The Unintended Consequences of the Affordable Care Act

The Affordable Care Act was passed in 2010 with hopes of bringing down health care costs for Americans. These hopes never materialized, though. The years following the enactment of the ACA were plagued by rapidly rising health insurance premiums and market consolidation.

Health insurance plans are divided up into three categories: small-group market, individual market, and large-group market. ACA Marketplace premiums are based on premiums in the individual market, while the large-group market refers to employer-sponsored health insurance plans.

Skyrocketing Prices

The Affordable Care Act was fully implemented at the start of 2014. From just the first few years of the ACA, 2013 to 2017, insurance premiums increased by an average of 105% in the individual market. The increase was 93% in Wisconsin. Several states even saw their premiums triple after the ACA’s full rollout.

Data from the Heritage Foundation further illustrates the rapid rise in premiums in the individual market following the enactment of Obamacare. Between 2013 and 2019, premiums in the individual market increased by an average of 151%. This is compared to 29% in the large-group market, which is subject to far less regulation under the ACA than the individual and small-group markets.

So why did the Affordable Care Act cause a price surge in insurance premiums? It did so mainly by creating new mandates and regulations, which resulted in higher prices for insurance across all markets.

First off, the ACA set caps on how much of the premiums collected from employer insurance plans could be spent on non-health care service-related costs to between 80% and 85% of premiums collected. This is known as the Medical Loss Ratio.

The ACA also implemented minimum coverage standards for both employer-issued and individual health insurance plans. These new standards reduced consumer choice and pushed up costs due to an increase in the number of required services by health insurance providers.

Perhaps most detrimental was the ACA’s enactment of modified community rating, which placed price controls on health insurance plans sold in the individual and small-group markets. Essentially, insurers in these markets are not allowed to consider preexisting conditions or other medical history when deciding the price of their premium. This ended the previous practice of risk-rating that dominated the individual and small-group markets prior to 2014.

Less Competition

All of these regulations from the Affordable Care Act disincentivized insurance companies to economize, pushed up prices, and reduced consumer choice. The result was a consolidated market with only a few massive insurance companies dominating almost the entire market.

The Government Accountability Office reported that the private health insurance market did massively consolidate between the years of 2011 and 2022. Particularly, the median number of issuers per state in the individual health insurance market decreased from 30 issuers in 2011 to 10 in 2022, and from 13 issuers to only 5 in the small-group health insurance market.

Moreover, in just 2016 alone, the number of medically qualified health plan (QHP) issuers operating within exchanges on the federal platform dropped by 30%. By 2018, things looked even more dismal, as over half of U.S. counties on the federal platform had only had a single issuer, offering consumers little to no choice.

It is also worth noting that the large-group market, which is not subject to the same regulation and adjusted community rating system, consolidated considerably less than the small-group and individual markets.

A report from HHS also noted that the lowest premium increases came from states that had already implemented regulations and mandates similar to that of the ACA prior to 2010. This proves that the new mandates and consequential market consolidation were the real drivers of the rising premiums.

Introducing Deregulation

Data shows that insurance premiums in all three markets peaked around 2019 and have been fluctuating up and down since. The average premium increase for the silver benchmark plan on the ACA Marketplace dropped from $569 per month in 2018 to $476 per month in 2024.

The fluctuations and even slight decline in premiums in the individual market can largely be explained by deregulation.

In 2017 and 2018, there were immense efforts made by the Trump Administration to reduce some of the regulatory pressure that was put on the insurance industry by the ACA. The main push was to encourage more insurers to enter the market, increasing competition and pushing down prices.

The efforts were largely successful, as the number of issuers on the federal exchange increased by 23 providers in 2019 alone, signaling a reverse in course.

The Trump administration also debuted Section 1332 Waivers in 2017. Wisconsin was one of 20 states to be granted a waiver. These waivers allowed states to deviate more from federal ACA requirements.

Wisconsin’s State Innovation Waiver eliminated the requirement for providers to use adjusted community-based ratings, meaning providers no longer had to consider all enrollees in the market to be a part of a single risk pool.

In 2022, Wisconsin projected that insurance premiums would be about 10.8% lower in 2024 on the individual market due directly to this waiver.

Conclusions

Over a decade later, the evidence is clear: the heavy-handed regulations of the ACA failed to make health care affordable and instead led to skyrocketing premiums. The fall of premiums after 2019 shows that deregulation and market competition are the best path forward to affordable health insurance.

Hopefully Washington will realize that regulation is not the answer to affordable premiums and will reverse course on its failed 11-year approach to health care policy.