Obamacare: Cheaper and Better than Health Insurance pre-ACA

Despite scary media headlines about rising health insurance costs due to the (ACA), this study found that 3 in 4 self-employed adults ages 18-64 paid less after-tax on the ACA Marketplaces in 2014 than they paid in 2012.

Before the ACA, people who did not have insurance through their employers had to buy individual policies. These individual or “non-group” policies were usually more expensive because risks were not shared among a large group. The ACA established Marketplaces that opened in October 2013, where individuals could shop for health insurance, sharing their risk with all other Marketplace shoppers like workers do within a company.

In 2012, the average yearly premium cost $7,968, which increased by $336, or 4.4% in excess of inflation on the Marketplaces in 2014. However both before and after the ACA, different people in different places pay widely different prices. As a result, that 4.4% average increase incorporates a broad range in price changes from a 46% decrease to a 238% increase, with 59% of people paying more in 2014 while 41% paid less. Poorer people were less likely to see prices go down after the ACA, likely because their pre-ACA plans were cheaper, more bare-bones than wealthy people’s pre-ACA plans. Young people ages 18-34 were also the most likely to see prices go up of any age group, likely because the ACA requires insurers to charge all enrollees the same price pulling this younger group to subsidize coverage of older Americans.

Since the self-employed can deduct the cost of health insurance premiums from their taxes, they actually receive a percentage discount equivalent to their tax rate on the sticker price. The ACA also subsidizes premium costs for people earning between 100 and 400% of the Federal Poverty Level (FPL), which further decreases their final insurance price. When comparing the effective post-tax and post-subsidy prices in 2012 to Marketplace prices in 2014, average yearly premiums were $6,222 in 2012 (22% less than the sticker price) and then decrease by 42.3% in 2014 (to $3,591). Overall, 74.3% of people paid less post-tax in 2014 than they did in 2012 for health insurance.

While it is difficult to ignore the story of the person whose sticker price went up 238%, policy makers should highlight the experience of the majority in the short-term and in the long-term work to even out the range of yearly price variations.

commentary by Laura Medford-Davis

Abstract

This article examines the impact of the Affordable Care Act on premiums by 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 establishment 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 bronze plans for less than their prior premiums, though only about a quarter could purchase platinum plans. After taxes and subsidies, the fractions increase to over 85 percent for bronze plans and over half for platinum plans. Heim, BT, et al. JHPPL. 2015; epub PMID: 26195603