One of the most significant changes made by the Affordable Care Act (ACA) was in the individual health insurance market, where the law eliminated the traditional medical underwriting processes and required health carriers to accept all applicants, regardless of their health conditions. The impact of these changes on the cost of individual health insurance has been hotly debated, but until now, the debate has been speculative due to the lack of actual claims data. The July update on the S&P DJI Healthcare Claims indices provides the first credible claims based evidence showing the impact of the ACA changes on the cost of individual health insurance.
Since 2010, the annual rate of increase in health care claim costs (claim trend) has been steady at approximately 5% or less for group (employer) health coverage, while individual claim trends have been in the 5% to 10% range. For the first three months of 2014, the group trends have shown a slight decline, while the claim trend for individual coverage has increased to over 15% on an annualized basis. The increase in year over year claim costs for individual coverage is consistent when costs are broken down by type of service. For example, the S&P DJI July index trend for prescription drugs is over 30% for individual coverage (versus about 5% for group coverage) and the trend for professional services is above 10% (versus a 0% or negative trend for group coverage). This divergence in cost trends between group and individual health insurance has not been seen previously and is almost certainly due to the ACA changes.
The S&P DJI index trends are particularly timely, since the health insurance carriers are preparing to finalize their 2015 rates for individual coverage during August. The concern that the carriers must address as they prepare their 2015 premium rates for the public exchanges is at what level the emerging claim trends will stabilize and how those trends will impact their financial position.