In a July 2 op-ed, University of Minnesota economist Stephen Parente painted a grim picture for future premium increases in the Affordable Care Act both nationally and in Michigan (“In Michigan, Obamacare’s future is bleak”). However, these findings diverge significantly from other forecasts and are difficult to square with early evidence of the effects of the ACA.
Dr. Parente identified the expiration of the reinsurance and risk corridors programs in the ACA as a primary cause of future significant premium increases. The reinsurance and risk corridors programs are both temporary, three-year programs designed to help stabilize and smooth the development of the new health insurance marketplaces. The reinsurance program provides financial protection for insurers, since they are more likely to sign up high-cost members during the first few years of the marketplaces. The risk corridors program provides support to insurers in setting premium prices for new members that they know little about.
Whether the expiration of these programs in 2017 will lead to large premium increases is up for debate. The reinsurance program provides the most support in 2014 and tapers off in 2015 and 2016. As insurers gain more experience with their new customers, their ability to accurately set premium rates should improve, decreasing their reliance on the risk corridors program. Dr. Parente projects that average premiums for silver plans in Michigan will increase 4.2 percent in 2016 and 6.4 percent in 2017.
Is this a huge increase? With many health reform issues, context is important. According to recent research from the Commonwealth Fund, average national premium increases in the individual market were 10.8 percent in 2009, the year before the ACA was passed into law.
Dr. Parente assumes that insured Americans will be very sensitive to these price increases and will choose to drop coverage altogether, even if they receive a subsidy from the ACA to cover a portion of their premium costs. However, this projection differs significantly from the nonpartisan Congressional Budget Office. By 2024, Dr. Parente projects that 40 million Americans will be uninsured, compared to CBO’s projection of 31 million. Unfortunately, he does not explain why his estimates differ so much.
The outlook in Michigan is even worse in Dr. Parente’s model, with Michigan’s uninsured population predicted to never fall below its pre-ACA total of 1.2 million. However, this prediction is difficult to harmonize with growing evidence of strong enrollment in Michigan. According to the Urban Institute, Michigan had one of the highest enrollment rates in the health insurance marketplace, exceeding 2014 projections by 44 percent. In addition, Michigan has already met its first-year enrollment goal of 322,000 people in the Healthy Michigan Plan (Medicaid expansion) in less than four months. While we do not yet know how much this has decreased the uninsured population, it has certainly had some effect.
Forecasting the future of a complex law, like the Affordable Care Act, is a major challenge, and reasonable people can disagree about the law's prospects. Dr. Parente’s concerns about future premium costs are also well noted. However, Dr. Parente's predictions do not yet represent a consensus among economists, and within the proper context, some of his findings do not match his dire rhetoric.
Josh Fangmeier, health policy analyst, Center for Healthcare Research and Transformation at the University of Michigan