The ACA, Utilization, and Premiums

An overlooked aspect of the ACA (at least, I've not seen anyone talk about this specifically), is what will happen to utilization. In a letter to employees about our 2014 benefits, the following comment was made: "However, premiums are directly affected by utilization and, as determined by our actuaries, utilization increased requiring the increases that we have implemented." That is specifically talking about why our insurance premiums are increasing.

But, that statement encompasses a more general central truth in insurance. Premium levels are set to cover the costs of utilization, or the amount that the insurer will have to pay out in claims. Think about auto and home owners insurance policies. Everyone knows that if you have a bunch of claims, your rates go up. This is because you are more expensive to insure. This also explains the popularity of "good driver" or "accident forgiveness" discounts. If you have a track record of low or no claims, they're "making money" on your policy, so they can afford to overlook one bad act.

Now, extend this thought model to health insurance and the ACA. A significant number of people who either had catastrophic plans or had no insurance at all will now carry insurance per the individual mandate. One of the core basket of services are annual check-ups/physicals, at no cost to the policy holder. Please notice I didn't say "free", as the physician will still be reimbursed for their time. I don't know about you, but if my policy says I'm entitled to something, I'm most likely going to get it or use, especially if it's "free".

So you will now have this spike in utilization. Imagine what this will do from a supply and demand perspective. Demand (for physician services) will increase, and supply is fairly static, and may actually be decreasing as doctors change how they run their practices. This means that you will wait longer for appointments, and delays will inevitably increase. So there will be a negative impact just on being able to see your doctor.

And now back to my primary point. "[P]remiums are directly affected by utilization." Utilization is going to increase. After a year or two of solid actuarial data, what do you think will necessarily happen to policy premiums?

In other words, if you think the ACA plans are expensive now, you ain't seen nothing yet.

The LORD bless you and keep you; the LORD make his face to shine upon you and be gracious to you; the LORD lift up his countenance upon you and give you peace.
Numbers 6:24-26 (ESV)