Premium cost changes attributable to the Affordable Care Act

February 21, 2014

The Affordable Care Act (ACA) expands health insurance coverage to millions of uninsured Americans and introduces several reforms to the health insurance market, particularly for people who purchase coverage on their own or receive it through employment at a small business. These reforms standardize benefits, limit insurance rating practices, prohibit coverage denials, limit out-of-pocket costs, and levy new taxes on health plans. These reforms primarily apply to non-grandfathered qualified health plans, sold on and off the marketplace, beginning in 2014. Combined with other ACA provisions already in effect, these reforms mean that some people in the individual and small group insurance markets looking for coverage on the new health insurance marketplaces will experience significant increases in premium costs for coverage and others will experience significant reductions.

Prior to the ACA’s passage in 2010, the Congressional Budget Office estimated that the ACA’s effects on average premiums—before subsidies are considered—would be an increase of 10 to 13 percent in the individual market and a range between a 2 percent decrease and a 1 percent increase in the small group market. In practical terms, however, the ACA’s impact on premium rates varies so widely from individual to individual and from small group to small group that the average impact is largely irrelevant to case-by-case experiences and perceptions. Compared to the pre-ACA environment, older people and small firms with disproportionately older, unhealthy workers will generally see lower premiums under the ACA, while young people and firms with predominantly younger workers will experience higher premiums (before considering the subsidies that apply to many in the individual market).

This expectation led to concerns that the young and healthy will experience “rate shock” and financial strain from premium increases. This issue brief describes the ACA provisions most likely to affect premium costs in the individual and small group markets (summarized in Figure 2). In addition to premium cost changes, this brief comments on out-of-pocket health care spending because personal health care spending includes both premiums and out-of-pocket costs.


Suggested citation: Fangmeier, Joshua; Udow-Phillips, Marianne. Premium Cost Changes Attributable to the Affordable Care Act. February 2014. Center for Healthcare Research & Transformation. Ann Arbor, MI.

Special thanks to Jon Linder and Yan Yang.

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