untitled
Report on Health Reform Implementation
The Impact of the ACA on Premiums:
Evidence from the Self-Employed
Bradley T. Heim
Indiana University
Gillian Hunte
Ithai Z. Lurie
Shanthi P. Ramnath
US Department of the Treasury
Editor’s Note: JHPPL has started an ACA Scholar-Practitioner Network
(ASPN). The ASPN assembles people of different backgrounds (practi-
tioners, stakeholders, and researchers) involved in state-level health reform
implementation across the United States. The newly developed ASPN
website documents ACA implementation research projects to assist policy
makers, researchers, and journalists in identifying and integrating
scholarly work on state-level implementation of the ACA. If you would like
your work included on the ASPN website, please contact web coordi-
nator Phillip Singer at XXXXXXXXXX. You can visit the site at
ssascholars.uchicago.edu/jhppl/.
JHPPL seeks to
ing this important and timely work to the fore in
Report on Health Reform Implementation, a recu
ing special section.
Thanks to funding from the Robert Wood Johnson Foundation, all essays
in the section are published open access.
—Colleen M. Grogan
Abstract This article examines the impact of the Affordable Care Act on premiums
y studying a segment of the nongroup market, the self-employed. Because self-
employed health insurance premiums are deductible, tax data contain comprehensive
individual-level information on the premiums paid by this group prior to the establish-
ment of health insurance exchanges. We compare these prior premiums to reference
silver premiums available on the exchanges and find that exchange premiums are 4.2
percent higher on average among the entire sample but 42.3 percent lower on average
after taxes and subsidies. We also examine which type of exchange coverage would cost
less than the individual’s prior health insurance premiums and find that almost 60 percent
of families could purchase
onze plans for less than their prior premiums, though only
Journal of Health Politics, Policy and Law, Vol. 40, No. 5, October 2015
DOI XXXXXXXXXX/ XXXXXXXXXXPublished by Duke University Press
Journal of Health Politics, Policy and Law
Published by Duke University Press
about a quarter could purchase platinum plans. After taxes and subsidies, the fractions
increase to over 85 percent for
onze plans and over half for platinum plans.
Keywords Affordable Care Act, premiums, self-employed
The Affordable Care Act (ACA), which was signed into law in 2010, made
major changes to regulations in the private nongroup health insurance
market aimed at providing better insurance protection, making insurance
more affordable, expanding coverage, and increasing competition between
insurers. These changes included the establishment of health insurance
marketplaces (state health insurance “exchanges”), through which indi-
viduals may purchase health insurance policies; modified community
ating regulations, which prevent insurance companies from charging
different premiums based on health status; guaranteed issue regulations,
which prevent insurers from excluding anyone because of preexisting
conditions; subsidies for low- and moderate-income families to purchase
health insurance; a mandate for individuals to purchase health insurance o
incur a shared responsibility payment; and a bidding process involving
oth nonsubsidized and subsidized premiums.1 There has been much
conjecture on the impact of the interactive effects of these reforms on
premiums, since premiums in the exchanges affect both affordability fo
nonsubsidized individuals and the cost of subsidies to the government.
In this article, we examine how the premiums offered in the exchanges
compare to the premiums of pre-ACA policies purchased prior to the
establishment of the exchanges by an important segment of the nongroup
health insurance market, the self-employed.
Prior to 2014, except for residents in community rating states, individ-
uals with higher health risks purchasing coverage in the nongroup market
paid higher premiums, received incomplete coverage through exclusions of
preexisting conditions, had higher-than-average co-payments and deduct-
ibles, or were denied coverage altogether (Collins et al. 2011; Giovannelli,
Lucia, and Corlette XXXXXXXXXXIn addition, the market experienced a high
degree of turnover and was subject to adverse selection (Lo Sasso and
Lurie 2009; Lo Sasso XXXXXXXXXX
1. The ACA also includes subsidies for small firms to provide health insurance for thei
employees, the option for states to merge nongroup and small group markets, the incentive fo
states to expand Medicaid to individuals with income below 138 percent of the federal poverty
line (FPL), and mandates for employers with fifty or more full-time equivalents (FTEs) to offe
health insurance.
2. Jessica Vistnes XXXXXXXXXXfinds that 36 percent of those with individual market plans in 2006
were covered for fewer than twelve months.
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Journal of Health Politics, Policy and Law
Published by Duke University Press
Under the ACA, insurance policies offered on the health insurance
exchanges, along with other regulations, are intended to protect high-risk
individuals and those with preexisting conditions against high and rising
premiums. Although plans were allowed to be grandfathered under certain
circumstances, new requirements for minimum benefits increased the com-
prehensiveness of coverage.3 The introduction of progressive tax credits is
intended to make health insurance affordable for low- and moderate-income
individuals, reducing costs for some previously insured individuals and
expanding coverage to those who would otherwise be uninsured. Finally,
the new shared responsibility payment required of all nonexempt uninsured
individuals provides an incentive for uninsured individuals not offered
coverage through an employer to take up coverage in the exchanges.
