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A Project of The Annenberg Public Policy Center

Health Insurance Premium Spin

A new analysis on the Affordable Care Act prompts Republicans and the White House to trade misleading claims about the law’s impact on insurance premiums. Predictably, one side says they’ll go up; the other says they’ll go down. But both are stretching the facts, just as they’ve been doing since 2010, before the law was even enacted.

The latest spin comes from the majority staff of the House Committee on Energy and Commerce, which published a report in March that wrongly said the Society of Actuaries “estimates an average premium increase of 32 percent in the individual market.” The analysis published by the actuaries specifically said it wasn’t giving an estimate on premiums. The Republican line was picked up by two conservative groups, the National Taxpayers Union and the Conservative 50 Plus Alliance.

The White House, meanwhile, repeated a misleading claim that average premiums will go down “for the same benefits that are being provided.” This twisted claim is based on a Congressional Budget Office report that said average premiums would go up for the individual market.

Republicans Spin New Report

Let’s start with the Republican claim: It refers to a March analysis sponsored by the Society of Actuaries — a professional organization for actuaries, most of whom work for the insurance industry — and conducted by the Lewin Group, a subsidiary of UnitedHealth Group that operates independently of the health care company. The report looked at what may happen to the individual market, which will see plenty of change as a result of the Affordable Care Act.

Not much will be different as the law is put into place for those who get insurance through their employers, and that’s the bulk of Americans. The Society of Actuaries/Lewin Group report estimates that those with employer-based insurance will decline by 2 million because of the law, for a total of 155 million people. That’s similar to estimates made by the Congressional Budget Office.

However, new minimum benefit standards will mean more generous insurance plans for many of those who buy health coverage on their own on the individual market, which has been able to offer cheap, bare-bones plans. Plus, tens of millions of people will join this market through state-based exchanges — 21 million, according to the Lewin analysis.

The analysis estimated that for the individual, or nongroup, market, the “cost per member per month will increase 32 percent under ACA, compared to pre-ACA projections.” But that’s costs for insurance companies, not an increase in premiums. In fact, the report didn’t attempt to estimate what the change might be in premiums.

Instead, it said: “We focused only on the changes in allowable costs. Actual premiums will vary for each insurer based on many factors which are beyond the scope of this report, since each insurer will have different circumstances and strategies with regard to competition.”

So, the additional competition that will come with new business through the exchanges will affect how insurers price their plans. The report also says there will be risk mitigation, designed to shift funds among health plans to decrease the unknown risks for insurers, as so many new customers of varying health statuses join the exchanges.

Republicans have a point: It’s true that insurers, like any other business, could pass along any increased costs to customers, in this case policyholders. So if costs go up, premiums would likely go up. But again, the report doesn’t attempt to give an estimate for premiums. The Congressional Budget Office did give an estimate, saying premiums on the individual market would go up by 10 percent to 13 percent on average, about a third of the figure used by the House GOP committee. But the truth is that no one knows what exactly will happen to premiums on the individual market, as we explained in a recent Ask FactCheck.

Why do the costs for insurers go up? The actuaries/Lewin Group analysis says the increased costs will come from sicker – and therefore more expensive – uninsured individuals, plus those in high-risk pools, who also have health conditions, joining the individual market. The report notes that the costs will vary by state, with states that already limit premium variability based on age or health status – known as community rating – not seeing much of an increase. In fact, their costs could decrease, as “younger and healthier individuals … will enroll due to the reduced cost from the premium subsidies,” the report says. States without community rating will experience an increase in costs as older and sicker individuals who previously didn’t have insurance are able to get it.

It’s the addition of the uninsured and individuals who are currently in high-risk pools that increases insurers’ costs.

Society of Actuaries report, “Cost of the Future Newly Insured under the Affordable Care Act,” March 2013: Our analysis also indicates that while high risk pools generally have few enrollees, the cost per individual is very high. Movement of the high risk pool individuals into the non-group Exchange will generally create a significant increase in cost. However, it can be reasonably argued that proportionately more uninsured individuals will have similar risks in states that had relatively small high risk pools.

The report says that there would be some savings because the uninsured would have access to primary and preventive care that they didn’t use before. But it says those savings would be more than offset by increased use of other care.

Senate Minority Leader Mitch McConnell recently referenced the actuaries report in an op-ed published in USA Today. He correctly said that “insurers could pay an average of 32% more for medical claims.” He went on to say that the costs “will be passed onto those who buy insurance on the individual market in the form of dramatically higher premiums.” But again, the report gave no estimate for premiums, which will vary by state, and also by individual, with, as the report says, younger and healthier people generally seeing premium increases and older and less healthy individuals paying less than the otherwise would have.

McConnell went on to say that the premium increases “will be especially devastating for middle-class families.” But he fails to mention that most of those getting insurance through the individual market as a result of the health care law will do so with the help of federal subsidies. Those with incomes up to 400 percent of the poverty level ($92,200 for a family of four and $44,680 for a single person in 2012) qualify for federal subsidies to help them purchase insurance.

While the CBO said that the average premium per person in the individual market would go up by 10 percent to 13 percent because of the health care law, it added that for most, subsidies would push their costs “well below” what they would have been charged in the absence of the law. In its latest report, the CBO says about 80 percent of an estimated 25 million joining the exchanges by 2023 will receive subsidies.

White House Spins Its Response

When White House Principal Deputy Press Secretary Josh Earnest was asked about the Society of Actuaries report during a press briefing on March 27, he said the law when fully enacted would “result in average premiums that … will be lower in the future than they are today for the same benefits that are being provided.” He cited the CBO as his source.

We wrote about a similar claim in March 2012, when the White House said “families who purchase private health insurance through state-based exchanges could save up to $2,300 on their health care each year.” A January 2011 White House report said families would save that much “in 2014 compared to individual market coverage with the same level of  benefits without the law,” citing a CBO analysis.

But that CBO analysis actually said that premiums on the individual market would go up by 10 percent to 13 percent because of the law, as we’ve mentioned. The catch in the White House’s claim is that it’s talking about “the same benefits.” But plans on the individual market will, overall, have much better benefits because of the law than they do now. That’s why the CBO expects premiums on average to go up.

The CBO did say that the average premium increase would be offset by a larger pool of customers, including healthy folks who would purchase plans due to the requirement to have insurance. But the increase in costs would outweigh those offsets as the plans became much more generous. That’s how the CBO arrives at its estimate of an average premium increase of 10 percent to 13 percent.

In the White House press briefing, Earnest also painted the Lewin report as biased, saying it was “conducted by a health insurance company that’s critical of the Affordable Care Act.” While the Lewin Group is a subsidiary of UnitedHealth Group, it has editorial independence and a solid reputation for nonpartisan research. Its analyses have been cited by both political parties.

The White House has a point, too: One could glean from the CBO report that plans with the same level of benefits (i.e., good benefits) would cost less on the individual market because of the law than they would have otherwise, but those on the individual market largely don’t have those plans now anyway.

Beyond that, no one is actually going to save money compared with what they’re paying now — the estimates pertain to what premiums will cost in the future compared with what they would have cost without the law. And without the law, premiums would still be going up.

— Lori Robertson