The coming storm: Higher rates

Published 12:00 am Saturday, July 25, 2015

Had the U.S. Supreme Court ruled against the poorly-named Affordable Care Act in King v. Burwell, almost 500,000 Alabamians could have been spared the cost of the program’s individual mandate. Premiums for a healthy 21-year-old would have dropped by almost $700 a year, and by more than $2,000 annually for a 64-year-old, according to estimates by the Manhattan Institute. These savings total hundreds of millions of dollars that could have been spent or invested elsewhere. However, with the ACA intact, the next phase of the law will soon be felt soon in Alabama and every other state in the nation.

First on the horizon is higher health insurance premiums for almost 200,000 Alabamians. One of the reasons Blue Cross and Blue Shield of Alabama has filed plans with the Center for Medicare and Medicaid Services and the Alabama Department of Insurance to raise premiums an average of 28 percnet for individual plans and 13.8 percent for small businesses in 2016 is because the number of doctor and hospital visits made by members last year–and the attendant costs for medicine and medical procedures–was much larger and more expensive than expected. Providers like Blue Cross and Blue Shield also have to continue paying ACA fees and taxes in 2016, at a cost of about $125 million per year. Because the ACA bans insurers from charging individuals on the basis of their health risks, everyone who currently pays into the system has to pay more to cover the elderly and the sick.


As premium prices rise, full-time job openings with health benefits will become increasingly scarce. According to data from the nonpartisan Congressional Budget Office, as businesses hire fewer full-time employees and reduce the hours of hourly employees to avoid the expenses of providing health care, the pace of job creation in Alabama will slow by between 155 million and 207 million fewer job hours from 2017-2022. That’s almost $2 billion worth of paid work hours that Alabamians will lose because of the ACA.

Private-sector businesses aren’t the only ones trying to scale back costs in order to stay in business; state and local governments are also feeling the repercussions of offering decades of generous benefit plans. Starting in 2018, the Affordable Care Act’s staggering 40 percent excise tax will be applied to every extra dollar spent on employer-sponsored health plans deemed “too generous.” Because government health care plans cost almost 18 percent more on average than those in the private sector, many states are scrambling to keep their premiums under this “Cadillac tax” threshold by increasing the amount their employees pay for coverage, as well as raising deductibles, limits, and the patient cost of prescription drugs.

Spending more for health care might be easier to swallow if there was evidence that it was leading to better outcomes for the elderly and poor. Unfortunately, this isn’t true. Between 2013 and 2022, the ACA will sap $716 billion from Medicare–funds that would have gone to doctors and hospitals–to pay for other parts of the program. Faced with less revenue, health care providers will have no choice but to reduce services, shift the cost to private payers, or withdraw from Medicare altogether. The doctors in Alabama who continue to see Medicare patients will receive 21 percent less in reimbursements than in 2014 and almost 37 percent less in primary care fees for Medicaid patients. With more state-subsidized patients to see and less compensation to care for them, 57 percent of doctors are pessimistic about the future of medicine in America; six of every 10 plans to retire early, according to a 2013 survey by Deloitte Center for Health Solutions.

The ACA’s reach even extends to life-changing medical devices. By taxing the manufacture and import of surgical tools and items such as knee and hip replacements, healthcare becomes more costly for the patients who need them to return to their formerly active lives.

While the King v. Burwell decision was celebrated as a win for the Obama Administration, the ACA’s higher costs and fewer choices in health care are bipartisan consequences. The growing left-wing opposition to the impending “Cadillac tax” signals that the law may continue to decline in popularity with its original support base as each new phase of implementation brings new awareness of the Act’s exorbitant costs.

John Hill is a senior research analyst for the Alabama Policy Institute (API).