Friday, April 26, 2013

Will the Affordable Care Act Lower Health Insurance Costs?

In 2014, two of the most important provisions  of the Affordable Care Act take effect.  These require health insurers to accept all applicants without regard to prior medical conditions, and to provide unlimited coverage.  Although some recent news stories indicate that health insurers are raising premiums in 2014 to compensate for these provisions, it's possible to foresee a time when these same provisions will constrain the growth of health insurance costs. 

These requirements--no exclusion for prior medical conditions and unlimited coverage--provide powerful incentives for insurers to manage health care rationally.  Currently, many health insurers endeavor to limit their exposure to the costliest patients (i.e., those with existing medical conditions and those needing very expensive care).  In other words, insurers attempt to avoid covering those most in need of coverage.  It's no surprise that the most common reason for individuals to file bankruptcy is unmanageable medical bills.  It is perhaps surprising that most of these individuals have some health insurance coverage--but not enough. 

By forbidding insurers to squeeze out those in the greatest need of coverage, the Affordable Care Act now steers insurers' attention toward managing care rationally and providing the best quality, most effective care.  Preventive care, such as regular physicals, screenings, immunizations, wellness programs, and so on will take priority. People will hopefully fall ill and injure themselves less often and perhaps less severely.  In the long run, this fundamental change in approach may lower the growth of premiums, as improvements in health from better preventive care hopefully reduce the need for medical treatment.  Premiums will rise next year for many--but only because they're getting better coverage.  And that improved coverage may pay off in the long run.

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