Why the Affordability Promise Is Hard to Swallow

– Mike Reitz, CEO

When the Affordable Care Act kicks in next year, some consumers and small businesses will find that while it delivers on care, it falls short on affordability. It's just not realistic to think that you can create a system in which every American has top-of-the-line health insurance no matter what their age or health issues, without raising costs.

So let me paint you a more realistic picture of how some of the ACA's provisions will play a part in raising health insurance rates for many.

New taxes and fees. The ACA contains eight new taxes and fees that will affect individuals, employers and health insurers. The health insurer tax alone will add an estimated $100 billion to health care costs nationwide over 10 years.

These new government taxes and fees will directly impact premiums and drive rates up.

New benefits, new costs. The new health care law mandates that all insurance plans now include a standard package of deluxe benefits. These "essential benefits" as they are called, come in 10 different categories. These extra benefits will add greater coverage and greater cost to policies. Bottom line: More benefits, more cost.

New formulas for what you pay. The ACA creates new formulas or rating systems to determine how much your health insurance policy will cost. For example, rates will no longer change due to age or health status. Under the new ACA system, older, sicker people, who use more medical services, will pay less. And younger, healthier people, who typically use fewer services, will pay more. So, now more than ever, the young and healthy will help subsidize the cost of covering older, less healthy individuals.

Given the new formulas for determining cost, the new taxes and fees and new, mandated benefits, many Americans will pay more for health insurance.

But this bitter pill might be a little easier for some Americans to swallow. In some cases, rate increases might be offset somewhat by government subsidies that will be available to individuals in certain income brackets. Some small businesses also are eligible for tax credits from the IRS to offset health insurance costs. And finally, those employers who were able to grandfather their plans should not be heavily impacted by the ACA - for the moment. Grandfathering status won't be easy to maintain over the long run.

Expanding coverage to millions of uninsured citizens is a commendable goal. But we must remember, this expansion, as designed by the ACA, comes at a cost. It is important to understand that the promise of affordability is one that the administration cannot keep for everyone. And this might be the hardest pill of all to swallow.

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