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Actuaries brief explores relationship between Medicaid expansion and premiums

Posted on September 19, 2012 | No Comments

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Implementation Briefs

According to a brief released by the American Academy of Actuaries, state decisions regarding Medicaid expansion could significantly impact premiums for private insurance coverage. The brief found that premiums could increase in states that opt out of the Affordable Care Act’s (ACA’s) Medicaid expansion provision, as well as in those states that do decide to participate.

In states that opt out of the expansion, more people will flock to the new health insurance exchanges. The ACA makes available federal subsidies to people with incomes between 100 and 400 percent FPL to assist with the purchase of exchange health insurance coverage. The brief underlines that in the nonexpansion states, more people will be eligible to obtain such federal subsidies. This lower-income population tends to have higher-than-average health care costs, and thus insurance premiums will likely be higher than initial Congressional Budget Office (CBO) projections. Importantly, these increased premiums reflect the overall premium increase, which includes states that opt into the ACA’s Medicaid expansion.

In addition, without expanded Medicaid coverage in all states, ACA reinsurance would have to be spread among more people obtaining insurance in private plans, which also cause premiums to rise, the brief said. The funding for the reinsurance program is fixed and thus an increase in market enrollees would mean a lower per-enrollee payment. This would also cause a premium increase, according to the brief.

The report also said that federal guidance is necessary to clarify whether federal subsidies would be available to consumers purchasing exchange insurance in the states that both expand Medicaid and establish a Basic Health Plan (BHP). The ACA enables states to use federal subsidies for individuals that fall in the 133 percent to 200 percent FPL income bracket to assist with the purchase of a BHP.

Finally, the brief warned that states that opt out of the Medicaid expansion face a higher likelihood of employer penalization under the Act. Under the ACA, employers with 50 or more employees must pay penalties if any full-time employees receive a federal subsidy to purchase insurance in an exchange. Because employees are eligible to purchase insurance on the exchange only if ineligible for Medicaid and if their employer does not provide coverage, states without expanded Medicaid will put employers at a higher risk of paying such penalties.

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