How the Affordable Care Act Affects Your Health Insurance Costs

How the Affordable Care Act Affects Your Health Insurance Costs

How the Affordable Care Act Affects Your Health Insurance Costs American Institute for Economic Research 250 Division Street Great Barrington, MA 01230 413.528.1216 aier.org

How the Affordable Care Act Affects Your Health Insurance Costs Contents 01 02 Introduction 7 Understanding Health Insurance and the ACA 9 Why the ACA 9 How Health Insurance Works 10 How the ACA Affects Premiums, Deductibles, and Out-of-Pocket Costs 15 03 Who is Affected by the ACA s Insurance Provisions? 23 Large Group Plans 26 Small Group Plans 27 Individual Market Plans 27 Medicaid-Eligible and the Coverage Gap 28 Medicare 28 04 An Uncertain Path to Success 31 05 Guide to the Affordable Care Act 35 Individual Market 35 Small Group Market 38 Large Group Market 40 Medicaid 42 Medicare 43 Glossary of ACA Terms and Definitions 45 Appendices A and B 51 Methods 61 Bibliography 67 How the Affordable Care Act Affects Your Health Insurance Costs 5

Authors: Stephen J. Adams, Acting Director of Research and Education; Jules Clark, Research Analyst; Luke Delorme, Research Fellow; Nicole Kreisberg, Senior Research Analyst Editor: Marcia Stamell Design: Patricia Rotondo Acknowledgements AIER benefited from the advice and cooperation of numerous individuals including Jeyaraj (Jay) Vadiveloo PhD, FSA, MAAA, CFA, Professor and Director, University of Connecticut Goldenson Center for Actuarial Research and his team: Mark Spong, Nehal Sapre, and Pete Camacho. AIER would also like to thank Nancy Trumbull, Harvard School of Public Health; Nancy Kane, Harvard Business School; Marilyn Tavenner and Teresa Miller, the Centers for Medicaid and Medicare Services of the U.S. Department of Health and Human Services; Ryan Lore, Towers Watson; and Daniel Okwaisie, AIER intern. All analysis and any errors or omissions are the responsibility of AIER.

01 Introduction The Patient Protection and Affordable Care Act, better known as the Affordable Care Act (ACA), has dominated the news unlike many other government initiatives in recent U.S. history. Even before its adoption by a Democratic-controlled Congress and President Barack Obama in March 2010, the ACA was generating a heated partisan debate about its likely costs and benefits. The act s largely Democrat supporters argue that the ACA will make affordable, quality health insurance available to all US citizens. They also claim that increased competition in the individual insurance market fostered by the ACA will reduce costs and improve the quality of health care. The act s largely Republican detractors view the ACA as an unwarranted government intrusion into individual choice and a deeply flawed program that will increase health insurance costs, reduce access to quality health care, and create unsustainable government entitlements. The ACA and Insurance Costs The ACA provisions that affect insurance costs for individuals are being implemented over a number of years. Many of the core elements of the law became effective in 2014. However, some provisions relating to employer mandates and some individual insurance requirements are being delayed by the Obama administration until 2015 and 2016. Other provisions do not become effective until 2018. The ACA affects health insurance premiums and out-of-pocket costs in three principal ways. The law imposes mandates on individuals, insurers, and employers. It requires minimum coverage standards and caps out-of-pocket costs across all 50 states. It provides federal subsidies for premiums, out-of-pocket costs, and Medicaid expansion. We expect the combined effect of these features to increase premiums for many millions of people and reduce premiums for many millions of others. Many people will be required to purchase more coverage than they prefer, potentially increasing their costs. Some people will pay more for the same amount of coverage before the ACA. Others will purchase coverage they could not buy at any price before the law because of a pre-existing condition. At the same time, the broader coverage and limitations on out-of-pocket costs will reduce the out-of-pocket costs many will pay in the event that they need health care services. Prior to the ACA, out-of-pocket costs could be very high under individual market plans. No One Knows How Many Will Benefit and How Many Will Not While a number of estimates have been published, there is no simple way to explain how the ACA affects the amount individuals will pay for insurance premiums and out-of-pocket How the Affordable Care Act Affects Your Health Insurance Costs 7

Introduction expenses. There is no straightforward answer to the question of how many gain and how many lose in terms of premiums and out-of-pocket costs in the individual market. There is little reliable or meaningful data on premiums or out-of-pocket costs before the ACA to compare with post-aca costs. How much the law increases or reduces someone s costs depends largely on individual circumstances, especially one s health condition, state of residence, and how much health care an individual uses. It is unknown how many employers will drop or change their health insurance plans in response to the ACA. Companies are affected differently by the ACA depending on their size, location, and insurance plan. There are many theories, but until the law is in place, there is no way to know how many companies will respond or how insurance premiums and other costs will change. We can describe how the ACA affects insurance premiums and out-of-pocket expenses for individuals purchasing health insurance. We can also estimate the number of people in the categories likely to see cost increases or decreases or little impact at all. In this analysis, we examine the likely impacts of the ACA through 2016. Full implementation of the new law extends into 2018, and the impact of the ACA will be felt for years. There many important fiscal, economic, health care quality, and social implications of the ACA; however, these issues are not addressed here. There are many more questions than answers as to how the ACA will affect US citizens insurance costs. This report seeks to offer some context for understanding the shifting health insurance environment over the next two years. 8 American Institute for Economic Research

02 Understanding Health Insurance and the ACA Why the ACA The main provisions of the Affordable Care Act have less to do with the cost of health care than with trying to make health insurance more affordable for those with little or no coverage. Although the ACA includes some provisions intended to control costs, the most immediate impact to consumers will be on premiums and out-of-pocket costs for health care as well as on access to insurance. While the vast majority of people in the United States had health insurance before the ACA, the new law is aimed at people who would not or could not buy insurance. It is also aimed at those referred to as the underinsured, people who have health care coverage that does not adequately protect them from high medical expenses. Prior to the new ACA requirements, nearly 15 percent of the U.S. population, an estimated 46 million in 2012, had no health insurance during most of the calendar year. 1 Three quarters of these uninsured are in families with incomes near or below the federal poverty level ($11,670 for an individual and $23,850 for a family of four in 2014 within the continental U.S.). The remaining uninsured have annual incomes ranging from two-and-a-half to four times the poverty level (between $29,175 and $46,680 for an individual and between $59,625 and $95,400 for a family of four in 2014). Addressing underinsurance is more problematic. The notion of what is considered adequate coverage is inherently subjective. By one measure the number of insured people with outof-pocket costs that exceeded 10 percent of their family incomes there were an estimated 21 million underinsured in the U.S. in 2007. 2 Like the uninsured, the underinsured either feel that better coverage is unaffordable, or they elect to take the chance that they will not have high health care expenses. Most of the population has health insurance Eighty-five percent of the people in the United States, 267 million people, had health insurance in 2012, as shown in Figure 1 on page 11. The largest share, 147 million in 2012, get their health coverage through group plans sponsored by their employers or that of their spouse or parent. These group plans are divided between large groups (firms with 51 or more employees, changing to 101 or more in 2016) and small groups (2-50 employees, increasing to 2-100 in 2016). Large group insurance covered 131 million in 2012, while small group insurance covered approximately 16 million. 1 There are several ways to estimate the number of uninsured in America. Our figures are not a true count, but merely an estimate of the number of people who had no insurance at any time during the past year. For methodology see Methods in the back of this study. 2 Commonwealth Fund Biennial Health Insurance Survey 2007 cited in Cathy Schoen, Sara R. Collins, Jennifer L. Kriss and Michelle M. Doty How Many Are Underinsured? Trends Among U.S. Adults, 2003 And 2007, Health Affairs 2008. How the Affordable Care Act Affects Your Health Insurance Costs 9

Chapter 2 The government is the next largest source of health insurance in the U.S. Fully 49 million people, or 16 percent, are covered by Medicare, the federal health program for Americans who are aged 65 and older. Medicaid, a joint federal and state program for low-income people, provided health coverage for 46 million people, or 14 percent of the U.S. population, in 2012. 3 Five percent of the people in the United States, 16 million people, purchased insurance directly from insurance providers in the individual market. This is where the ACA is likely to have most significant immediate effects on premiums and out-of-pocket costs. How Health Insurance Works Health insurance in America is exceedingly convoluted. Even before the ACA, health insurance was already heavily regulated by countless federal rules and is also subject to state regulation, resulting in different cost and benefit structures across the country. To understand how the ACA affects insurance costs, it is necessary to understand some of the basics of how health insurance works and how it was regulated before the new law took effect. The Basics Insurance is essentially a gamble. People who buy insurance pay a premium on the chance that they will need to use expensive health care services and that the cost of insurance will be far less than the cost of health services. People tend to buy the minimum amount of coverage they think that they will need. This, too, is a gamble because it is hard to predict how much health care someone will need in the course of a year. Insurance companies pool risks by covering a large number of people, calculating that premiums paid by the entire customer base will cover the costs of the few that actually need medical care. To further increase the chance that premiums will cover costs, insurers traditionally apply risk factors, or medical underwriting standards, to calculate premiums. People with factors that increase their chance of using health care services paid higher premiums than those who are less likely to use services. Young, healthy males, for instance, are less likely to use significant amounts of health services. All else being equal, these people paid lower premiums than older people, women, or those with existing health conditions. Some insurers further reduced their risk by limiting the type of health conditions they would cover, limiting their share of costs, and setting annual and lifetime caps on how much health costs they will cover. Prior to the ACA, insurance companies could and often did deny coverage altogether to individuals with some pre-existing conditions because they believed the cost of the services were certain to exceed the premium. Individual premiums were based on the health care services covered, the cost of those services, and the risk that the purchaser will need to use them. The more services that are covered, the larger the share covered by the insurance company; the higher the risk the individual will use services, the higher the premium. Group Insurance and Guaranteed Issue Most people in the United States get their insurance through employer-sponsored group plans. 3 Three percent of the U.S. population gets coverage through federal health care programs such as Child Health Insurance Program, TRICARE, Indian Health Service, and the Veterans Assistance Program. 10 American Institute for Economic Research

Understanding Health Insurance and the ACA FIGURE 1 Pre-ACA Health Care Coverage IHS 0.2% VA/TRICARE 3% Small Group 5% Large Group 42% Individual 5% Medicaid 14% Uninsured 15% 16% Medicare AIER Estimates of 2012 census and the 2012 Medical Expenditure Panel Survey. See Appendix A, Table 1a. How the Affordable Care Act Affects Your Health Insurance Costs 11

Chapter 2 In 2013, 96 percent of firms with more than 50 employees offered insurance and they paid an average of 71 percent of family plan premiums and 82 percent of individual plan premiums. 4 Because they share premium costs with their employer, most people pay much less towards premiums than those who purchase insurance directly from insurers. Under group plans, benefits are structured around the needs of the entire group rather than tailored to the individual. Group coverage, for example, will include maternity services even though some members of the group will never use them. Likewise, premiums are based on the average risk profile of the group rather than that of a single individual. This means that lower-risk group members and higher-risk members pay the same premiums and out-of-pocket costs to cover a broad set of benefits. Moreover, some state laws limited how aggressively insurers can apply medical underwriting to set group plan premiums. Small group plans were generally those with 50 or fewer employees, while large group plans are generally those with more than 50 employees. This will change in 2016, when small groups will include firms with 100 or fewer employees. Small and large group plans are treated differently by the insurance industry and by regulations. Large group premiums are based largely on how many employees participate in a plan and prior claims experiences of the firm. Small group premiums are more closely tied to the health conditions of employees. In general, small group plans are subject to more medical underwriting than large group plans. Depending on the state, premiums can be based on the average age of workers, their overall health conditions and the industry, for example. People covered by group plans enjoy a federal protection referred to as guaranteed issue, established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Guaranteed issue ensures that no small group company can be denied insurance because of a pre-existing condition of an employee, and no employee can be excluded from small group insurance because of a pre-existing condition. In the large group market, insurers could reject a company because of its medical history, but if it offered insurance to a large group employer, no employee can be excluded because of a pre-existing condition. State-by-state regulation Prior to the ACA most health insurance standards in the individual and small group markets were set by each state. As a result, the premiums and out-of-pocket cost of health insurance varied widely depending on the regulatory environment and each individual s health risk profile. The states will continue to regulate the individual and small-group markets under the ACA, but the ACA will place limits on what the states can regulate. On one end of the spectrum are 31 states with no underwriting rating structure for the individual market. In these states, insurance companies had great latitude in setting premiums based on the characteristics of each purchaser. Healthy male customers, for example, could pay much lower premiums than older or sicker or female customers. On the other end of the regulation spectrum, 8 states prohibited almost all medical underwriting and required that individual premiums be based on community rating or the experience of the entire population. Community rating requires that premiums be the same for everyone in the same geography, while adjusted community ratings allow insurers to adjust 4 2012 Medical Expenditure Panel Survey. Agency for healthcare research and quality (AHRQ). 2013 Employer Benefits Survey-Kaiser. 12 American Institute for Economic Research

Understanding Health Insurance and the ACA FIGURE 2 State Rules on Individual Market Premiums Pre-ACA No Rating Rating Bands Adjusted Community Rating Community Rating Source: National Association of Insurance Commissioners. See Appendix B, Table 3. How the Affordable Care Act Affects Your Health Insurance Costs 13

Chapter 2 FIGURE 3 Pre-ACA Small Group Premium Underwriting Standards by State No Rating Rating Bands Adjusted Community Rating Community Rating Source: National Association of Insurance Commissioners. 14 American Institute for Economic Research

Understanding Health Insurance and the ACA premiums for factors like age, gender, or smoking status. In these states, premiums were more equalized among people with different risk profiles. 5 Figure 2 on page 13 shows the variety of premium regulations in the U.S. prior to the ACA. Small group rating rules varied greatly by state as well, as shown in Figure 3 on page 14. Every state except Virginia, Hawaii, Pennsylvania, and the District of Columbia had some form of premium regulation in place before the ACA. These ranged from strict community rating requirements to broad limits on the amounts that insurers can vary premiums. Similarly, prior to the ACA, state requirements also varied for which services and benefits must be included in a health insurance plan. Some states allowed insurers to offer bare-bones plans while others specified a list of benefits that all plans must offer. Self-Funded Group Plans Many large employers self-insure. That is, they pay employee health care costs directly from funds set aside for that purpose rather than purchase a plan from an insurance company. The employer creates an employee pool, allocates and administers the health benefits, and assumes all payment and risk for the employee pool. These are called self-funded plans, and they covered 61 percent of workers who acquired insurance at work in 2013. 6 Large employers typically self-insure some or all of their health plan offerings, while small employers are less likely to selfinsure. Small firms are more vulnerable than large firms to unexpectedly high medical claims incurred by a few employees, so small firms are more likely to purchase fully insured plans and reduce their financial risk. Self-funded plans are regulated differently than those purchased from insurance companies. They are regulated federally by the Department of Labor under the Employee Retirement Income Security Act of 1974 (ERISA), so they are sometimes known as ERISA plans. A selffunded plan does not have to meet all of the insurance laws and requirements imposed by the state. For example, before the ACA, if a state mandated coverage for a specific medical service or treatment, a self-funded plan may not have to provide coverage for that service. 7 How the ACA Affects Premiums, Deductibles, and Out-of-Pocket Costs To increase coverage among the uninsured and reduce the incidence of underinsurance, the ACA makes several changes to the way health insurance plans in the U.S. are structured. These changes include insurance plan standards, mandates, and federal subsidies. There are a number of factors beyond the ACA that will affect plan premiums. These include health care cost inflation and changes in company cost sharing. An analysis conducted for the State of California estimated that factors beyond the ACA will contribute to a 9 percent increase in premiums in that state in 2014. 8 INSURANCE PLAN STANDARDS The ACA requires insurance companies to cover everyone, regardless of previous health conditions. Under the law, insurers can no longer set premiums on each individual s risk profile, 5 Consumer Guide to Group Health Insurance. National Association of Health Underwriters. Accessed at http://www.nahu.org/consumer/ GroupInsurance.cfm. 6 2013 Kaiser Employee Benefit Survey. 7 NAHU, http://www.nahu.org/consumer/groupinsurance.cfm. 8 Factors Affecting Individual Premium Rates in 2014 for California. Cosway, R. and Abbott, B. Milliman. March 28, 2013. How the Affordable Care Act Affects Your Health Insurance Costs 15