Many of the provisions in the ACA are expected to affect premiums,
though the direction of the change often differs across provisions. The
implementation of guaranteed issue and community rating regulations,
along with the ban on exclusions based on preexisting conditions, is likely
to draw less-healthy individuals into the insurance pool in the absence of an
individual mandate. This would likely result in an increase in gross premiums,
particularly among those who are in good health, though premiums may
decrease among those who are in poor health, since they no longer have to pay
isk-rated premiums. The minimum benefits mandate would also be expected
to increase gross premiums. However, the individual mandate to purchase
health insurance may draw more healthy individuals into the insurance pool,
which would tend to lower or moderate any increase in premiums. The low-
and moderate-income subsidies lower the net cost of insurance for subsidy
ecipients. In addition, if the low- and moderate-income pre-ACA uninsured
population tended to be healthier than those in the pre-ACA nongroup market,
then these subsidies may also draw healthy individuals into the insurance pool
and lower the gross cost of insurance, though gross premiums would increase
if this group were less healthy. Finally, competition among plans on the
exchange would be expected to lower premiums. Taken together, and because
of their interactive effects, the impact of the ACA on gross premiums is
ambiguous and depends on the relative size of each of these effects.
Though little is cu
ently known about the impact of the ACA on insurance
premiums, some existing studies have examined the impact of prior state-level
health insurance reforms on premiums. Looking at New Jersey, Katherine
Swartz and Deborah W. Garnick XXXXXXXXXXfind that premiums stayed rela-
tively stable following the passage of community rating and guaranteed issue
3. These also include requirements for deductibles, out-of-pocket limits, annual limits, and
lifetime maximum benefits and maternity benefits and behavioral benefits.
Heim et al. - Report on Health Reform Implementation 1063
Journal of Health Politics, Policy and Law
Published by Duke University Press
egulations, while a later evaluation by Alan C. Monheit et al XXXXXXXXXXfound
that premiums had increased by a factor of 2 or 3 compared to their initial
levels, consistent with the expected effect of these regulations noted above.
The 2006 health care reform in Massachusetts contained many provi-
sions that are similar to those in the ACA, and so the expected direction of
its effect on premiums is similarly ambiguous. Amy M. Lischko and
Kristin Manzolillo XXXXXXXXXXuse America’s Health Insurance Plans data from
2004, 2006–7, and 2009 and find that the average premiums in the Massa-
chusetts nongroup market increased between 2004 and 2006–7 and then
dropped between 2006–7 and 2009,
inging single coverage back to 2004
levels, with somewhat higher levels for families. During the same period,
premiums nationwide increased, and so the 2004–9 average premium
changes may suggest that Massachusetts experienced a relative decline
in average premiums. However, John F. Cogan, R. Glenn Hu
ard, and
Daniel Kessler XXXXXXXXXXuse data from the Medical Expenditure Panel
Survey’s Insurance Component and find that insurance premiums fo
firms with fewer than fifty employees in Massachusetts increased relative
to other states. John A. Graves and Jonathan Gruber XXXXXXXXXXreexamine
oth sets of data and argue that there was no statistically significant change
in group premiums, while nongroup premiums declined relative to the
national average.
Before the passage of the ACA, a number of studies estimated the impact
of the act’s provisions on the premiums that individuals would face. Given
the complex and interactive nature of the components of reform, it is perhaps
not surprising that predictions varied widely. On the low end of estimates,
the Congressional Budget Office XXXXXXXXXXestimated that premiums would
decrease by 7–10 percent due to administrative cost savings and decrease by
an additional 7–10 percent because of take-up by uninsured individuals who
were assumed to be healthier than the pre-ACA nongroup market partici-
pants. However, they estimated that these decreases would be more than
offset by the ACA minimum benefit requirements, resulting in a 10–13
percent increase in nongroup premiums overall. On the high end, Jason Grau
and Kurt Giesa XXXXXXXXXXpredicted an increase in premiums of 53 percent, at
least partially driven by their assumption that the pre-ACA uninsured pop-
ulation was less healthy than those in the pre-ACA nongroup market, while
PricewaterhouseCoopers XXXXXXXXXXpredicted an increase of 49 percent, driven
y the assumption of a weak individual mandate leaving healthy individuals
outside the insurance pool. In addition to these studies, numerous analyses
were done examining the impact of the ACA on premiums at the state level.4
4. America’s Health Insurance Plans XXXXXXXXXXsummarizes the results from many of these studies.
1064 Journal of Health Politics, Policy and Law
Journal of Health Politics, Policy and Law
Published by Duke University Press
Since the establishment of the health insurance exchanges and offering
of policies beginning in October 2013, numerous anecdotes have appeared
in the popular press about changes in health insurance premiums, but little
systematic analysis has been performed to examine whether these anec-
dotes are representative of the population as a whole. The US Department
of Health and Human Services (HHS) found that premiums offered on
the exchanges were 16 percent lower than expected (HHS/ASPE 2013),
though Avik Roy XXXXXXXXXXestimates a 41 percent average increase in pre-
miums, with higher increases for young adults. The paucity of studies is
largely due to the fact that no publicly available panel data contain infor-
mation on how premiums have changed for those who were previously
uying nongroup insurance.
In this article, we use confidential tax data that for a particular subset of
purchasers in the nongroup market—the self-employed—contain infor-
mation on health insurance premiums from policies that were purchased