Affordable Care Act Will Increase Cost of Insurance Claims by 32 Percent, Study Says

Laura Lopez, left, checks the blood pressure of Santos Aguilar Wednesday, Jan. 23, 2013, at the Street Level Health Project in Oakland, Calif. (AP Photo/Ben Margot)

President Barack Obama's health care overhaul could mean an increase in your insurance premium.

A new study shows insurance companies will have to pay out an average of 32 percent more for medical claims on individual health policies under the new health law.

The numbers come from the Society of Actuaries and could turn into a political headache for the Obama administration at a time when much of the country remains skeptical of the Affordable Care Act.

The administration is questioning the study, saying it doesn't give a full picture — and costs will go down.

Actuaries are financial risk professionals who conduct long-range cost estimates for pension plans, insurance companies and government programs.

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The study says claims costs will go up largely because sicker people will join the insurance pool. That's because the law forbids insurers from turning down those with pre-existing medical problems, effective Jan. 1. Everyone gets sick sooner or later, but sicker people also use more health care services.

"Claims cost is the most important driver of health care premiums," said Kristi Bohn, an actuary who worked on the study. Spending on sicker people and other high-cost groups will overwhelm an influx of younger, healthier people into the program, said the report.

The Obama administration challenged the design of the study, saying it focused only on one piece of the puzzle and ignored cost relief strategies in the law, such as tax credits to help people afford premiums and special payments to insurers who attract an outsize share of the sick.

The study also doesn't take into account the potential price-cutting effect of competition in new state insurance markets that will go live Oct. 1, administration officials said.

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

Sebelius said the picture on premiums won't start coming into focus until insurers submit their bids. Those results may not be publicly known until late summer.

Another striking finding of the report was a wide disparity in cost impact among the states.

While some states will see medical claims costs per person decline, the report concluded that the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.

Part of the reason for the wide disparities is that states have different populations and insurance rules. In the relatively small number of states where insurers were already restricted from charging higher rates to older, sicker people, the cost impact is less.

The report did not make similar estimates for employer plans that most workers and families rely on. That's because the primary impact of Obama's law is on people who don't have coverage through their jobs.

A prominent national expert, recently retired Medicare chief actuary Rick Foster, said the report does "a credible job" of estimating potential enrollment and costs under the law, "without trying to tilt the answers in any particular direction."

"Having said that," Foster added, "actuaries tend to be financially conservative, so the various assumptions might be more inclined to consider what might go wrong than to anticipate that everything will work beautifully."

Bohn, the actuary who worked on the study, acknowledged it did not attempt to estimate the effect of subsidies, insurer competition and other factors that could offset cost increases. She said the goal was to look at the underlying cost of medical care.

"We don't see ourselves as a political organization," Bohn added. "We are trying to figure out what the situation at hand is."

On the plus side, the report found the law will cover more than 32 million currently uninsured Americans when fully phased in. And some states — including New York and Massachusetts — will see double-digit declines in costs for claims in the individual market.

Based on reporting by the Associated Press.