Chapter 2 and they cannot deny coverage to high-risk individuals. Instead, they are required to cover everyone who applies in the geography they serve. Insurers can no longer apply medical underwriting standards to set premiums for individual or small group plans. In essence, the ACA applies adjusted community ratings to all states. All providers of individual or small group insurance are now required to set premiums according to the average risk in the overall individual and small group markets of the region in which they sell insurance, adjusted for age, smoking status, and family size. The new law requires all individual plans and small group plans, at a minimum, to include 10 essential benefits. In addition to these specified benefits, these plans must include annual and lifetime caps on out-of-pocket costs for these benefits, described in Chapter 5. The 10 essential benefits are: 1 Ambulatory patient services (outpatient services) 2 Prescription drug coverage 3 Emergency care 4 Mental health services 5 Hospitalization 6 Rehabilitation and habilitation services 7 Preventative and wellness services 8 Laboratory services 9 Pediatric care, including oral and vision care for children under 19 years of age 10 Maternity and newborn care IMPACTS OF NEW STANDARDS ON PREMIUM AND OUT-OF-POCKET COSTS The new requirements to cover everyone and to apply average risk factors are an attempt to increase the benefits of risk pooling for consumers in the individual and small group markets. One result of this risk pooling is that those who benefited from medical underwriting before the ACA, people with low health risk profiles, will likely see higher premiums after the ACA, all else equal. By the same token, those who were disadvantaged by underwriting, people with higher risk health profiles, will see lower premiums. The elimination of medical underwriting means that premiums could change dramatically for many, if not most, purchasers in the individual market. More than 13 million of the 16 million people in the individual market in 2012 and 40 million of the 46 million uninsured live in states that had very limited restrictions on medical underwriting prior to the ACA. 9 These people will see higher or lower premiums depending on their health status and the level of coverage they elect to purchase. The new minimum benefits requirement will also likely cause insurance companies to raise some premiums in the individual and small group markets to account for broader benefit 9 AIER estimates. See Methods. 16 American Institute for Economic Research

Understanding Health Insurance and the ACA coverage. Before 2014, many plans in the individual market were bare-bones plans or plans that did not cover certain services. For example, few small group and individual plans included dental and vision care for children or mental health services, both of which are mandated by the ACA. Insurers will also raise premiums to account for the cost of caps on out-of-pocket costs. Large group plans do not face the same requirements, and large firms have historically offered plans with a broad range of benefits. So they are much less affected by changes in plan standards. However, many people who use health care services for which they now have new coverage, or more generous coverage, will see lower out-of-pocket costs than before the ACA because of minimum benefits and caps on out-of-pocket costs. Because insurers that serve the small group market are no longer allowed to set premiums based on the health status or gender of the employees in covered firms, premiums will see upward pressure in firms with more low-risk workers. At the same time, firms with high-risk workers will see downward pressure on premiums. The degree to which premiums will be affected by these new standards will vary by state because of the range of states regulatory structures in place before the ACA. States with few requirements prior to the ACA are likely to see greater premium increases than those with more controls on premiums and out-of-pocket cost already in place. INDIVIDUAL AND EMPLOYER MANDATES Individual mandate. Under the ACA, everyone not eligible for public programs must now purchase health insurance or pay an annual penalty. Most people will not be affected by this individual mandate because 85 percent already have insurance. Those directly affected include the previously uninsured, those who are dropped from their group plans because their employer decides to eliminate insurance altogether, and the previously insured who decide to drop coverage. 10 Employer mandate. Beginning in 2015 11, all employers with more than 50 workers must offer health insurance to their full-time employees or pay a penalty. The penalty is equal to $2,000 multiplied by the total number of full-time equivalent employees. 12 This mandate will affect smaller firms more than larger firms, because 96 percent of larger firms offered insurance voluntarily prior to the ACA. 13 The ACA expands the small group market in 2016 to include firms with up to 100 employees, and requires that firms with between 51 and 100 full-time equivalent employees offer insurance and include the 10 essential benefits. The combined effect of this change and the mandate for benefits creates a special class of small group employers facing a one-two punch from the ACA. Prior to the ACA, there were approximately 35,000 firms with 51-100 employees, providing coverage to about 13 million individuals. 14 Another 65,000 firms in this category did not provide insurance, but must offer it in 2016 or pay a penalty. The penalty is the same as it is for large employers: $2,000 times the number of full-time equivalent employees. 15 10 The penalty increases over time: 2014 $95 or 1 percent of income, whichever is higher; 2015 $325 or 2 percent of income, whichever is higher; and in 2016 and beyond $695 or 3 percent of income, whichever is higher. 11 The Obama administration has delayed this requirement until 2016 for employers with between 51 and 100 employees. 12 In calculating the employer penalty, the number of employees is reduced by 30. 13 Medical Expenditure Panel Survey, http://meps.ahrq.gov/mepsweb/. 14 AIER estimate. Number-of-firms estimate is based on 2011 Small Business Administration data on firm size. The 115,000 employer firms with between 50 and 100 employees was discounted by 10,000 to account for full-time equivalent calculation. 15 In calculating the penalty the number of full-time employees is reduced by 30. How the Affordable Care Act Affects Your Health Insurance Costs 17

Chapter 2 Small employer mandate. Beginning in 2016, small group employers with 50 or fewer employees are not required to provide insurance, but those that do must comply with the ACA s minimum essential benefits requirement. Only 35 percent of the approximately 5 million firms in this category offered insurance to their employees before the ACA. 16 This mandate will cause many firms to expand their offerings to include dental and vision care for children. The ACA reporting requirements may cause some firms to drop insurance altogether. IMPACTS OF MANDATES ON PREMIUM AND OUT-OF-POCKET COSTS The individual mandate is important to holding down overall premium costs in the individual market. It is designed to ensure that insurance companies gain a large number of new premiumpaying customers from a broad pool of risk profiles. This large pool of additional customers is intended to allow insurers to offer reasonable premiums and still cover their costs. 17 Most large group plans (firms with more than 100 employees after 2016) where the largest number of people in the U.S. get their insurance avoid many of the ACA requirements that affect premiums. They are not subject to the 10 essential benefits requirements, for example. Self-funded plans are further exempt from many other ACA requirements. Sixty-one percent of people in large group plans are in self-funded plans, according to Kaiser s 2013 Employer Benefits Survey. Another category of large group plans that are exempt from most ACA requirements are those considered grandfathered. These are plans in place before 2010 that were not significantly changed thereafter. Because employers tend to change plans or carriers over time to keep costs down, the number of grandfathered plans is decreasing. In 2013, 30 percent of workers in firms with 200 or more employees were in grandfathered plans, a significant drop from 53 percent in 2011. Firms with fewer than 200 workers insure 49 percent of their covered employees with grandfathered plans in 2013, a drop from 63 percent in 2011. 18 The cost of large and small group plans will be affected by the individual mandate. Many of the previously uninsured will join their employer s plan to avoid the federal penalty. This will increase their employer s total benefits costs, some of which are likely to be passed on to employees in their share of premiums. At the same time, some employers are removing part-time workers from their group plans to reduce business costs and to make low-income employees eligible for subsidized insurance through the public exchanges. Premiums for insurance offered through most small group plans will see additional increased pressure from the new minimum benefits requirements of the ACA to cover the cost of expanding benefits. Some employers may decide to drop insurance altogether. Affected employees will be forced into the individual market, where their premiums are likely to be significantly higher. FEDERAL SUBSIDIES Tax credits and subsidies were created to help make premiums and out-of-pocket cost more affordable for low-income U.S. citizens. There are two types of subsidies to help with private 16 Medical Expenditure Panel Survey. 17 The ACA includes a program to protect insurance companies in each state from adverse selection. The risk-adjustment program is intended to transfer funds from plans with a high proportion of low-risk enrollees to those with a high proportion of high-risk enrollees. 18 According to the Kaiser s Employer Benefits Survey, the number of firms with at least one grandfathered plan fell to 54 percent in 2013 from 64 percent in 2011. 18 American Institute for Economic Research

Understanding Health Insurance and the ACA insurance available beginning in 2014. To receive the subsidies, insurance must be purchased on the public exchanges, state-based insurance market places created by the ACA. Premium tax credits reduce the cost of premiums for people with incomes between 100 and 400 percent of the federal poverty level ($11,490 for an individual and $23,050 for a family of four). These tax credits are on a sliding scale so that their value decreases as income increases. People with incomes at 300 percent or above poverty will be eligible for smaller subsidies than lower-income people. Out-of-pocket cost-sharing subsidies are payments directly to insurers that reduce the cost of co-pays and deductibles for people with incomes between 100 and 250 percent of the federal poverty level. Medicaid eligibility. The ACA provides federal dollars to pay states 100 percent of the expansion costs of Medicaid for three years and 90 percent of the costs thereafter. The law anticipated that all 50 states and the District of Columbia would set eligibility for Medicaid insurance to individuals under the age of 65 at or below 133 percent of the federal poverty level. 19 However, the U.S. Supreme Court ruled that states have the option of expanding eligibility or continuing with their existing eligibility standards. As of March 2014, 25 states and the District of Columbia have expanded Medicaid eligibility, while 25 states have not. THE COVERAGE GAP A quirk in the new law and the refusal of some states to expand Medicaid has created a coverage gap for millions of Americans. Because the ACA anticipated that all states would expand Medicaid eligibility, it sets a minimum income level to receive premium subsidies through the public exchanges. As detailed below, in 25 states the maximum income for Medicaid eligibility still falls below the subsidy eligibility level. As a result, approximately 6 million people have incomes that are too low to qualify for insurance subsidies and too high to qualify for Medicaid in their state. 19 The federal poverty level is set by the federal government to indicate the minimum level of income necessary to maintain the basic cost of living. The threshold is 100 percent of the poverty level. According to federal guidelines, any person living below this line is living in poverty. http://aspe. hhs.gov/poverty/13poverty.cfm#thresholds. How the Affordable Care Act Affects Your Health Insurance Costs 19

Chapter 2 Summary of Affordable Care Act Impacts on Insurance Costs BEFORE THE ACA General inflation in the cost of health care services unrelated to the ACA was contributing to rising premiums. Most people in the U.S, 80 percent (251 million) were covered by an employer group plan or a public program. 42 percent (131 million) of people get health insurance through a large group plan. One in three people (104 million) were covered by Medicaid, Medicare, or another government program. Another 5 percent (16 million) bought insurance from their or their spouse s employer s small group plan. 5 percent of people in the U.S. (16 million) bought insurance directly from insurers in the individual market. 15 percent of people in the U.S. (46 million) had no health insurance in 2012. Some felt they could not afford it; some could not purchase it at any price because of a pre-existing condition; and some preferred not to purchase it. About 21 million people had insurance that might be considered inadequate to protect them from catastrophic health care costs. 20 99 percent of all firms with more than 200 employers offer insurance and between 45 and 91 percent of smaller firms offer insurance. 21 AFTER THE ACA General inflation in the cost of health care services and other costs unrelated to the ACA will drive premiums higher. LARGE GROUP PLANS Most people, 89 percent, will continue to get health insurance through an employer s group plan or a government program. This also includes people newly eligible for Medicaid. 13 million will be moved from the large group into the small group market by the ACA, where premiums and costs are more directly affected by the new law. 22 Premiums for most large group plans are likely to experience some increased price pressure related to the ACA. Higher premiums are reflecting the cost of additional employees joining the group plan because of the individual mandate to have insurance. Many part-time workers in large firms, who were eligible for insurance through work, may be dropped from their employer plan. Some will see lower premiums through the individual market with federal subsidies and broader coverage, but the employee will need to pay the full premium without employer share. In 2012, 24 percent of workers (28 million) were part-time. 23 20 Commonwealth Fund Biennial Health Insurance Survey 2007 cited in Cathy Schoen, Sara R. Collins, Jennifer L. Kriss, and Michelle M. Doty How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007, Health Affairs 2008. 21 Employer Benefits Survey-Kaiser.Offer Rates. P. 38. 22 AIER estimates. See Methods. 23 CPS Table 8 accessed at http://www.bls.gov /cps/cpsaat08.pdf. 20 American Institute for Economic Research

Understanding Health Insurance and the ACA SMALL GROUP PLANS Most small group plans will likely face rising premiums pressure because of increased takeup rates among employees, broader benefits coverage required by the ACA, and other new plan requirements. The degree of increase attributable to the ACA depends largely on the regulatory environment in the host state of the employer prior to the ACA. The ACA will move about 13 million people from large group plans to small group plans. Some people who were eligible for insurance through work will lose their insurance because their employer decided to drop coverage altogether. They will have to purchase insurance in the individual market and may or may not be eligible for subsidies depending on their income. Even with subsidies, many will see sharply higher premiums, because they are no longer sharing costs with their employer. It is unknown how many firms will drop insurance because of the ACA. INDIVIDUAL PLANS Of the 16 million people who purchased insurance in the individual market before the ACA, 4 million will be eligible for subsidies, and 3 million will be eligible for Medicaid. Most of the 9 million who do not qualify for a subsidy will see sharply higher premiums because they are required to purchase broader coverage than they purchased before the ACA. Many lower-risk individuals will see higher premiums because they are being grouped with higher risk individuals in the calculation of premiums. Many higher-risk individuals will see lower premiums because they are being grouped with lower-risk individuals in the calculation of premiums. Among people in the individual market, many who actually use health services will see lower costs out-of-pocket than they would have under their previous coverage because the ACA requires broader coverage and sets caps on out-of-pocket costs. Some of the people in the individual market who do not qualify for subsidies will see lower premiums because the ACA combines them with people with lower risk profiles, and premiums cannot be set on the basis of health condition. PREVIOUSLY UNINSURED Of the 46 million previously uninsured, (16 million) qualify for a federal subsidy to help reduce the cost of insurance purchased on new public exchanges, and 13 million qualify for Medicaid. 25 percent of the previously uninsured (12 million) are now required to purchase insurance, but are ineligible for public subsidies because their income is too high. The previously uninsured who were denied insurance because of a pre-existing condition will have access to insurance coverage in the individual market. 5 million previously uninsured people will be too poor to be eligible for subsidies, but not poor enough to qualify for Medicaid. This is because the law anticipated that all states would expand Medicaid eligibility beyond 100 percent of the federal poverty level. However, 25 states have refused to expand Medicaid eligibility standards in line with the law. How the Affordable Care Act Affects Your Health Insurance Costs 21

03 Who is Affected by the ACA s Insurance Provisions? It is very difficult to directly compare pre-aca insurance costs with post-aca insurance costs. The available data to calculate cost changes in individual market premiums is very limited. Moreover, individual and small group insurance plans prior to the ACA were so unique and the variation between plans so great that averaging costs across states and the nation would not be meaningful. The degree to which the ACA affects an individual s insurance costs will depend largely on how and where people acquire coverage. In addition, important elements of the law have been delayed. Many of the decisions by employers and individuals that will affect costs have yet to be made. For these reasons, it is not possible to offer precise figures on how many people will see higher costs and how many will see lower costs because of the ACA. Nor is it possible to offer meaningful estimates of the degree to which people s costs will increase or decrease. We can make rough estimates of how many people are likely to face higher premiums, lower premiums, or little change in premiums. We also can present rough estimates of how many people will be protected from high out-of-pocket costs and how many will not. Summary of Who is Affected The vast majority of people in the U.S. will likely notice minimal, if any, short-term insurance cost impacts as a direct result of the ACA. This is because most people are insured through an employer-sponsored large group plan, Medicaid, or Medicare. These three sources of health insurance are the least affected by the ACA s insurance provisions. Those facing the stiffest potential cost increases are among the roughly 9 million people who purchase insurance in the individual market and do not qualify for federal subsidies and the 17 million previously uninsured who do not qualify for federal subsidies. Most full-time workers who are dropped from their employer-sponsored small or large group plans will likely also face significant increases. This is because these people must purchase insurance in the individual market where they pay full premium costs and lose the employer cost-share. This is not likely to affect a large number because employers who drop insurance will have more difficulty competing for workers. Those likely to see the most cost benefits from the ACA are the 16 million previously uninsured and the 4 million who had purchased insurance in the individual market who now qualify for federal subsidies. In addition, the 16 million people now eligible for Medicaid will see significant cost benefits. People with high-risk health profiles who purchase insurance in the individual market are also likely to see substantial savings. Their premiums will now be How the Affordable Care Act Affects Your Health Insurance Costs 23

