No Medicaid Expansion = Higher Health Insurance Premiums

The Rand Corporation has published a study of the predicted effects of the Affordable Care Act (ACA) on private insurance markets in 2014. Like several other recent reports, they conclude that the claims of ACA opponents that insurance premiums would increase dramatically are not justified. However, one aspect of their report is of special interest to Pennyslvanians. It concerns the effect of Governor Tom Corbett's decision not to expand Medicaid on the costs to those Pennsylvanians who purchase their health insurance as individuals—that is, who do not purchase health insurance through their employer. First, let's review a few facts.

• The ACA expands eligibility for Medicaid to all legal residents whose income is less than 138% of the federal poverty level (FPL). Medicaid is administered by the states. However, the federal government will pay the full cost of Medicaid expansion in 2014. The feds' share declines to 90% by 2020.
• The Supreme Court ruled that the ACA's Medicaid expansion was coercive, and that states can decide whether or not to expand eligibility for Medicaid beyond their current limits. Governor Corbett has announced that Pennsylvania will not participate in Medicaid expansion.
• Pennsylvania is currently one of the least generous states in providing Medicaid. Adults only qualify for Medicaid if they earn less than 46% of FPL. Children under six are covered up to 133% of FPL, and older children up to 100% of FPL.
• To encourage people to buy private insurance, the ACA provides subsidies, known as advance premium tax credits, to people making between 100% and 400% of FPL. The lower their income, the greater the subsidy.
• This means that Pennsylvanians making between 46% and 100% of FPL are screwed. No Medicaid and no subsidy means that most of them will be uninsured. They will simply die at a higher rate than they would if Medicaid were expanded. (See my earlier series of four posts for estimates of the effect of Corbett's decision on mortality in Pennsylvania. Here's part 1.)
• However, people making between 100% and 138% of FPL will be eligible for fairly generous subsidies. Many of these folks are currently uninsured. It is anticipated that most, though not all, of them will purchase private insurance.

The Rand study looked at the effect of the entry of this group—people between 100% and 138% of FPL—into the non-group private insurance market. They analyzed it in three states, Florida, Louisiana and Texas, chosen they said because these states were least likely to expand Medicaid. Rand estimates that the effect of rejecting Medicaid expansion in these will be to increase private insurance premiums by 8-10%. There are two reasons for this:

1. Extensive research shows that there is a positive relationship between income and health. The higher your income, the healthier you tend to be. Thus, people between 100% and 138% of FPL are sicker than the average adult and will require more medical care. This will drive up insurance premiums for everyone in the risk pool.
2. Not all of the people between 100% and 138% will try to buy insurance. Some will decide they can't afford it, even with the subsidy. When not everyone purchases insurance, adverse selection occurs. Adverse selection refers to the fact that sicker people are more likely than healthy people to buy health insurance. This adds further to insurance costs.

Rand is confident that premiums will go up, but admits that their estimate of 8-10% is uncertain, primarily because it's hard to predict what percentage of the people between 100% and 138% of FPL will purchase insurance. Unfortunately, they didn't include Pennsylvania in their analysis. My guess is that our premium increase will be less dramatic because we have a slightly lower percentage of poor people than the three states they analyzed.

You may also be interested in reading:

Tom Corbett to PA's Working Poor: “Drop Dead!” (Part 1) (See all four parts.)

Medicaid Expansion Update