another reminder that the costs of [the ACA] are significantly understated," seven leading Republican lawmakers, including House Speaker John Boehner (Ohio), wrote to President Obama this week. "Your administration's action will leave thousands of Americans with preexisting conditions without access to healthcare."

They suggested rerouting money from other ACA programs -- including the Prevention and Public Health Fund, aid for establishing state-based health insurance exchanges, and a program for comparative effectiveness planning -- to allow the plan to continue.

"We believe allowing those with preexisting conditions access to health insurance is another worthy reason to reprogram these funds," wrote the Republicans, which included Rep. Michael Burgess, MD (R-Texas). "In fact, there are numerous programs within ACA that receive greater levels of funding than PCIP. With your support, we could help these Americans get the care they need."

A Department of Health and Human Services (HHS) official said HHS has taken steps to continue coverage for the more than 100,000 people already in the PCIP program.

"We have made a number changes to the program to manage the program's growth and claims costs and to ensure that open enrollment could continue for as long as possible," HHS said in an emailed statement to MedPage Today. "We have balanced this approach with maintaining an appropriate level of resources to cover current enrollees and have consistently monitored the impact of these changes on program enrollment and expenditures."

When asked to elaborate on what those changes were, HHS did not respond.

Other health policy analysts had predicted the $5 billion would be far too little, outsiders said.

"What is surprising is that so few people have signed up and drained the program. The expectation was that lots more would sign up than have, but the money is gone anyway," Robert Laszewski, president of Health Policy and Strategy Associates in Alexandria, Va., told MedPage Today in an email. "The concern I have is does this mean the sick people that will come to the exchanges are going to be way more expensive than we thought they would be?"

The preexisting condition plan's woes could spell more trouble for the broader population if more healthy young people -- those still paying premiums but not using as many services -- don't sign up for health coverage when open enrollment starts later this fall, Laszewski said. Health insurance companies would need those premiums to help offset the most expensive individuals it would have to cover.

In addition to the controversy over the preexisting condition plan, there is widespread debate occurring over whether the ACA would increase costs for consumers in the form of dramatically higher premiums.

Premiums in the individual markets will increase in most states anywhere from 30% to 40% or possibly even double starting next year, according to a report released this week by the Republican staffs of three Congressional committees. It says the higher costs will mostly impact young adults and working families who won't reap the benefits of the ACA's premium subsidies to help them purchase coverage in state exchanges.

The congressional report compiled data from more than 30 studies and analyses -- mostly those written by conservative think tanks or commissioned by insurance companies -- to make its estimates.

"At a time of negative economic growth and sluggish job creation, middle class families are struggling to make ends meet," the report stated. "Higher healthcare premiums are the last thing single young adults and working families can afford."

The drivers of the cost increases are the ACA's mandate that individuals purchase health insurance, the law's essential health benefits which requires plans to cover a minimal coverage in 10 broad areas, and the bevy of new taxes and fees on insurance plans, drugs, and medical devices, according to the report.

The more liberal Urban Institute released its analysis of the health reform law's noted 3:1 ratings band. The band means that insurance companies can't charge seniors more than three times what they will charge someone in their 20s for the same coverage in the non-group market.

The report admits premiums will be higher for young adults and families, but asserts that the out-of-pocket costs are overstated. The authors point out that enrollees may be able to take advantage of expanded Medicaid coverage (if they qualify) or the ACA's premium subsidies -- a point directly disputed by this week's congressional Republican report.

"While the ACA will increase costs for young adults and families purchasing such coverage, the out-of-pocket implications of this provision have frequently been over-stated," the Urban Institute report stated.

Opponents of the ACA say the penalty for opting out of the law's mandated coverage is far less than that of paying health insurance premiums, and that many will do without coverage and take the financial hit from the penalty instead.