Chapter 3 based largely on average health risks of the region in which they live, and they will now receive coverage for services for which they previously had to pay in full. This number of people is unknown. Premiums in some small group plans will benefit from stricter limits on medical underwriting. However, they will also be negatively affected by higher take-up rates by employees and by the additional administrative costs associated with the ACA. The Scope of Impacts on Premiums Figure 4 illustrates how the ACA is likely to affect premiums paid by individuals. 24 As it shows, approximately 230 million in the U.S. who get insurance from a large employer plan or government program (Medicare and Medicaid) will see little noticeable change in their insurance costs directly attributable to the ACA. 25 Most affected by the ACA are those who obtain insurance through the individual insurance market, those who were uninsured before 2013, and those dropped from their group plan by their employers. Many of those covered by small group plans will also see more significant cost impacts. Overall, more than 30 million people will likely see insurance premiums decline or be very inexpensive. These include about 4 million low-income individuals who purchased insurance in the individual market who are eligible for subsidies to help pay for premiums and out-of-pocket expenses. It also includes people another 3 million from the individual market who are now eligible for Medicaid because of the ACA. This group also contains about 29 million uninsured who either are now eligible for Medicaid or for tax credits to reduce premium payments. 26 See Table 1 below for detail. TABLE 1 Individual and Uninsured Eligibility for Public Assistance Programs Eligible for Estimated Eligible Likely Eligible for Medicare for Tax Credits Coverage Ineligible for Pre-ACA Medicaid (Age 65+) and/or Subsidies Gap Gov t Funding Individual 16,170,743 2,670,475 123,673 3,770,553 661,235 8,944,807 Uninsured 46,544,378 13,061,671 414,691 16,136,014 5,183,702 11,748,300 AIER estimates. See appendix B More than 50 million people will pay higher premiums, some sharply higher. 27 These include people purchasing insurance in the individual market who are buying more coverage than before ACA, and those whose premiums are driven up by being grouped with higher-risk people. As many as 9 million people may be forced onto the individual market because they will be dropped by their employer. Most are likely to face higher costs. Even with subsidies, many will pay more than when they shared premium costs with their employer. Roughly 6 million people fall into the coverage gap those with incomes above their state s Medicaid eligibility and below the level required to qualify for ACA subsidies. Those who elect to purchase insurance will likely see steep premium increases. 28 24 The estimates offered here represent the cost effects facing everyone. It does not assume everyone will ultimately purchase insurance. The Congressional Budget Office estimates 25 million will not. 25 AIER estimates. See Methods for Appendices A and B. 26 See Appendix B, Table 2b. 27 AIER estimates. See Methods for Appendices A and B. Some may elect to not purchase insurance and will pay a penalty. 28 Ibid. 24 American Institute for Economic Research

Who is Affected by the the ACA s Insurance Provisions? FIGURE 4 Impact of ACA on Premiums Reduced or Low Premiums ~30 million Newly eligible for Medicaid High risk Eligible for subsidies (100-250% of FPL) Little or No Noticeable Change ~230 million Eligible for subsidies (250-400% of FPL) Medicaid, Medicare, other public plans Group plans (grandfathered and self funded) Large Group fully funded Significant Increase ~50 million Large to Small Group Small Group fully funded Individual no subsidy Dropped from group coverage Medicaid gap Source: AIER estimates How the Affordable Care Act Affects Your Health Insurance Costs 25

Chapter 3 Impacts on Out-of-Pocket Costs These estimates of premium impacts do not consider the lower out-of-pocket costs many health care users will see because of the ACA. The life time cost limits, caps on deductibles and subsidies for out-of-pocket costs established by the ACA will reduce the costs that most people would otherwise pay for out-of-pocket costs of health services. In addition, the minimum benefits standards means that people who would have purchased less generous benefits will now be covered for additional health costs should they need services. Of course, the benefit applies only to those who actually incur health care expenses. Some form of out-of-pocket cost limit established by the ACA applies to almost everyone with insurance, except the roughly 53 million people with grandfathered group plans. Large Group Plans Prior to the ACA, most insured people in the United States (131 million) bought health insurance through large group plans offered by their or their spouse s employer. Because they shared premium costs with their employer, most people also had much lower costs for the same coverage than those who purchase insurance directly from insurers. The ACA does not change this; most people will continue to get health insurance through large group plans and to benefit from shared premium costs. Beginning in 2016, the ACA requires that all large group employers with more than 100 employees provide health insurance to employees working 30 hours or more a week or face a $2,000 annual penalty per eligible worker. Although this rule is new, the impact will not be widespread. Among large group firms, 96 percent provided insurance voluntarily before the ACA. 29 The effect of the ACA on large group plans is further limited because large groups are not required to cover the 10 essential health benefits. Moreover, self-funded plans, which cover over 61 percent of employees in large group plans, are exempt from most ACA requirements that affect their plan costs. Premiums for most large group plans will see some limited upward price pressure. The factor most likely to contribute to premium increases is the cost of additional employees joining the group plan because of the individual mandate to be insured. 30 It is not known how many will join employer plans, but approximately 3 million uninsured people are likely eligible for insurance at work. 31 Employers are likely to share some increases, should they occur, in their premium costs with their employees. Some large group firms may decide to drop coverage altogether despite the penalty, although this number is likely to be small. Employees of firms that do drop coverage will have to purchase insurance in the individual market and may or may not be eligible for subsidies depending on their income. Even with subsidies, these people will see sharply higher premiums because they will no longer share costs with their employer. Some part-time workers who were eligible for insurance through work are being dropped from their employer plan. Firms dropping part-time employees report they are doing so because they believe that part-time employees can get lower cost individual insurance with broader coverage through the public exchanges. 32 It will also lower employer costs. In 2012, 28 million workers 24 percent of the total were part-time. It is unknown how many firms will drop part-time employees from plan eligibility. 29 2013 Kaiser Employer Benefit survey. 30 ACA s Cost Impact: Employer-Sponsored Plans. 2013 Survey Results. International Federation of Employee Benefit Plans. 2013. 31 AIER estimate. See Methods. 32 Retailers Target and Rochester-based Wegman s Supermarkets are two such firms. 26 American Institute for Economic Research

Who is Affected by the the ACA s Insurance Provisions? Small Group Plans Only about 5 percent of people in the U.S., or 16 million, received insurance in 2012 through small group plans offered by their or their spouse s employers. 33 This is because only about 25 percent of all employees worked in firms of 50 or less, and 40 percent of them were part-time and often did not receive benefits. Finally, only about 35 percent of small firms offered insurance to their employees. 34 However, beginning in 2016, the small group market will include businesses with up to 100 employees. This will add at least 13 million people, and likely many more, to the number insured under small group plans. 35 Many of those with insurance through small group plans will see higher premiums, and expanding benefits will raise costs for most plans. Another driver of higher premiums is the individual mandate, which will result in higher take-up rates among employees. As with large group plans, any resulting increase in employer premium costs is likely to be shared with employees. Limits on medical underwriting imposed by the ACA will also affect premiums for the small group. Because insurers are no longer allowed to set small group premiums based on health status, gender, or industry, firms disadvantaged by medical underwriting will see less premium pressure. Those that benefited will see greater premium pressure. The effect of ACA requirements on small group premiums will vary greatly depending on the state in which the firm is located. (See Figure 3 on page 14.) Many small group plans will experience measurable premium increases with the steepest increases felt in states that had permissive underwriting standards. Small group plans in states with underwriting standards closer to ACA requirements likely will see less noticeable premium impacts. As with large group firms, some small firm employees who were eligible for insurance through work will lose coverage because their employer decided to drop coverage altogether. These individuals will have to purchase insurance in the individual market and may or may not be eligible for subsidies. However, even with subsidies, people dropped from small group plans are likely to pay sharply more premium expenses, because they will no longer share premium costs with their employer. It is unknown how many small firms will stop offering coverage to their employees. Individual Market Plans Premium changes in the individual market are driven most significantly by the prohibition against applying most medical underwriting standards in setting premiums, and the requirement that individual plans offer the 10 essential benefits. After the ACA, the number of people purchasing insurance in the individual market will rise significantly from the 16 million people in this market in 2012, the year before the plan went into effect. About 33 million of the uninsured will be required to purchase insurance, and most that do will get it from private plans. About 3 million of the enrollees in 2012 individual market will be eligible for Medicaid and will fall out of the individual market. The ACA has introduced a new element: online insurance exchanges in every state. These 33 AIER estimate. See Methods. 34 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2012 Medical Expenditure Panel Survey-Insurance Component. 35 AEIR estimate. See Methods. How the Affordable Care Act Affects Your Health Insurance Costs 27

Chapter 3 serve as government-run marketplaces where individuals can purchase private health insurance coverage. Some of the exchanges are federally run and others are managed by state governments. Plans offered on the individual exchanges must meet all minimum federal standards but premiums are based on local demographics and costs. Individuals can still purchase insurance that is not offered on the public exchanges. Although these policies must meet ACA standards governing underwriting and essential benefits, they are generally not eligible for subsidies. However, the Obama administration has extended tax credits to eligible individuals who purchased insurance from private brokers during the time that the public exchange in their state was malfunctioning. The biggest increases in premium costs are being felt by the approximately 26 million individuals who are not eligible for subsidies. This is comprised of approximately 10 million of the previously insured, 12 million of the previously uninsured, and 5 million previously uninsured people who are caught in the Medicaid coverage gap. 36 Of the 16 million enrollees in the individual market just before the ACA, 4 million are eligible for some level of subsidy to reduce premiums or out-of-pocket costs. In addition, 16 million of the previously uninsured are eligible for subsidies. 37 Many of these individuals will see lower or very low premium costs. Medicaid-Eligible and the Coverage Gap The ACA anticipated that all states would make Medicaid available to everyone with incomes at or below 133 percent of the federal poverty level. As of February 2014, 25 states and the District of Columbia have expanded Medicaid eligibility consistent with the ACA. As a result, 13 million of the uninsured became eligible for Medicaid, and another 3 million people who bought insurance the individual market also became Medicaid-eligible. Because the ACA anticipated that all states would expand Medicaid eligibility, the law set a minimum income level to receive premium subsidies through the public exchanges. The refusal of some states to expand Medicaid has created a coverage gap for approximately 6 million Americans in 25 states, which includes over 5 million uninsured and approximately 660,000 people who purchased insurance in the individual market. As Table 1 at right shows, the bulk of the people who fall into the coverage gap live in the South or the West. Two New England states New Hampshire and Maine also refused to expand Medicaid eligibility as did the mid-atlantic industrial state of Pennsylvania. Three states Texas, Florida, and Georgia account for more than two-thirds of the people who fall into the coverage gap. Medicare ACA insurance provisions do not make significant changes to the plan design of Medicare, the federally administered health care program for Americans age 65 and older. No matter how Americans get Medicare, whether through Original Medicare administered by the government or through private insurers that provide Medicare Advantage, enrollees will continue to have similar benefits and plan design. The ACA does impose changes on the way providers of Medicare Advantage are reimbursed. 36 AIER estimate. See tables, Appendix B. 37 AIER estimate. See tables, Appendix B. 28 American Institute for Economic Research

Who is Affected by the the ACA s Insurance Provisions? According to the Congressional Budget Office, the law is designed to reduce overall payments to Advantage providers by about $135 billion between 2010 and 2019. It also provides bonuses to Advantage providers that score highly on service quality ratings. The changes to Medicare Advantage have been controversial. Supporters argue that the changes will keep the costs of Medicare Advantage aligned with original Medicare. Critics of the change argue that reduced payments are designed to kill Medicare Advantage by raising costs to the growing number of seniors who have opted for the private-sector alternative. TABLE 2 Medicaid Gap by State State Individual Market Uninsured Alabama 23,309 205,061 Alaska 534 11,199 Florida 108,032 823,552 Georgia 43,695 459,056 Idaho 10,299 58,371 Indiana 29,290 226,737 Kansas 16,742 77,213 Louisiana 21,362 198,810 Maine 5,103 24,037 Mississippi 10,417 147,778 Missouri 33,560 208,350 Montana 9,707 30,245 Nebraska 9,255 34,533 New Hampshire 3,314 20,765 North Carolina 56,078 383,308 Oklahoma 13,154 120,167 Pennsylvania 65,363 253,705 South Carolina 18,522 177,456 South Dakota 4,825 13,723 Tennessee 23,395 183,293 Texas 101,256 1,245,579 Utah 15,089 62,380 Virginia 37,102 205,459 Wyoming 1,832 12,925 Total 661,235 5,183,702 AIER estimates. See Appendix B, Table 2c. How the Affordable Care Act Affects Your Health Insurance Costs 29

04 An Uncertain Path to Success A complex mix of outcomes must come together for the ACA to succeed in providing uninsured and underinsured people with adequate and affordable coverage. For example, premiums must remain affordable to attract the uninsured to buy insurance, especially lower risk customers. The balance of cost increases and decreases must not drive large numbers of individuals and businesses out of the insurance market altogether. On the providers side, insurance companies must make enough profit to stay in business. The ACA puts strict limits on how insurers set premiums, who must be covered, what benefits must be included, and administrative overhead costs. Within this framework, insurers must be able to generate adequate profits to cover the cost of a larger share of higher risk people who will need increasingly expensive health care services. At the same time, federal costs must stay within the range anticipated by the law. The ACA increases federal outlays for insurance subsidies and Medicaid expansion. To be considered a success, the ACA must achieve its insurance objectives without cost overruns. How Will Individuals Respond to the New Environment? A principal measure of ACA success will be whether enough people from a range of risk profiles purchase health insurance in the individual market. The Congressional Budget Office estimates that 22 million will enroll by 2016. 38 The flawed rollout of the federal and state exchanges has dampened enrollment. As of March 1, 2014, 4.2 million had selected a plan on a state or federal exchange, fewer than the 7 million originally estimated to enroll during the year by the Congressional Budget Office. This estimate was reduced to 6 million in 2014 to reflect the rollout problems. 39 However, these sign-up figures overstate the true number of people enrolling in health insurance plans on the exchanges. Insurance companies have reported that as many as 20 percent of those who selected a plan in January had not paid premiums and could lose their insurance. 40 The ACA must also enroll a majority of the uninsured. The Congressional Budget Office estimated that 22 million uninsured would enroll in health insurance by 2016. This is a little more than half of the 46 million people who were uninsured the year before the ACA went into effect. Not all the new enrollees will be eligible for subsidies, but their numbers are significantly 38 Congressional Budget Office, Effects on Health Insurance and the Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act May 2013 Baseline, May 14, 2013, accessed at http://www.cbo.gov/sites/ default/files/cbofiles/attachments/44190_ EffectsAffordableCareActHealthInsuranceCoverage_2.pdf. 39 ASPE Issue Brief, Health Insurance Marketplace: February enrollment report for the period: Oct/ 1, 2013- Feb.1, 2014. HHS. Feb.12, 2014 accessed at http://aspe.hhs.gov/health/reports/2014/marketplaceenrollment/ Feb2014/ib_2014feb_enrollment.pdf. 40 Health Care Enrollment Falls Short of Goal, With Deadline Approaching, Pear, Robert. New York Times, March 11, 2014. P. A17. How the Affordable Care Act Affects Your Health Insurance Costs 31

Chapter 4 less than the 29 million uninsured who do qualify for some level of federal support to reduce premiums or out-of-pocket costs. It is not known if the subsidies are high enough to entice enough of the low-income uninsured into the market, especially those with low-risk profiles. Some 17 million previously uninsured are not eligible for subsidies. It is not known if the health insurance available through the public exchanges will be inexpensive enough to appeal to those individuals. A portion of the previously uninsured will purchase insurance through their employer. On average, an employer pays between 71 and 82 percent of premium costs. However, it is unknown if this incentive plus the cost of the penalty for failing to purchase insurance will be enough to compel broad-based individual compliance. Few of the 6 million people that fall into the Medicaid coverage gap are likely to purchase insurance or have enough income to incur any penalties. This makes it much more important that large numbers in the other income groups in those states sign up, if the ACA is to meet its objectives. How Will Employers Respond to the New Environment? The ACA assumes few significant changes in employer behavior with regard to health insurance, especially among large group employers (more than 100 employees). How firms will actually respond is unknown. Various employer surveys suggest a wide range of possibilities. In a 2011 study by McKinsey and Company, 30 percent of responding firms said they would probably or definitely drop insurance altogether, despite the federal penalty. A 2013 survey of employers by Towers Watson found just 1 percent likely to drop insurance altogether. 41 The Congressional Budget Office (CBO) and the Joint Committee on Taxation estimate that 6 million people will be removed from their employers plans. 42 Most of these are expected to be part-time employees in larger firms, as the employer mandate to offer insurance extends only to full-time workers. However, an unknown number of small firms could also drop insurance. These employers are more likely than large firms to see significant premium impacts. In addition, the ACA imposes significant new administrative requirements that will be disproportionately burdensome on small firms. Congress attempted to lighten the administrative burden for small firms by creating the Small Business Health Option Program (SHOP). SHOP is a government-run insurance marketplace where small business employers can apply for and purchase coverage for their employees. The program is intended to simplify the process of buying health insurance and making plan options and comparisons more transparent. However, SHOP has been delayed until 2015 because of operational challenges, forcing businesses to seek out coverage through traditional mechanisms. If many more small firms drop insurance than anticipated when the ACA was adopted, more people would enter the individual market and more would join the uninsured. However, the small group market now represents only 5 percent of all insured people and will represent less than 9 percent in 2016. A larger-than-anticipated reaction by small firms will have a limited impact on the individual market. 41 How U.S. Health Care Reform Will Affect Employee Benefits, Shubham Singhal, Jeris Stueland, and Drew Ungerman McKinsey Quarterly, June 2011. Reshaping Health Care: Best Performers Leading the Way, Towers Watson/National Business Group on Health. 2013. 42 The Budget and Economic Outlook: 2014 to 2024. Congressional Budget Office February 2014. Table B-2, p. 108. 32 American Institute for Economic Research

An Uncertain Path to Success FIGURE 5 Changes in Health Care Service Costs PRICE INDEX FOR PERSONAL CONSUMPTION EXPENDITURES: HEALTH CARE SERVICES Source: US Bureau of Economic Analysis Employers are taking actions unrelated to the ACA but aimed at holding down insurance costs. Some, for example, are experimenting with private insurance exchanges that mimic the approach of the public exchanges. Rather than providing specific health benefits, firms are adopting plans through these private exchanges and making payments to employees that they can use to purchase insurance from a menu of options. 43 A growing number of firms are dropping insurance for spouses who can obtain coverage from their own employer. UPS announced this action in 2013 and associated it with increased costs brought about by the Affordable Care Act. 44 However, the move is not likely to be motivated by ACA alone. UPS health insurance is self-funded, so it will see limited impacts from the new health law. The UPS approach could allow employers to limit their exposure to health care cost increases and put a larger share of the costs on employees. At the same time, some private exchanges give employees a broader array of coverage options, more control over what services they purchase, and from whom they purchase them. If the private exchanges become widespread, they could bring more market pressure on health care services. What Will Happen to the Costs of Health Care Services? General health care cost inflation will have an impact on the success of the ACA. The combination of increasing health care costs and even modest ACA-related premium increases could affect the insurance purchase decision of individuals and businesses. Increases in health 43 Booz & Co, Inc. The Emergence of Private Health Insurance Exchanges: Fueling the Consumerization of Employer-Sponsored Health Insurance. 2012. 44 UPS Memo to employees: Working Spouse Eligibility, 7/15/13 accessed at http://capsules.kaiserhealthnews.org/wp-content/uploads/2013/08/ups- Spousal-Coverage.pdf. How the Affordable Care Act Affects Your Health Insurance Costs 33

Chapter 4 care costs have been relatively low in recent years, in part because lower demand as shown in Figure 5 on page 33. If the ACA drives up demand and pushes costs up, it could contribute to premiums rising above levels acceptable to many consumers. What Will Happen to Premiums in the Public Exchange Market? The ACA closely circumscribed how premiums would be set in 2014, the initial year of the public exchanges. Congressional estimates assume that premiums will rise by an average 6 percent annually after that. 45 In fact, premiums could rise much higher. As insurers absorb actual experience, premiums will come to reflect the usage rates and revenues from the newly insured. If a disproportionate number of heavy users of health care enroll, premiums are likely to rise faster than anticipated. Will Costs to Taxpayers Stay within Acceptable Bounds? The CBO has estimated that by 2016, annual subsidy costs would reach $85 billion, and the cost of Medicaid expansions would rise to $62 billion. By 2018, these are estimated to reach $118 billion per year and $76 billion per year, respectively. Actual subsidy costs will depend on the number of people that sign up, the pace of premium cost increases, and the rate of increase in the cost of health care services. Lower-than-expected sign-ups will reduce total demand for subsidies, but it could drive premiums higher if higher risk people dominate the newly insured population. Medicaid expansion costs will depend on whether more states expand eligibility and the pace of health care cost increases. 45 Additional Information About CBO s Baseline Projections of Federal Subsidies for Health Insurance Provided Through Exchanges. May 12, 2011, accessed at http://www.cbo.gov/ sites/default/files/cbofiles/ftpdocs/121xx/doc12188/05-12-subsidies_in_exchanges.pdf. 34 American Institute for Economic Research

05 Guide to the Affordable Care Act This section provides more details about the ACA provisions relevant to each health insurance group and the people covered in each group. Pre-ACA data is from 2012, two years before the most significant provisions were implemented. The groups include the following. Individual Market. The individual market is the smallest segment of the total health insurance market. The market covers 16 million people or 5 percent of U.S. citizens in 2012. Small Group Market. The small group market generally firms with 50 or fewer workers covers about 5 percent of the total U.S. population. This will grow to about 9 percent in 2016 as the ACA expands the small group to include firms with up to 100 employees. The small group market is affected by many of the same regulations implemented in the individual market. Small employers are not required to provide health insurance to employees, but those that do must comply with the new requirements. Large Group Market. The large group covered about 42 percent of the total population before the ACA. The large group market is not affected by many of the regulations being implemented in the individual and small group markets. However, large group employers are required to offer health insurance to full-time employees. Medicaid. Medicaid already covered 14 percent of people in the United States before the ACA. The expansion of Medicaid by 25 states could insure up to 16 million Americans who were either uninsured or buying coverage on the individual market. This will expand Medicaid insurance to 20 percent of the total population. Medicare. Medicare covers about 16 percent of the total population. The ACA makes no major changes to the Medicare program or eligibility. Uninsured. Prior to the ACA an estimated 15 percent of the U.S. population or 46 million people were uninsured. Individual Market The individual market is a private, non-group insurance market that covered approximately 16 million or 5 percent of everyone in the United States in 2012. It is the smallest segment of the total health insurance market, but the segment most affected by the ACA. How the Affordable Care Act Affects Your Health Insurance Costs 35

Chapter 5 The following ACA provisions are relevant to the individual market: Individual Mandate Penalty. Everyone not eligible for a public program must purchase health insurance or pay a penalty. The penalty, also known as the Individual Shared Responsibility Payment is assessed on individuals that remain uncovered after March 2014. 46 The penalty rises from the higher of $95 or 1 percent of income in 2014 to $325 or 2 percent of income in 2015 and the higher of $695 or 3 percent of income beginning in 2016. For individuals who are uninsured for more than three months but less than an entire year, 1/12 of the year penalty will be assessed each month without insurance. 47 Certain people are exempt from the individual mandate, including persons who would pay more than 8 percent of their income for health insurance after employer contributions or tax credits, persons with a family income below the threshold for filing a tax return ($10,000 per individual, $20,000 for a family in 2013), persons religiously opposed to accepting benefits from a health insurance policy or who are members of a recognized health care-sharing ministry, American Indians, Alaska Natives, or the spouses of either group, non-citizens or persons not lawfully present in the United States, and incarcerated individuals. 48 Individual Market Exchange. The ACA establishes online insurance exchanges in every state, which serve as marketplaces to purchase individual health insurance coverage. Some of the exchanges are federally run, and others are managed by a state. 49 Plans offered on the individual exchanges must meet all minimum federal standards. Open enrollment for the exchanges was expected to begin Oct. 1, 2013. Some state-run marketplaces functioned properly at this time, but the majority, including the federally run exchanges, had technical system failures that prevented many consumers from selecting plans or even accessing the website. Most consumers had until March 2014 to purchase their health insurance plan through the online exchanges; however, because of continued technical issues running the exchanges, some states have delayed their sign-up window past March. Health Plan. A variety of Qualified Health Plans are available on state and federal exchanges. The amount of insurance competition and the quantity of health policies offered will depend on the number of insurance companies operating in each state and, more importantly, within each ZIP code. Highly populated areas, such as urban zones, will tend to attract more competition, more health plan options, and likely lower costs. Rural areas and small towns will likely see only a few insurance plans offered and may have higher premiums as a result. All plans offered on the exchanges will be subject to the minimum standards for benefits. The Obama administration will allow people who had individual policies before 2014 that are not in compliance with the ACA s minimum standards to be continued through the 2017 plan year, at each state s discretion. Subsidy Program. Federal subsidies will help make premiums and out-of-pocket costs more affordable for lower-income Americans. The law holds that only plans purchased on the public, individual market exchange are eligible for subsidies. Individuals enrolled in employer- 46 PPACA (consolidated) Sec. 1501, Pg. 143 http://housedocs.house.gov/energycommerce/ppacacon.pdf. 47 Questions and Answers on the Individual Shared Responsibility Provision. IRS. http://www.irs.gov/uac/questions-and-answers-on-the- Individual-Shared-Responsibility-Provision. 48 The Requirement to Buy Coverage Under the Affordable Care Act, KFF. http://kff.org/infographic/the-requirement-to-buy-coverage-under-theaffordable-care-act/. 49 State Decisions for Creating Health Insurance Marketplaces, 2014. KFF. http://kff.org/health-reform/state-indicator/health-insurance-exchanges/. 36 American Institute for Economic Research

Guide to the Affordable Care Act sponsored plans, Medicaid, and Medicare are not eligible. There are a few exceptions, including individuals with employer coverage who pay more than 9.5 percent of their income on premiums. There are two types of subsidies available beginning in 2014. Premium Tax Credits reduce the cost for individuals between 100 and 400 percent of the federal poverty level. These credits are only available if the plan premium is a high or disproportionate percentage of the enrollee s income. The ACA measures proportionality as to what is considered affordable for each income level. Eligible enrollees can elect to have advanced payments made directly to their insurer in 2014 or claim the credit on their tax return in 2015. 50 Cost Sharing Subsidies reduce the out-of-pocket health care costs for people from 100 to 250 percent of the federal poverty level. These subsidies will go towards co-pays and deductibles but will not affect premiums. Out-of-pocket subsidies are only available to people who are purchasing a silver level plan, the second tier of coverage on the individual market. 51 In total, there are four tiers of coverage, from a bronze level plan to a platinum level plan. The silver plan is moderate in cost and in the health coverage it provides. Minimum Standards for the Individual Market The ACA established a set of minimum standards for the individual market. These apply national requirements to a market that previously was largely regulated by state governments. There are now two different minimum standards for two different types of health plans. For both plans, insurance companies must adhere to a medical loss ratio of 80 percent. 52 Qualified Health Plans. A health plan certified by the insurance exchanges at which it is offered. To be certified, a plan must include the 10 essential health benefits and limits on cost sharing and out-of-pocket expenses. Grandfathered Health Plans. Plans that are carried over from 2010, when the ACA was enacted. They are not required to include essential benefits or caps and limits on lifetime and annual health care costs. If grandfathered health plans do offer any essential benefits, bans on annual and lifetime limits apply to those benefits. Plan Tiers. The ACA measures the value of individual market plans by the actuarial value of each plan grade. The actuarial value is the average percentage of health care costs covered by the plan for a standard covered population. As the actuarial value increases, the plan coverage becomes more extensive and the monthly premium more expensive. Actuarial values ranges from 60 to 90 percent. All plan tiers must offer the 10 essential benefits required by the ACA. The ACA sets four levels of plans according to their actuarial value: Bronze plans cover 60 percent of the average health care costs; silver plans cover 70 percent; gold plans cover 80 percent of the average costs; platinum plans cover 90 percent. 53 50 Affordable Care Act Tax Provisions for Individuals and Families. IRS http://www.irs.gov/uac/affordable-care-act-tax-provisions-for-individualsand-families. 51 PPACA (consolidated) Sec. 1302, Pg. 63. http://housedocs.house.gov/energycommerce/ppacacon.pdf. 52 PPACA and the Medical Loss Ratio. NAIC. http://www.naic.org/documents/frs_financial_summit_presentations_28_mlr_solvency_issues.pdf. 53 PPACA (consolidated) Sec. 1302 Pg. 59. How the Affordable Care Act Affects Your Health Insurance Costs 37

Chapter 5 Caps and Limits. The ACA sets out-of- pocket maximums and lifetime and annual limits on spending for individual market, excluding grandfathered plans. These are outlined below. There is no specific cap on deductibles for individual plans. 54 Out-of-Pocket Maximum for 2014. If the plan enrollee exceeds the annual out-of-pocket maximum, the insurer is required to pay the remaining health care costs throughout the year. The maximum is only applied to costs incurred on essential benefits for new plans beginning Jan. 1, 2014. These limits do not apply to grandfathered health plans. The out-ofpocket maximums are $6,350 for an individual and $12,700 for a family. 55 Annual and Lifetime Limits. Insurers can no longer cap the amount they spend on an enrollee s benefits over the course of a plan year or over a lifetime. These limits only apply to essential benefits for non-grandfathered health plans. 56 Small Group Market The small group covers 16 million Americans or 5 percent of the total population. Under the ACA, small employers are not required to provide health insurance to employees, but those that do must comply with the new minimum requirements such as providing the 10 essential benefits. Small employers obtain health insurance coverage in the small group insurance market. The small group market is affected by many of the same regulations implemented in the individual market but two additional ACA provisions apply. Redefining the Small Group. In 2016, the ACA will expand the small group to firms with 100 or fewer employees. Until then, the group includes all firms with 50 or fewer employees. Before the ACA, small group firms can vary by one or two employees among the states. Some states allow the self-employed to be included as small employers and participate in the small group market. 57 Small employers, unlike large group employers, are not required to offer health insurance. The group of firms from 51 to 100 that will join the small group market in 2016 will still be included in the employer mandate required of large employers. Therefore, they will be required to provide health insurance to their employees. Because small group full-time employees are not guaranteed employer-sponsored coverage, neither are part-time employees. Some employers do and will provide health insurance to part-time workers, but that is entirely at the discretion of the employer. Part-time employees are, however, included in the firm size calculation. 58 Rating Standards. The ACA prohibits insurance companies from applying most underwriting standards for small group health plans. Insurers serving the small group market are no longer allowed to set premiums based on employees health status, gender, or industry of employment. Nor can an employee of a small business be excluded from small group insurance because of a pre-existing condition. 59 54 Cost-Sharing requirements, Anthem national accounts. Pg. 2. http://www.makinghealthcarereformwork.com/healthcarereform/assets/library/ ANS_Cost_Sharing_Fact_Sheet_FAQ_13_0531.pdf. 55 Lifetime & Annual Limits. HHS.gov http://www.hhs.gov/healthcare/rights/limits/. 56 http://www.uhc.com/united_for_reform_resource_center/health_reform_provisions/annual_limits.htm. 57 Small Group Health Insurance Market Guaranteed Issue, Kaiser. http://kff.org/other/state-indicator/small-group-guaranteed-issue/. 58 Employer Responsibility. Sec. 1003 (E). HHS, http://www.hhs.gov/healthcare/rights/law/section/1003-employer-responsibility.pdf. 59 Health Insurance Rate Regulation. NAIC. http://www.naic.org/documents/topics_health_insurance_rate_regulation_brief.pdf. 38 American Institute for Economic Research

Guide to the Affordable Care Act Minimum Standards for Small Group Market Changes to Health Plans. While small employers are not required to provide insurance, those that do are required to provide minimum standards, including the 10 essential health benefits. If a small group plan has been in effect and relatively unchanged since 2010 when the year the ACA became law, or earlier, then the plan may continue into 2014 and beyond. If a plan is grandfathered, it is not subject to ACA limits and maximums on out-of-pocket spending for deductibles, co-pays, and premiums. Qualified Health Plans. These plans are regulated by ACA provisions and are certified by the insurance exchanges in which they are offered. To be certified, a plan must include the ten essential health benefits and put limits on cost-sharing and out-of-pocket expenses. Grandfathered Health Plans. These plans are carried over from 2010, when the ACA was enacted. They are not required to include essential benefits or to place caps and limits on lifetime and annual health care costs. If a grandfathered health plan does offer any essential benefits, then bans on annual and lifetime limits apply to those benefits. If there are significant changes in cost-sharing and employer contributions, then the plan will lose its grandfathered status. In this case, an employee s previous health plan may be cancelled or replaced with one that adheres to the new set of required services. 60 Caps and Limits. The small group insurance market must offer a variety of cost protections to business and their employees. The ACA has created an annual out-of-pocket maximum, a limit on lifetime and annual health care costs paid by the consumer, and a deductible cap. Out-of-Pocket Maximum for 2014. If the plan enrollee exceeds the annual out-of-pocket maximum, the insurer is required to pay the remaining health care costs throughout the year. The maximum is only applied to costs incurred on essential benefits for new plans beginning in 2014. These limits do not apply to grandfathered health plans. 61 Insurers and issuers of group plans with separate administrators for medical services and prescription drug benefits will have until 2015 to comply with the out-of-pocket cap. 62 The out-ofpocket maximums are the same as they are for people who buy insurance in the individual market: $6,350 for one person, $12,700 for a family. Annual and Lifetime Limits. Insurers can no longer cap the amount they spend on an enrollee s benefits over the course of a plan year or over a lifetime. This rule only applies to essential benefits for non-grandfathered health plans. 2014 Deductible Caps for Small Groups. The deductible amount applies only to in-network medical costs for essential benefits. The deductible caps are $2,000 for an individual and $4,000 for a family. The Department of Health and Human Services has indicated that this requirement may be waived if the only way to meet a specified actuarial value is to raise the deductible above $2,000. This is most likely to be true for the bronze plans. 60 Grandfathered Plans. HHS. http://www.hhs.gov/healthcare/insurance/grandfather/. 61 Lifetime & Annual Limits. HHS.gov http://www.hhs.gov/healthcare/rights/limits/. 62 In Efforts To Implement The Health Law, Delays Stack Up Kaiser Health News. http://www.kaiserhealthnews.org/daily-reports/2013/august/14/ delay-in-out-of-pocket-cost-limits.aspx?referrer=search. How the Affordable Care Act Affects Your Health Insurance Costs 39

Chapter 5 Medical Loss Ratio. Each small group plan will now be assessed at the end of each year to determine if it exceeds the minimum medical loss ratio of 80 percent. If the insurer does not meet the percentage of premiums spent on claims for clinical services and activities that improve health care quality, they must reimburse the plan enrollee until the ratio is met. The Small Business Health Option Program (SHOP). This program creates a marketplace where small business employers can purchase coverage for their employees. The government-run program has been delayed until 2015 because of operational challenges, forcing businesses to seek out coverage through traditional mechanisms. The program is intended to reduce administrative costs by simplifying the process of buying health insurance and making plan options more transparent. Through SHOP, employers will be able to manage contributions to employee plans and see whether they qualify for tax credits or subsidies. Each state will offer a SHOP, which is either sponsored by the state or through a federally facilitated exchange. As of March 2014, 20 have federally facilitated marketplaces, 17 run their own marketplaces, 6 are federal-state partnerships, and 8 have federally facilitated marketplaces with state plan management. 63 Large Group Market The large group market covers 131 million Americans or 42 percent of the total population. It is not affected by many of the regulations being implemented in the individual and small group markets. However, the ACA requires large employers to offer health insurance to their full-time employees. The large group insurance market includes all firms with more than 50 employees, and after the ACA, this will include firms with more than 100 employees in 2016. The ACA will have relatively small effects on large group health insurance costs. However, the health law does establish provisions that impact employees and employers in large group plans. Employer Mandate and Penalty. All large group employers are required to provide insurance to employees starting in 2015 or pay a penalty. This is a one-year delay from the original law. The employer penalty for not offering health insurance is $2,000 times the total number of full-time equivalent employees. 64 Large group employers will also be penalized if the coverage they provide is considered unaffordable, meaning the premium exceeds 9.5 percent of their employee s household income. 65 Because the individual mandate to have insurance began in 2014, employees in large firms that do not provide health insurance must purchase coverage from the private market or pay a penalty. There is some speculation that the IRS will not enforce the penalty for the first year, given the technical difficulties associated with the state exchanges. Large employers are not required to offer health insurance to part-time employees, who are defined as those who work less than 30 hours a week. Seasonal employees who work less than 120 days per year, regardless of whether they work 30 hours a week during that period are considered part-time for the purposes of the ACA. 66 However, part-time workers are included in the calculation to determine firm size. 67 63 Status of State Health Insurance Exchange Implementation. Center on Budget and Policy Priorities. Pg. 1. 64 For purposes of calculating the employer penalty the number of employees is reduced by 30. 65 Planning For Health Care Reform: How Income Impacts Employee Health Benefits Participation. ADP. Pg. 13.http://www.adp.com/~/media/ RI/pdf/Benefits%20Planning%20For%20Health%20Care%20Reform%20How%20Income%20Impacts%20Employee%20Health%20Benefits%20 Participation%20White%20Paper.ashx. 66 Miller, Stephen. Proposed Rule Clarifies Employer Mandate Calculations. Guidance on Calculating the Coverage Threshold of 50 or More Full-time Employees or Full-time Equivalents. 67 Potential Employer Penalties under the ACA, CRS. Pg. 2. 40 American Institute for Economic Research

Guide to the Affordable Care Act Self-Funded Health Plans. Self-funded health insurance is common in large firms that are able to spread the risk of costly claims over a large number of enrollees from their own funds rather than from an insurance risk pool. It gives firms the flexibility to provide a wider variety of health plans and cost-sharing options with less regulatory oversight. In the largest firms (5,000 employees or more), 94 percent of covered workers are in self-funded health plans, while in smaller firms (3 to 199 employees), only 16 percent are covered by such plans. 68 Self-insured employers do not have to offer plans that adhere to the medical-loss-ratio requirements. Overall, about 61 percent of covered workers were in self-funded health plans in 2013. 69 Minimum Standards for Large Group Market Changes to Health Plans. The ACA does not require large employer plans to offer the 10 essential benefits. Therefore, large group employers can grandfather employees current plans if they have been largely unchanged from 2010. The employers can also elect to offer an alternative. As with small group plans, if there are significant changes in cost sharing and employer contributions, the plan will lose grandfathered status. The ACA also assesses an excise tax on high-cost large group health care plans that offer extensive benefits. (See Cadillac Tax below). Large group plans must adhere to a minimum medical-loss-ratio of 85 percent. If the insurer does not meet the ratio, it must reimburse plan enrollees until the ratio is met. (Self-funded health plans do not operate under a medical loss ratio provision.) Caps and Limits. The large group offers certain insurance protections to people covered by the plans. The ACA establishes maximums for annual out-of-pocket expenses for enrollees and bans lifetime and annual limits on insurer spending. There is no specific cap on deductibles for individual large group plans. Out-of-Pocket Maximum for 2014. As with small group plans, if an enrollee in a large group plan exceeds the annual out-of-pocket maximum, the insurer is required to pay the remaining health care costs throughout the year. The maximum is only applied to costs incurred on essential benefits for new plans beginning in 2014. These limits on out-ofpocket maximums do not apply to grandfathered health plans. Insurers and issuers of group plans with separate administrators for medical services and prescription drug benefits will have until 2015 to comply with the out-of-pocket cap. The annual caps are the same as for people in other insurance markets: $6,350 for individuals and $12,700 for families. 70 Annual and Lifetime Limits. As with other insurance markets, insurers can no longer cap the amount they spend on a large group enrollee s benefits over the course of a plan year or over a lifetime. 71 These limits only apply to essential benefits for non-grandfathered health plans. Cadillac or Excise Tax. This federal tax is levied on large group plans with total average costs above $10,200 for individuals and $27,500 for families. The tax applies to both self-funded and fully insured health plans and will take effect in 2018. 72 An employer or the sponsor of a self-funded group health plan must pay an excise tax equal to 40 percent of any dollar amount 68 Kaiser Benefits Survey (Pg. 162). 69 Ibid. 70 Lifetime & Annual Limits. HHS.gov http://www.hhs.gov/healthcare/rights/limits/. 71 Annual Limits. UHC.http://www.uhc.com/united_for_reform_resource_center/health_reform_provisions/annual_limits.htm. 72 A Summary of Fees and Taxes. Coventry Healthcare. http://coventryhealthcare.com/web/groups/public/@cvty_corporate_chc/documents/ webcontent/c083519.pdf. How the Affordable Care Act Affects Your Health Insurance Costs 41

Chapter 5 above the level that is considered excess health spending. Besides raising revenue for the federal government, the Cadillac tax is supposed to limit the benefits that a plan carries in an effort to slow the growth of health care spending. Unaffordable Coverage. If a plan premium exceeds 9.5 percent of an employee s household income, the coverage is deemed unaffordable, and the individual is then eligible for subsidized coverage through the individual market exchanges. 73 In general, if an employee decides not to take health insurance from his or her employer, that employee can purchase health insurance from the individual exchanges. However, anyone offered employer-sponsored health insurance below the unaffordable threshold is not eligible for subsidies to purchase insurance in the individual market. Medicaid Medicaid is a federally and state-administered health care program that provides low-income individuals and families with coverage. The program covered 46 million people or about 14 percent of all Americans in 2012. 74 Medicaid plans cover 100 percent of the premiums for eligible participants, but require the enrollee to incur nominal out-of pocket expenses, such as a small percentage of a service s co-pay and deductible (See Cost-Sharing and Premiums below). A principal goal of the ACA was to fill gaps in the availability of affordable health coverage in the United States. The expansion of Medicaid to all adults with incomes of up to 133 percent of poverty was a key strategy. However, the U.S. Supreme Court ruled this requirement unconstitutional and gave states the option of expanding eligibility or continuing with their existing eligibility standards. To date, 25 states and the District of Columbia have expanded Medicaid in line with the ACA, and 25 states have either refused to expand Medicaid or have opened discussion in their state legislature on the issue. This has a variety of impacts on insurance costs for Medicaid recipients. New Medicaid Enrollees. As a result of the expansion in 25 states and the District of Columbia, some 16 million additional Americans are eligible for Medicaid coverage. This includes 13 million who were previously uninsured and another 3 million who were insured in the individual market. 75 New Medicaid enrollees are either newly eligible in states expanding their eligibility or were previously eligible before expansion. Previously eligible people either did not know they were eligible or chose not to get coverage. The individual penalty assessed to those without health care coverage starting in 2014 may cause many newly eligible and previously eligible to seek coverage through the exchanges or directly through the Medicaid program. Medicaid-eligible Americans seeking coverage on the exchanges will be directed to the Medicaid enrollment site. People previously insured in the individual market who are now eligible for Medicaid will see health care costs decrease significantly. Medicaid pays the individual s total premium, while the individual only pays for a few nominal, out-of-pocket expenses. The previously uninsured will also see a large drop in health expenses, as most health care services will be covered under the Medicaid program. 73 Planning For Health Care Reform: How Income Impacts Employee Health Benefits Participation. ADP. Pg. 13http://www.adp.com/~/media/ RI/pdf/Benefits%20Planning%20For%20Health%20Care%20Reform%20How%20Income%20Impacts%20Employee%20Health%20Benefits%20 Participation%20White%20Paper.ashx. 74 AIER estimates. See Appendix A. 75 AIER estimates. See Appendix B. 42 American Institute for Economic Research

Guide to the Affordable Care Act Coverage Gap and the Uninsured. For the 25 states not currently participating in Medicaid expansion, there is no assistance for people falling between their state s Medicaid eligibility line and the federal subsidy eligibility line. Most states that have refused to expand Medicaid have eligibility income limits far below the 100 percent of the federal poverty line, where the ACA begins providing tax and subsidy incentives. People whose incomes are higher than the Medicaid eligibility limits, but lower than the federal poverty line, cannot get help for health care through the ACA. AIER estimates that 6 million Americans are currently in the coverage gap: too poor to qualify for ACA subsidies and not poor enough to qualify for Medicaid in their state. 76 This includes over 5 million previously uninsured and approximately 660,000 insured in the individual market that have incomes below the subsidy line and above the Medicaid eligibility line in their state. Cost-Sharing and Premiums. The ACA has slightly modified the cost-sharing measures for Medicaid health plans. The premiums, co-pays, and deductibles under the ACA are complex and vary depending on the new income eligibility levels, the beneficiaries incomes, and the type of service being used. Broadly speaking, the ACA imposes strict limitations on the premiums, deductibles, and copays that states can impose on Medicaid beneficiaries with particular focus on women, children, and those under 100 percent of the federal poverty line. States have more flexibility to impose cost- sharing on certain children and adults with incomes between 100 and 150 percent of the poverty line and to impose premiums and higher cost-sharing for beneficiaries with incomes above 150 percent. 77 Medicare Medicare is a federally administered health care program for Americans ages 65 and older. It covers 49 million Americans or 16 percent of the total population. The ACA makes no significant changes to the program. Benefits and plan design for Medicare will remain the same for both Original Medicare and Medicare Advantage. Provider Reimbursement. The ACA changes reimbursement amounts to the providers of Medicare Advantage. Between 2010 and 2019, the government is slated to reduce overall payments to Advantage providers by about $135 billion. However, it will provide bonuses to Advantage providers that score high on service quality ratings. Medicare Advantage is administered by private insurance companies, but it covers the same benefits and services provided by Original Medicare. Advantage enrollees pay the same Medicare Part B premium but may be charged an additional premium depending on the plan they elect. A Medicare Advantage enrollee in 2014 will choose a similar plan to those available in the individual exchanges. Extending the Medicare Program. The ACA has extended the life of the Medicare Trust Fund until 2029. While this may not affect the individual consumer eligible for Medicare in 2014, it affects the longevity and financial security of the Medicare program. 78 76 AIER estimates for coverage gap. See Appendix B. 77 Premiums and Cost-Sharing in Medicaid. Kaiser Commission on Medicaid and the Uninsured http://kaiserfamilyfoundation.files.wordpress. com/2013/02/8416.pdf. 78 A Summary of the 2013 Annual Reports. Social Security and Medicare Boards of Trustees. SSA.gov http://www.ssa.gov/oact/trsum/. How the Affordable Care Act Affects Your Health Insurance Costs 43

Glossary of ACA Terms amd Definitions Glossary of ACA Terms and Definitions Actuarial Value. The actuarial value represents the percentage of costs a plan pays for all covered services. The bronze plan on the individual market, for example, has an actuarial value of sixty percent. This means that plan members on average would pay forty percent of the total cost of the plan, including co-pays, deductibles, and coinsurance. The insurer would cover the remaining sixty percent. (See also, Plan Tiers. ) Actuarial Value by Plan. These are assessed only in the individual and small group markets. For bronze plans, the actuarial value is 60 percent. For silver plans, it is 70 percent. The actuarial value is 80 percent for gold plans and 90 percent for platinum plans. (See also, Plan Tiers. ) Adjusted Community Rating. This underwriting rule limits the criteria for adjusting insurance premiums to age, geographic area, and tobacco usage. This is implemented by the ACA in the small group across all states. Cadillac or Excise Tax. This is a federal excise tax levied on large group plans with premiums above $10,200 for individuals and $27,500 for families. The tax applies to both selffunded and fully insured health plans and will take effect in 2018. Caps and Limits under the ACA. 2014 Deductible Caps. This only applies to people with small-group plans and for innetwork medical services for essential benefits. The caps are $2,000 a year for an individual and $4,000 for a family. 2014 Out-of-Pocket Maximums. The total amount of money an insured person would have to pay annually is limited to $6,350 a year for an individual, $12,700 a year for a family. After that, the insurer must pay all out-of-pocket costs for plans with separate administrators for medical services and prescription drug benefits will have until 2015 to comply with the out-of-pocket cap. Annual Limits. For plan years beginning on or after Jan.1, 2014, group health plans may not establish any annual dollar limits on essential health benefits. For plan years beginning before Jan. 1, 2014, the annual limits are $750,000 for plans beginning on or after Sept. 23, 2010, $1.25 million for plans beginning on or after Sept. 23, 2011, and $2 million for plans beginning on or after Sept. 23, 2012. Annual and lifetime limits only apply to essential benefits and do not apply to grandfathered plans. Lifetime Limits. A group health plan may not establish any lifetime dollar limits on the value of essential health benefits for any individual under the group health plan. How the Affordable Care Act Affects Your Health Insurance Costs 45

Glossary of ACA Terms amd Definitions Catastrophic Coverage. This refers to health plans that only cover expensive medical treatments in case of serious medical conditions or severe injury. The individual market exchanges offer catastrophic health plans to U.S. citizens below the age of 30. Children s Health Insurance Program (CHIP). CHIP is a federal- and state-funded health program that provides government-paid health insurance to low-income children and in some states, pregnant women. Community Rating. This insurance regulation prohibits the use of most underwriting in setting premium rates for the individual and small group markets. The community rating rule prohibits insurers from adjusting premiums within a geographic area based on age, gender, or health status. (See also, Rating Bands and Adjusted Community Rating. ) Employer Mandate. This provision of the ACA requires all employers with 51 or more employees and in 2016, employers with 101 or more employees to offer health insurance to their employees. Those employers who fail to do so will be penalized. Essential Health Benefits. These benefits and services set a standard for health insurance plans in the individual and small group insurance market. Any qualified health plan not offering the 10 essential health benefits is considered void and cannot be offered in the individual or small group exchanges. An ACA delay allows certain plans that do not have the complete set of essential benefits to be allowed to be offered until 2016. This represents a delay of two years from the original date of Jan. 1, 2014. The 10 essential benefits are: 1 Ambulatory patient services (outpatient services) 2 Prescription drug coverage 3 Emergency care 4 Mental health services 5 Hospitalization 6 Rehabilitation and habilitation services 7 Preventative and wellness services 8 Laboratory services 9 Pediatric care, including oral and vision care for children under 19 years of age 10 Maternity and newborn care Grandfathered Health Plans. This typically refers to health insurance policies that carry over to the next plan year without significant changes to the plan. In context of the ACA, the term refers to plans that were in place when the ACA was enacted in 2010. Once a plan has grandfathered status, it is exempt from many of the provisions established by the law. New 46 American Institute for Economic Research

Glossary of ACA Terms amd Definitions employees can enroll in grandfathered plans if the plan has kept grandfathered status since the implementation of the law in 2010. Guaranteed Issue. Federal law requires insurers offering coverage in the small group market to offer coverage to any small group insurance regardless of the health status or prior claims of the group s members. Guaranteed Renewal. Federal law requires insurers offering health benefits in the small group market to renew an employer s health coverage at the employer s option. Indian Health Services (IHS). This federal health program provides health insurance coverage to American Indians and Alaska natives. Individual Exemptions. These apply to people who do not have to purchase health insurance as mandated by the individual shared responsibility provision. This applies to the following people. 1 People who would have to pay more than 8 percent of their income for health insurance after employer contributions or tax credits. 2 Those with a family income below the threshold for filing a tax return ($10,000 per individual, $20,000 for a family in 2013). 3 People religiously opposed to accepting benefits from a health insurance policy or who are members of a recognized health care-sharing ministry. 4 American Indians, Alaska Natives, or the spouses of member of either group. 5 Non-citizen or individuals not lawfully present in the United States. 6 Incarcerated individuals. Individual Market. This is the market where individuals buy health insurance directly from an insurance provider or through an individual exchange. Individual Mandate. Also known as the individual shared responsibility payment, this is a mandate for each individual to have health insurance coverage starting in 2014. There are few exceptions to this mandate. Large Group Market. This is the market in which employers purchase health insurance for employees and share the cost of coverage. This typically covers employers with more than 50 employees. Beginning 2016, the large group will cover employers with more than 100 employees. Major Delays in ACA Implementation. There have been more than 20 delays in the implementation of the ACA legislation. Below is a list of the most significant delays to date. 1 Employer mandate is delayed until Jan. 1, 2015. 2 Small Business Health Option Program (SHOP) is delayed until Jan.1, 2015. How the Affordable Care Act Affects Your Health Insurance Costs 47

Glossary of ACA Terms amd Definitions 3 Out-of-pocket maximum for plans with separate administrators for medical services and prescription drug benefits will have until 2015 to comply with the out-of-pocket cap. 4 Grandfathered health plans in the individual market that do not meet minimum requirements under the ACA regulation and would otherwise be discontinued may be owned until Jan. 1, 2016. Marketplace Exchanges. These are federal- and state-run as well as regulated markets where individuals and small businesses can shop and purchase health coverage. Medical Loss Ratio. This is the percentage of insurance premium dollars spent on reimbursement for clinical services and activities to improve health care quality. The insurer must meet this ratio for each health care plan at the end of each plan year or reimburse individual clients until the ratio is met. The ACA sets the medical loss ratio at 85 percent for large group plans, and 80 percent for small group and individual plans. Medical Underwriting. This refers to the use of medical or health information to establish a price for an individual s plan premium. Common underwriting considerations for health plans are an applicant s health status, age, geographic location, or gender. Medicare. This is a federal program that provides insurance for all eligible individuals aged 65 or older and for people with certain types of disability. Medicare gap. A coverage gap was created by states that did not expand Medicaid. This leaves some low-income citizens in those states both ineligible for Medicaid and for federal subsidies for insurance purchased in the individual market. The federal government provides subsidies starting at 100 percent of the poverty line. Some states that did not expand Medicaid end eligibility far below the 100 percent threshold. Medicaid. This is a federal and state program that provides government-paid health insurance to low-income individuals. Minimum standards. This is the minimum level of benefits and services that must be included in a health insurance plan for an individual to be insured under the ACA legislation. Each insurance group has its own set of minimum standards to a variable degree. (See also Essential Benefits. ) Plan Tiers. These are the levels of coverage associated with a health insurance plan offered in the individual and small group markets. The ACA sets four levels of plans according to their actuarial value: Bronze plans cover 60 percent of the average health care costs. Silver plans cover 70 percent. Gold plans cover 80 percent of the average costs, and platinum plans cover 90 percent. (See also Actuarial Value and Actuarial Value by Plan. ) Poverty Line. The poverty line refers to the federal measure that indicates how much income is necessary to cover the basic costs of living. 48 American Institute for Economic Research

Glossary of ACA Terms amd Definitions Poverty Guidelines. The 2014 poverty guidelines from the department of Health and Human Services are: $11,670 for an individual, $23,850 for family of four, and $40,090 for a family of eight. Each income level represents the income equal to 100 percent of the poverty line or the poverty threshold. For families or households with more than eight persons, add $4,060 per additional individual. Qualified Health Plan. This refers to a plan that is certified by a health insurance marketplace. To be certified, the plan must provide essential health benefits, comply with limits on costsharing, and meet other ACA requirements. Rating Bands. These are restrictions on the difference between the highest and lowest premiums an insurer can charge members of a group plan. Rating bands are commonly used for the small group insurance market. Nearly all states have enacted rating restrictions. The type of rating restrictions varies by state. (See also, Community Rating and Adjusted Community Rating. ) Risk-adjustment Program. This ACA program transfers funds from lower risk plans to higher risk plans in the individual and small-group markets, both inside and outside the exchanges. This is a permanent program that applies only to non-grandfathered plans. The risk-adjustment fee is estimated to be about $1 per covered member per year and will be rolled out in premiums, not invoices. Self-insured Group Health Plans. Self-insured health care plans are employee-issued insurance, paid for by the employer without a contracted insurance company or third-party administering the insurance. The employer creates an employee pool, allocates and administers the health benefits, and assumes all payment and risk. Small Business Health Option Program (SHOP). SHOP is an online health insurance exchange for small businesses to purchase health coverage. Many of the same features available in the individual exchanges will also be available for small businesses. SHOP is open to employers with 50 or fewer full-time equivalent employees. In 2016, the marketplace will be open to employers with 100 or fewer employees. Small Group Market. This is the market in which employers purchase health insurance for employees and share the cost of coverage. This typically covers employers with 50 or fewer employees. In 2016, the small group market will include employers with up to 100 employees. Transitional Reinsurance Fee. From 2014 to 2016, the federal government will collect these fees from issuers of group plans and sponsors of self-funded health policies. The government will distribute payments to health insurance issuers in the individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all issuers. The payment starts at $5 per covered person per month in 2014, and will change in 2015-16 based on payments made in 2014. The ACA requires that a total of $25 billion be collected over the three years: $12 billion in 2014, $8 billion in 2015, and $5 billion in 2016. How the Affordable Care Act Affects Your Health Insurance Costs 49

Glossary of ACA Terms amd Definitions TRICARE. TRICARE is the health care program for service members (active, Guard/Reserve, retired) and their families around the world. Uniform Provisions. The following rules established by the ACA apply to all health insurance plans regardless of insurance group: Dependent plan eligibility. Dependent children up to the age of 26 may remain on an individual s health insurance plan. Individual mandate. Every U.S. citizen must have health insurance starting in 2014, excluding a handful of exceptions. Lifetime and annual limits. These apply to all plans in the small group, large group, and individual markets. Uninsured. These are people without health insurance over the course of the year. 50 American Institute for Economic Research

Appendices A and B How the Affordable Care Act Affects Your Health Insurance Costs 51

Appendix A TABLE 1 Pre-ACA Coverage by State State Employer IHS Individual Medicaid Medicare Uninsured VA/Tricare Total Alabama 2,148,479 366 241,054 711,978 878,427 658,686 183,033 4,822,023 Alaska 316,921 49,074 18,229 89,855 69,076 99,336 88,958 731,449 Arizona 2,666,247 66,452 345,079 1,087,748 1,070,785 1,115,522 201,422 6,553,255 Arkansas 1,199,242 4,030 126,134 490,224 554,408 484,607 90,486 2,949,131 California 16,656,742 31,293 2,401,365 6,278,867 5,075,304 6,797,529 800,330 38,041,430 Colorado 2,490,486 5,008 386,066 644,362 681,918 746,413 233,329 5,187,582 Connecticut 1,947,231 1,186 162,270 511,181 584,333 332,214 51,932 3,590,347 Delaware 452,432 34,069 155,957 163,294 82,346 28,994 917,092 District of Columbia 321,952 38,992 138,712 79,254 34,960 18,453 632,323 Florida 7,198,844 3,374 1,133,788 2,594,895 3,865,214 3,920,187 601,266 19,317,568 Georgia 4,399,356 854 464,050 1,370,250 1,362,710 1,896,783 425,942 9,919,945 Hawaii 661,518 67,571 193,793 222,805 92,415 154,211 1,392,313 Idaho 717,667 5,018 118,704 205,672 246,074 256,052 46,541 1,595,728 Illinois 6,490,654 302 646,027 1,965,155 1,893,101 1,692,390 187,626 12,875,255 Indiana 3,307,481 4,852 268,823 837,186 1,042,807 964,191 111,994 6,537,334 Iowa 1,624,075 1,511 205,395 394,288 531,941 259,472 57,504 3,074,186 Kansas 1,453,496 4,748 167,564 310,254 450,912 368,911 130,020 2,885,905 Kentucky 2,002,616 126 190,243 633,667 778,888 617,979 156,896 4,380,415 Louisiana 1,868,270 323 236,808 836,383 722,105 799,059 138,945 4,601,893 Maine 593,642 922 54,153 235,911 270,782 137,874 35,908 1,329,192 Maryland 3,173,288 291 285,916 739,176 838,637 609,727 237,528 5,884,563 Massachusetts 3,745,837 161 329,443 1,173,939 1,064,094 264,915 67,755 6,646,144 Michigan 4,838,290 6,908 445,118 1,576,701 1,712,702 1,166,613 137,028 9,883,360 Minnesota 3,060,405 10,837 321,427 647,079 818,825 439,457 81,109 5,379,139 Mississippi 1,139,674 4,274 133,526 570,909 515,938 524,013 96,592 2,984,926 Missouri 2,858,469 2,708 335,160 751,410 1,056,645 846,161 171,435 6,021,988 Montana 403,103 24,626 77,903 121,156 180,259 159,552 38,542 1,005,141 Nebraska 974,087 3,795 132,940 185,184 287,088 201,497 70,934 1,855,525 Nevada 1,247,224 6,553 135,022 267,001 396,071 605,142 101,918 2,758,931 New Hampshire 744,345 56,221 122,865 222,748 145,239 29,300 1,320,718 New Jersey 4,885,383 95 379,971 992,846 1,377,454 1,148,094 80,747 8,864,590 New Mexico 773,117 59,994 86,130 395,103 347,962 339,620 83,612 2,085,538 New York 9,664,912 5,666 807,242 3,638,191 3,092,403 2,150,646 211,201 19,570,261 North Carolina 4,106,167 4,954 561,788 1,389,730 1,608,632 1,602,910 477,892 9,752,073 North Dakota 372,578 13,656 60,542 44,037 111,435 61,392 35,988 699,628 Ohio 5,863,833 250 466,910 1,650,325 1,980,423 1,368,675 213,809 11,544,225 Oklahoma 1,598,486 124,806 173,566 545,854 643,840 585,994 142,274 3,814,820 Oregon 1,780,703 10,532 243,374 556,734 656,719 564,953 86,338 3,899,353 Pennsylvania 6,609,886 141 664,745 1,726,346 2,300,895 1,279,325 182,198 12,763,536 Rhode Island 539,622 84 46,100 136,904 183,997 121,282 22,303 1,050,292 South Carolina 1,976,682 604 202,711 689,498 832,072 795,124 227,032 4,723,723 South Dakota 397,094 22,851 75,745 94,997 137,744 68,167 36,756 833,354 Tennessee 2,902,660 331 333,469 973,151 1,126,682 918,071 201,879 6,456,243 Texas 11,058,324 4,408 1,107,687 3,892,290 3,216,135 5,930,140 850,219 26,059,203 Utah 1,634,918 3,265 165,985 274,380 305,508 401,302 69,929 2,855,287 Vermont 300,736 34,928 120,668 118,931 40,963 9,785 626,011 Virginia 4,140,809 487 442,761 709,475 1,208,908 1,028,558 654,869 8,185,867 Washington 3,320,849 20,255 406,964 868,035 1,026,737 932,095 322,077 6,897,012 West Virginia 848,471 44,565 254,458 386,612 271,956 49,351 1,855,413 Wisconsin 3,097,519 9,817 271,889 785,136 937,608 528,257 96,172 5,726,398 Wyoming 282,025 4,799 34,611 56,907 87,606 87,612 22,852 576,412 Grand Total 146,856,847 526,587 16,170,743 45,636,823 49,325,448 46,544,378 8,853,214 313,914,040 52 American Institute for Economic Research

Appendix A TABLE 1A Pre-ACA Coverage Distribution by State State Employer IHS Individual Medicaid Medicare Uninsured VA/Tricare Alabama 44.6% 0.0% 5.0% 14.8% 18.2% 13.7% 3.8% Alaska 43.3% 6.7% 2.5% 12.3% 9.4% 13.6% 12.2% Arizona 40.7% 1.0% 5.3% 16.6% 16.3% 17.0% 3.1% Arkansas 40.7% 0.1% 4.3% 16.6% 18.8% 16.4% 3.1% California 43.8% 0.1% 6.3% 16.5% 13.3% 17.9% 2.1% Colorado 48.0% 0.1% 7.4% 12.4% 13.1% 14.4% 4.5% Connecticut 54.2% 0.0% 4.5% 14.2% 16.3% 9.3% 1.4% Delaware 49.3% 0.0% 3.7% 17.0% 17.8% 9.0% 3.2% District of Columbia 50.9% 0.0% 6.2% 21.9% 12.5% 5.5% 2.9% Florida 37.3% 0.0% 5.9% 13.4% 20.0% 20.3% 3.1% Georgia 44.3% 0.0% 4.7% 13.8% 13.7% 19.1% 4.3% Hawaii 47.5% 0.0% 4.9% 13.9% 16.0% 6.6% 11.1% Idaho 45.0% 0.3% 7.4% 12.9% 15.4% 16.0% 2.9% Illinois 50.4% 0.0% 5.0% 15.3% 14.7% 13.1% 1.5% Indiana 50.6% 0.1% 4.1% 12.8% 16.0% 14.7% 1.7% Iowa 52.8% 0.0% 6.7% 12.8% 17.3% 8.4% 1.9% Kansas 50.4% 0.2% 5.8% 10.8% 15.6% 12.8% 4.5% Kentucky 45.7% 0.0% 4.3% 14.5% 17.8% 14.1% 3.6% Louisiana 40.6% 0.0% 5.1% 18.2% 15.7% 17.4% 3.0% Maine 44.7% 0.1% 4.1% 17.7% 20.4% 10.4% 2.7% Maryland 53.9% 0.0% 4.9% 12.6% 14.3% 10.4% 4.0% Massachusetts 56.4% 0.0% 5.0% 17.7% 16.0% 4.0% 1.0% Michigan 49.0% 0.1% 4.5% 16.0% 17.3% 11.8% 1.4% Minnesota 56.9% 0.2% 6.0% 12.0% 15.2% 8.2% 1.5% Mississippi 38.2% 0.1% 4.5% 19.1% 17.3% 17.6% 3.2% Missouri 47.5% 0.0% 5.6% 12.5% 17.5% 14.1% 2.8% Montana 40.1% 2.5% 7.8% 12.1% 17.9% 15.9% 3.8% Nebraska 52.5% 0.2% 7.2% 10.0% 15.5% 10.9% 3.8% Nevada 45.2% 0.2% 4.9% 9.7% 14.4% 21.9% 3.7% New Hampshire 56.4% 0.0% 4.3% 9.3% 16.9% 11.0% 2.2% New Jersey 55.1% 0.0% 4.3% 11.2% 15.5% 13.0% 0.9% New Mexico 37.1% 2.9% 4.1% 18.9% 16.7% 16.3% 4.0% New York 49.4% 0.0% 4.1% 18.6% 15.8% 11.0% 1.1% North Carolina 42.1% 0.1% 5.8% 14.3% 16.5% 16.4% 4.9% North Dakota 53.3% 2.0% 8.7% 6.3% 15.9% 8.8% 5.1% Ohio 50.8% 0.0% 4.0% 14.3% 17.2% 11.9% 1.9% Oklahoma 41.9% 3.3% 4.5% 14.3% 16.9% 15.4% 3.7% Oregon 45.7% 0.3% 6.2% 14.3% 16.8% 14.5% 2.2% Pennsylvania 51.8% 0.0% 5.2% 13.5% 18.0% 10.0% 1.4% Rhode Island 51.4% 0.0% 4.4% 13.0% 17.5% 11.5% 2.1% South Carolina 41.8% 0.0% 4.3% 14.6% 17.6% 16.8% 4.8% South Dakota 47.7% 2.7% 9.1% 11.4% 16.5% 8.2% 4.4% Tennessee 45.0% 0.0% 5.2% 15.1% 17.5% 14.2% 3.1% Texas 42.4% 0.0% 4.3% 14.9% 12.3% 22.8% 3.3% Utah 57.3% 0.1% 5.8% 9.6% 10.7% 14.1% 2.4% Vermont 48.0% 0.0% 5.6% 19.3% 19.0% 6.5% 1.6% Virginia 50.6% 0.0% 5.4% 8.7% 14.8% 12.6% 8.0% Washington 48.1% 0.3% 5.9% 12.6% 14.9% 13.5% 4.7% West Virginia 45.7% 0.0% 2.4% 13.7% 20.8% 14.7% 2.7% Wisconsin 54.1% 0.2% 4.7% 13.7% 16.4% 9.2% 1.7% Wyoming 48.9% 0.8% 6.0% 9.9% 15.2% 15.2% 4.0% Grand Total 46.8% 0.2% 5.2% 14.5% 15.7% 14.8% 2.8% How the Affordable Care Act Affects Your Health Insurance Costs 53

Appendix B TABLE 2 Percentage of Poverty Threshold for Medicaid Eligibility Post-ACA by State Children Children Children Other State Ages 0-1 Ages 6-18 Ages 1-5 Parents Adults Alabama 146 146 146 18 0 Alaska 208 208 208 134 0 Arizona 152 146 138 138 138 Arkansas 216 216 216 138 138 California 266 266 266 138 138 Colorado 147 147 147 138 138 Connecticut 201 201 201 201 138 Delaware 214 147 138 138 138 District of Columbia 324 324 324 221 215 Florida 211 145 138 36 0 Georgia 210 154 138 41 0 Hawaii 313 313 313 138 138 Idaho* 146 146 138 29 0 Illinois 147 147 147 138 138 Indiana* 213 163 163 25 0 Iowa 380 172 172 138 138 Kansas 171 154 138 38 0 Kentucky 200 164 164 138 138 Louisiana 217 217 217 24 0 Maine* 196 162 162 105 0 Maryland 322 322 322 138 138 Massachusetts 205 155 155 138 138 Michigan 200 165 165 138 138 Minnesota 288 280 280 205 205 Mississippi 199 148 138 29 0 Missouri* 210 155 155 25 0 Montana* 164 148 148 53 0 Nebraska 218 218 218 68 0 Nevada 164 164 138 138 138 New Hampshire 323 323 323 75 0 New Jersey 199 147 147 138 138 New Mexico 305 305 245 138 138 New York 223 154 154 138 138 North Carolina 215 215 138 51 0 North Dakota 152 152 138 138 138 Ohio 211 211 211 138 138 Oklahoma* 210 210 210 48 0 Oregon 190 138 138 138 138 Pennsylvania* 220 162 138 38 0 Rhode Island 266 266 266 138 138 South Carolina 213 213 213 67 0 South Dakota 187 187 187 59 0 Tennessee 200 147 138 111 0 Texas 203 149 138 20 0 Utah* 144 144 138 51 0 Vermont 318 318 318 138 138 Virginia 148 148 148 54 0 Washington 212 212 212 138 138 West Virginia 163 146 138 138 138 Wisconsin 306 191 156 100 100 Wyoming 159 159 138 62 0 *Other adults unknown, 0% used in authors calculations. 54 American Institute for Economic Research

Appendix B TABLE 2A Individual Coverage Eligibility by State POST AFFORDABLE CARE ACT Eligible for Likely Eligible Likely Eligible Eligible for Medicare for Tax Credits Coverage for Gov t Pre-ACA Medicaid (Age 65+) and/or Subsidies Gap Funding Total Individual 16,170,743 2,670,475 123,673 3,770,553 661,235 8,944,807 Alabama 241,054 17,822 1,296 81,093 23,309 117,534 Alaska 18,229 1,446-2,394 534 13,855 Arizona 345,079 70,499 6,108 86,125-182,347 Arkansas 126,134 26,627 693 31,392-67,422 California 2,401,365 647,022 17,098 368,719-1,368,526 Colorado 386,066 65,538 2,694 84,102-233,732 Connecticut 162,270 29,502 1,378 22,507-108,883 Delaware 34,069 8,574 214 4,966-20,315 District of Columbia 38,992 15,926 289 1,887-20,890 Florida 1,133,788 61,948 17,467 322,638 108,032 623,703 Georgia 464,050 38,019 3,279 124,461 43,695 254,596 Hawaii 67,571 17,210 1,121 7,986-41,254 Idaho 118,704 6,252 663 44,768 10,299 56,722 Illinois 646,027 129,818 4,523 126,509-385,177 Indiana 268,823 27,116 1,668 75,986 29,290 134,763 Iowa 205,395 39,591 491 56,265-109,048 Kansas 167,564 11,584 417 51,724 16,742 87,097 Kentucky 190,243 40,212 1,242 49,356-99,433 Louisiana 236,808 18,039 1,142 55,146 21,362 141,119 Maine 54,153 6,010 158 13,391 5,103 29,491 Maryland 285,916 56,171 2,803 37,601-189,341 Massachusetts 329,443 86,047 2,584 58,568-182,244 Michigan 445,118 105,628 2,777 116,016-220,697 Minnesota 321,427 95,632 1,011 28,959-195,825 Mississippi 133,526 9,782 516 46,052 10,417 66,759 Missouri 335,160 22,506 2,815 103,461 33,560 172,818 Montana 77,903 4,981 120 26,574 9,707 36,521 Nebraska 132,940 14,040 627 35,749 9,255 73,269 Nevada 135,022 22,537 705 38,485-73,295 New Hampshire 56,221 10,278 49 11,150 3,314 31,430 New Jersey 379,971 69,762 3,430 67,688-239,091 New Mexico 86,130 21,148 827 16,392-47,763 New York 807,242 223,245 8,894 171,923-403,180 North Carolina 561,788 45,913 1,624 160,027 56,078 298,146 North Dakota 60,542 8,335 382 15,985-35,840 Ohio 466,910 111,283 2,918 106,690-246,019 Oklahoma 173,566 18,793 690 46,819 13,154 94,110 Oregon 243,374 54,885 1,748 69,634-117,107 Pennsylvania 664,745 60,188 6,912 186,712 65,363 345,570 Rhode Island 46,100 15,808 90 8,994-21,208 South Carolina 202,711 23,932 1,405 57,291 18,522 101,561 South Dakota 75,745 6,865 204 24,436 4,825 39,415 Tennessee 333,469 25,591 1,453 106,565 23,395 176,465 Texas 1,107,687 58,444 8,200 271,088 101,256 668,699 Utah 165,985 8,881 546 57,529 15,089 83,940 Vermont 34,928 11,220 262 6,829-16,617 Virginia 442,761 41,230 4,140 103,328 37,102 256,961 Washington 406,964 99,424 2,814 80,397-224,329 West Virginia 44,565 12,620-9,394-22,551 Wisconsin 271,889 44,028 983 77,780-149,098 Wyoming 34,611 2,523 203 11,022 1,832 19,031 How the Affordable Care Act Affects Your Health Insurance Costs 55

Appendix B TABLE 2B Uninsured Eligibility by State POST AFFORDABLE CARE ACT Eligible for Likely Eligible Likely Eligible Eligible for Medicare for Tax Credits Coverage for Gov t Pre-ACA Medicaid (Age 65+) and/or Subsidies Gap Funding Total Uninsured 46,544,378 13,061,671 414,691 16,136,014 5,183,702 11,748,300 Alabama 658,686 79,990 1,893 260,343 205,061 111,399 Alaska 99,336 14,140 980 30,177 11,199 42,840 Arizona 1,115,522 512,857 12,017 349,274-241,374 Arkansas 484,607 242,774 2,286 144,652-94,895 California 6,797,529 3,109,112 76,720 1,780,353-1,831,344 Colorado 746,413 301,139 2,360 237,642-205,272 Connecticut 332,214 125,901 5,743 70,145-130,425 Delaware 82,346 32,366 1,396 25,863-22,721 District of Columbia 34,960 18,621 293 3,282-12,764 Florida 3,920,187 426,713 49,464 1,674,572 823,552 945,886 Georgia 1,896,783 300,175 12,661 749,668 459,056 375,223 Hawaii 92,415 38,473 1,797 24,508-27,637 Idaho 256,052 27,815 681 113,580 58,371 55,605 Illinois 1,692,390 705,824 19,992 500,929-465,645 Indiana 964,191 124,617 3,305 386,129 226,737 223,403 Iowa 259,472 111,518 830 84,303-62,821 Kansas 368,911 53,265 1,283 155,730 77,213 81,420 Kentucky 617,979 337,840 1,378 173,436-105,325 Louisiana 799,059 106,958 5,803 298,518 198,810 188,970 Maine 137,874 12,307 322 57,781 24,037 43,427 Maryland 609,727 220,974 8,469 151,286-228,998 Massachusetts 264,915 89,437 3,688 71,891-99,899 Michigan 1,166,613 567,579 6,600 335,335-257,099 Minnesota 439,457 251,854 2,846 61,948-122,809 Mississippi 524,013 78,466 924 204,153 147,778 92,692 Missouri 846,161 106,954 3,618 357,769 208,350 169,470 Montana 159,552 16,135 553 72,847 30,245 39,772 Nebraska 201,497 34,385 821 90,985 34,533 40,773 Nevada 605,142 276,780 6,119 175,989-146,254 New Hampshire 145,239 16,362 1,279 52,442 20,765 54,391 New Jersey 1,148,094 396,408 19,930 325,206-406,550 New Mexico 339,620 173,521 4,194 90,662-71,243 New York 2,150,646 798,384 24,018 607,506-720,738 North Carolina 1,602,910 192,669 7,819 693,709 383,308 325,405 North Dakota 61,392 15,896 174 26,676-18,646 Ohio 1,368,675 668,369 8,670 394,255-297,381 Oklahoma 585,994 92,348 3,342 228,696 120,167 141,441 Oregon 564,953 259,693 3,135 180,097-122,028 Pennsylvania 1,279,325 163,804 9,711 531,790 253,705 320,315 Rhode Island 121,282 52,426 1,043 28,521-39,292 South Carolina 795,124 135,549 5,589 319,496 177,456 157,034 South Dakota 68,167 7,176 345 24,482 13,723 22,441 Tennessee 918,071 165,603 4,518 381,612 183,293 183,045 Texas 5,930,140 700,534 61,686 2,424,847 1,245,579 1,497,494 Utah 401,302 65,299 1,748 166,219 62,380 105,656 Vermont 40,963 12,660 51 15,349-12,903 Virginia 1,028,558 113,168 10,819 404,237 205,459 294,875 Washington 932,095 377,088 7,956 272,383-274,668 West Virginia 271,956 134,561 1,663 84,049-51,683 Wisconsin 528,257 186,529 1,473 207,114-133,141 Wyoming 87,612 8,655 686 33,578 12,925 31,768 56 American Institute for Economic Research

Appendix B TABLE 2C Coverage Gaps Sorted by State Individual Market % of Population Uninsured % of population United States 661,235 0.2% 5,183,702 1.7% Florida 108,032 0.6% 823,552 4.3% Texas 101,256 0.4% 1,245,579 4.8% Pennsylvania 65,363 0.5% 253,705 2.0% North Carolina 56,078 0.6% 383,308 3.9% Georgia 43,695 0.4% 459,056 4.6% Virginia 37,102 0.5% 205,459 2.5% Missouri 33,560 0.6% 208,350 3.5% Indiana 29,290 0.4% 226,737 3.5% Tennessee 23,395 0.4% 183,293 2.8% Alabama 23,309 0.5% 205,061 4.3% Louisiana 21,362 0.5% 198,810 4.3% South Carolina 18,522 0.4% 177,456 3.8% Kansas 16,742 0.6% 77,213 2.7% Utah 15,089 0.5% 62,380 2.2% Oklahoma 13,154 0.3% 120,167 3.2% Mississippi 10,417 0.3% 147,778 5.0% Idaho 10,299 0.6% 58,371 3.7% Montana 9,707 1.0% 30,245 3.0% Nebraska 9,255 0.5% 34,533 1.9% Maine 5,103 0.4% 24,037 1.8% South Dakota 4,825 0.6% 13,723 1.6% New Hampshire 3,314 0.3% 20,765 1.6% Wyoming 1,832 0.3% 12,925 2.2% Alaska 534 0.1% 11,199 1.5% How the Affordable Care Act Affects Your Health Insurance Costs 57

Appendix B TABLE 3 Individual Market Pre-ACA Premium Rating Rules by State No Rating Rating Bands Adjusted Community Rating Community Rating Alabama 241,054 Kentucky 190,243 Massachusetts 329,443 New York 807,242 Alaska 18,229 Nevada 135,022 Maine 54,153 Michigan 445,118 Arizona 345,079 New Hampshire 56,221 Washington 406,964 Arkansas 126,134 New Mexico 86,130 Oregon 243,374 California 2,401,365 Rhode Island 46,100 Vermont 34,928 Colorado 386,066 Utah 165,985 New Jersey 379,971 Connecticut 162,270 Idaho 118,704 Delaware 34,069 North Dakota 60,542 District of Columbia 38,992 South Dakota 75,745 Florida 1,133,788 West Virginia 44,565 Georgia 464,050 Minnesota 321,427 Hawaii 67,571 Illinois 646,027 Indiana 268,823 Iowa 205,395 Kansas 167,564 Louisiana 236,808 Maryland 285,916 Mississippi 133,526 Missouri 335,160 Montana 77,903 Nebraska 132,940 North Carolina 561,788 Ohio 466,910 Oklahoma 173,566 Pennsylvania 664,745 South Carolina 202,711 Tennessee 333,469 Texas 1,107,687 Virginia 442,761 Wisconsin 271,889 Wyoming 34,611 Total 12,168,866 1,300,684 1,448,833 1,252,360 58 American Institute for Economic Research

Appendix B TABLE 3A Rating Standards for Uninsured Population in Individual Market by State No Rating Rating Bands Adjusted Community Rating Community Rating Alabama 658,686 Kentucky 617,979 Massachusetts 264,915 New York 2,150,646 Alaska 99,336 Nevada 605,142 Maine 137,874 Michigan 1,166,613 Arizona 1,115,522 New Hampshire 145,239 Washington 932,095 Arkansas 484,607 New Mexico 339,620 Oregon 564,953 California 6,797,529 Rhode Island 121,282 Vermont 40,963 Colorado 746,413 Utah 401,302 New Jersey 1,148,094 Connecticut 332,214 Idaho 256,052 Delaware 82,346 North Dakota 61,392 District of Columbia 34,960 South Dakota 68,167 Florida 3,920,187 West Virginia 271,956 Georgia 1,896,783 Minnesota 439,457 Hawaii 92,415 Illinois 1,692,390 Indiana 964,191 Iowa 259,472 Kansas 368,911 Louisiana 799,059 Maryland 609,727 Mississippi 524,013 Missouri 846,161 Montana 159,552 Nebraska 201,497 North Carolina 1,602,910 Ohio 1,368,675 Oklahoma 585,994 Pennsylvania 1,279,325 South Carolina 795,124 Tennessee 918,071 Texas 5,930,140 Virginia 1,028,558 Wisconsin 528,257 Wyoming 87,612 Total 36,810,637 3,327,588 3,088,894 3,317,259 How the Affordable Care Act Affects Your Health Insurance Costs 59

Methods Appendices A and B: Estimating Health Care Market Distribution To understand the relative magnitude of the ACA, it is necessary to fully comprehend the number of U.S. citizens that may be affected by the legislation. We used U.S. Census data to evaluate health care coverage for U.S. citizens in 2012 ( Pre-ACA ), and then estimated the number of citizens that would be affected by the expansion of Medicare and subsidies under the ACA ( Post-ACA ). This exercise was meant to look at U.S. citizens that are currently uninsured or purchasing insurance directly and approximate which of them will be offered expanded Medicaid benefits or ACA subsidies. METHODOLOGY: IPUMS DATA To understand how the ACA changed the way the health care market was distributed, AIER analyzed Public Use Microdata from the 2012, 1 percent state sample decennial census. Census micro-data are composed of individual records containing information collected on persons and households. The unit of observation is the individual. The responses of each person to the different census questions are recorded in separate variables. This sample is derived from the American Community Survey, an annual survey that collects data to help determine how federal and state funds are distributed each year. The survey asks questions about age, sex, race, family and relationships, income and benefits, health insurance, education, disabilities, work, and costs of living. VARIABLES The variables included in this analysis were geographic and more technical variables, such as state; number of family members in the household; number of children in the household; age of children; relationships between family members in households; demographic variables, including age, sex, educational attainment, labor force status, employment status, poverty status, and household income; and insurance status variables, such as private health insurance coverage, health insurance purchased directly, health insurance through TRICARE, any public health insurance coverage, insurance through Medicaid, insurance through Medicare, insurance through the Veteran s Administration, and insurance through Indian Health Services. SAMPLE The 2012 1 percent sample is a 1-in-100 national random sample of the population. The sample is weighted to reflect characteristics of the national population. The smallest identifiable geographic unit of the sample is the Public Use Microdata Area (PUMA), a geographic boundary containing at least 100,000 persons. PRE-ACA RESULTS To derive information about health care insurance distribution, AIER pooled these microdata into STATA, a statistical package that allows for aggregating and analyzing individual observations. Some individuals reported more than one source of health insurance. To calculate distribution in 2012, before the ACA was enacted, AIER assigned sources of coverage using the following government-utilized, hierarchy of coverage (Health and Human Services 2013:5). How the Affordable Care Act Affects Your Health Insurance Costs 61

Methods 1 Medicare (HINSCARE=2). 2 VA/TRICARE, or military (HINSTRI or HINSVA=2). 3 Medicaid (HINSCAID=2). 4 Employer coverage (HINSEMP=2). 5 Direct purchase, or individual (HINSPUR=2). 6 Indian Health Services, or IHS (HINSIHS=2). 7 Uninsured (all above variables = 1). It is important to note that other estimates of distribution use different hierarchies (e.g., prioritizing Medicaid over Medicare), and thus distributions may vary across representations. Following the assignment of primary coverage source, AIER calculated distributions by total observations and percentages across insurance categories using the Persons Weight (PERWT) variable for the individual weight of each observation. POST-ACA RESULTS To estimate coverage figures post ACA, we used the following framework. 1 We assign individuals aged 65 and older eligible for Medicare. 2 We assign qualification for Medicaid based on the most updated legislation by state. The estimates are updated to November 2013. These estimates compute qualification based on age (children qualify for Medicaid in certain age groups), parental status (impoverished parents of young children), and poverty status (certain adults without children but under a certain amount of hardship qualify for Medicaid in some states). For purposes of simplicity, it disregarded eligibility limits of pregnant women, as that distinction is not computable using census data. 3 We assign qualification for individual purchase subsidies based on 100-400 percent of the poverty line (variable is POVERTY). This group is calculated exclusive of those that would qualify for Medicaid. 4 We exclude those above 300 percent of the poverty line (POVERTY>300). 5 We exclude working households with household income greater than $60,000 (household income calculated using INCTOT variable summed by SERIAL variable and working status determined by the EMPSTAT variable where at least one household member must have a value equal to one). 6 Finally, we estimate the number of Americans that will fall in the coverage gap. These individuals have income less than 100 percent of the poverty line (POVERTY < 100) and do not qualify for Medicaid based on state legislation. We assume zero percent population growth as this is intended to be a point-in-time estimate. 62 American Institute for Economic Research

Methods Total U.S. Population Remaining Total Uninsured and Individual 62,715,121 62,715,121 Eligible for Medicare (Age 65+) 538,364 62,176,757 New Eligible for Medicaid 15,732,146 46,444,611 Eligible for Tax Credits (100-400% Poverty) 29,293,729 17,150,882 Excluded for Poverty > 300% (6,422,921) 23,573,803 Excluded for Income > $60k (2,964,241) 26,538,044 Coverage Gap 5,844,937 20,693,107 PRE-ACA COVERAGE We start by looking at national and state-by-state coverage bucketed into seven categories: employer coverage, individual coverage (direct purchase), Medicaid, Medicare, VA/TRICARE (military), Indian Health Services, and uninsured. As of the 2012 Census data, about 15 percent of people the United States is uninsured and 5 percent purchase health insurance directly ( individual ). These two groups, representing about 20 percent of U.S. citizens, are those that will be most directly affected by the ACA. A chart of coverage by source is provided below. A table representing state-by-state coverage data is provided in Appendix A. ELIGIBILITY FOR INDIVIDUAL MARKET AND UNINSURED Number of People Estimated Eligible for Eligible for Tax Likely Eligible for Medicare Credits and/ or Coverage Ineligible for Pre-ACA Medicaid (Age 65+) Subsidies Gap Gov t Funding Individual 16,170,743 2,670,475 123,673 3,770,553 661,235 8,944,807 Uninsured 46,544,378 13,061,671 414,691 16,136,014 5,183,702 11,748,300 Percentage of Country Individual 5.2% 0.9% 0.0% 0.9% 0.2% 2.0% Uninsured 14.8% 4.2% 0.1% 4.3% 1.7% 1.6% POST-ACA ELIGIBILITY Medicaid Expansion. Under the new legislation, Medicaid is set to expand in many states. This will allow a greater percentage of individuals and families to access Medicaid coverage. We find that about 13 million uninsured individuals and 3 million individuals who purchase insurance directly will become eligible for Medicaid under the expanded mandate. This represents about five percent of the total U.S. population. A table of post-aca Medicaid eligibility thresholds is provided in Appendix B, Table 2. ACA Subsidies and Tax Credits. A key component of the ACA is the availability of health insurance subsidies and tax credits for families making up to four times the poverty line. Out-ofpocket subsidies and tax credits are available for those making between 100 and 250 percent of the poverty line. Tax credits only are available for those making between 250 and 400 percent of How the Affordable Care Act Affects Your Health Insurance Costs 63

Methods the poverty line. Individuals and families that are offered coverage through an employer will not be eligible for these benefits. Without direct knowledge of available coverage available through the census data, we chose to exclude working households with income greater the $60,000 from tax credit eligibility. Empirical evidence suggests that many of these people are offered coverage or will be offered coverage through their employers. The total number of citizens eligible is also reduced due to a minimum premium. For example, at 400 percent of the poverty line, premiums must represent at least 9.5 percent of income in order to be eligible for benefits. It remains to be seen how premiums will be affected by the legislation. For the purposes of our estimates, we estimate that people with incomes greater than 300 percent of the poverty line will not be eligible for tax credits. It is likely that if some of these people were eligible, their benefit would likely be small. (Please see Methodology for calculations). Altogether, we estimate that about 16 million uninsured Americans will become eligible for subsidies and tax credits (exclusive of Medicaid eligibility), and 4 million Americans that are buying insurance directly will become eligible for subsidies (non-medicaid). These 20 million people equate to about 5 percent of all Americans. Coverage Gap. There is a slice of the U.S population that will not gain eligibility for Medicaid and cannot receive ACA subsidies under the current law. These individuals are included in a coverage gap. This circumstance arises when state Medicaid benefits do not cover an entity, but the individual or family also makes too little (<100 percent of the poverty line) to receive ACA subsidies. This group is most susceptible to remaining uninsured under the ACA. There are 5 million such individuals that are currently uninsured, as well as 661,000 more that purchase insurance directly. This represents about 2 percent of the country, concentrated in states that are not offering extended Medicaid benefits. Coupled with added Medicaid eligibility, about 36 million, or 10 percent of all Americans, will be eligible to move from uninsured or individual purchase to Medicaid or subsidies. Methods for Estimated Coverage Population for Small and Large Group Markets To evaluate the ACA s impact on group health insurance, employer coverage was split into two groups: the small-group market and large-group market. ACA provisions apply differently to small- and large-group markets, making it essential to estimate coverage by firm size. We estimate the population included in these separate markets using Medical Expenditure Panel Survey (MEPS)and U.S. Census data. The ratio of covered employees by firm size is calculated from MEPS data. This ratio is applied to all individuals covered under employer-sponsored plans as per U.S. Census data to achieve an estimate of coverage by firm size. It is necessary to use multiple data sources because the MEPS data do not include information on dependent coverage. 64 American Institute for Economic Research

Methods Estimating the Ratio of Covered Employees by Firm Size (Small and Large Groups). The 2012 MEPS samples are below. 1 The number of full-time and part-time employees by firm size: Firms with 50 or fewer employees constitute the small group insurance market, and firms with more than 50 employees represent the large group insurance market. This data is denoted by [1] and [2] in the table below. 2 The percentage of firms offering health insurance by firm size ( Offer Rates ): This data is denoted by [3] in the table below. 3 The percentage of full-time employees that are enrolled in health insurance at firms that offer health insurance ( Enrolled Rate ). This percentage excludes people that decline insurance and those that work at firms that offer insurance but are not eligible. This data is denoted by [4] and [5] in the table below. Employee coverage is estimated as the product of employees, offer rates, and enrolled rates. The total number of employees covered as per the MEPS data is 51 million, 11 percent of which are in the small group, and 89 percent of which are in the large group. These ratios are applied to the total number of individuals covered from the U.S. Census (147 million) to get an estimate of total coverage by firm size. Small and Large Group Calculation MEPS Data Small Group <50 Large Group >=50 Total Full Time Employees [1] 21,262,702 64,313,003 85,575,705 Part Time Employees [2] 9,352,729 16,191,388 25,544,117 Offer Rates [3] 35.2% 95.9% FT Enrolled Rate [4] 68.7% 70.1% PT Enrolled Rate [5] 11.3% 13.5% FT Covered = [1] * [3] * [4] 5,141,832 43,234,995 48,376,827 PT Covered = [2] * [3] * [5] 372,014 2,096,218 2,468,232 All Employees Covered 5,513,846 45,331,213 50,845,059 Ratio of Coverage by Firm Size [6] 10.8% 89.2% Census Data Total Employer Coverage (Includes Dependents, FT + PT) [7] 146,856,847 Employer Coverage by Firm Size = [6] * [7] 15,925,756 130,931,091 146,856,847 Additional assumptions. The MEPS categorizes firms from 1-50 employees. The small group health insurance market, however, is defined as 2-50 employees in 13 states. Offer rates differ by firm size, especially among small firms. The smallest firms, 10 or fewer employees, have the lowest offer rate of 28 percent, as offer rates tend to decrease by firm size. Our estimates do not account for differences in offer rates by this more granular How the Affordable Care Act Affects Your Health Insurance Costs 65

Methods measure of firm size. Finally, our estimation necessarily assumes that the average number of dependents per covered employee is the same across all firm sizes and therefore the same for the small and large groups. Methods for Estimating people covered by firms with 51 to 100 employees Employers with 51 to 100 employees will be doubly regulated in 2016 when they move from the large group to the small group market. They will continue to be mandated to offer coverage and be required to provide all minimum requirements for small-group plans including essential health benefits. To quantify a rough estimate of people covered by employers with 51-100 employees, we use employment data from the Small Business Administration, the Kaiser Employer Survey, and census data. We multiplied all employees in firms with 50-99 employees by the percentage of those who are covered by employer health insurance to get the total number of covered employees. To calculate all people covered in this group, we multiplied the average number of dependent per employee by all employees covered. Estimating the Number of People Covered in the 51 to 100 Employee Range SAMPLES 1 Employment and Small-Firm Size Classes (SBA, 2011). This is used to measure the number of full-time and part-time workers employed in firms with 50-99 employees. 2 Percentage of all workers covered by their employer s health benefits in firms both offering and not offering health benefits. This allows U.S. to skip offer, eligibility, and take-up rates as a filter and solely apply the coverage rate (Employer Benefits Survey-Kaiser, 2013). Parttime workers are also included in the coverage rate. 3 Average number of dependents per covered worker (AIER). We were able to calculate the number of dependents per covered worker by dividing total employer coverage (including dependents, full-time and part-time employees) by all employees covered by group health insurance. Additional assumptions. All employment and firm size data is from the SBA s 2011 employment survey. We are assuming that the number of firms and number of employees by firm size is unchanged from 2011. AIER uses two firm size categories from the SBA data to represent the 51-100 employer group; sizes 50-74 and 75-99. Therefore, our estimate omits firms with exactly 100 employees. Finally, our estimation assumes that the average number of dependents per covered employee is the same across all firm sizes and therefore the same for firm sizes from 50-74 and from 75-99. 66 American Institute for Economic Research

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