Time for Affordability


The Major Factors | Subsidies | Variation | Rising Health Care Costs |
Frequently Asked Questions

• Website:  Explaining the Health Care Reform Law’s New Benefits and New Costs
• Infographic:  The Health Care Reform Law’s New Benefits and New Costs
• Report:  Comprehensive Assessment of ACA Factors That Will Affect Individual Market
   Premiums in 2014
• Fact Check:  Premium Subsidies 
• What They Are Saying:  Time for Affordability 

The health care reform law will expand access to insurance coverage and broaden insurance benefits. Anyone will be able to sign up for coverage, including those with pre-existing medical conditions. These new benefits bring new costs. Financial assistance will be available to help qualifying individuals and families pay for coverage. Even with this new assistance, the new benefits will cause some people who currently have insurance to pay more than they do today. These changes will affect people differently, depending on where they live, what coverage they have today, and their age, health, gender, and income. To learn more about the major changes to health insurance, visit www.timeforaffordability.org.

The Major Factors: 

On January 1, 2014, health insurance changed significantly for individuals buying coverage on their own.  A report from Milliman, Inc. examines in comprehensive detail the factors that increase or reduce premiums.  These factors include:

  • Change in who is covered – The health care reform law will mean millions of new people are getting coverage for the first time.  Many of these individuals may have higher health care costs than individuals who currently have coverage.  Additionally, for the first time ever, individuals with pre-existing conditions who do not employer sponsored coverage will be able to purchase coverage. 
  • Change in what is covered – The health care reform law requires health plans to provide coverage for an essential health benefits (EHB) package that includes a broad range of mandated benefits, some of which typically are not included in current individual and small group policies.  Additionally, plans will have to cover a minimum percentage of health care costs for an average beneficiary (known as actuarial value). 
  • New regulations – There are a number of new changes to the way health insurance is regulated, including limiting how much premiums can differ.  These regulations include restrictions on age rating as well as no longer allowing premiums to differ based on health status or gender.  The law allows for differences of premiums based only on four criteria: age, location, family size, and smoking.
  • New taxes and fees – The law includes a number of new taxes and fees that will increase premiums. This includes a new $100 billion health insurance tax which increases costs for individuals, families, and employers.  There is also a new “user fee” for health plans operating in the federal Exchange; state-based exchanges may impose user fees as well.
  • Financial assistance – Millions of individuals will have access to financial assistance in the form of premium tax credits and lower cost sharing.  While this financial assistance does make coverage more affordable, it does nothing to actually lower the cost of health care.
  • Other factors – The Milliman report also examines the impact of other factors such as competition in the Exchanges, benefit design, the transitional reinsurance program, and pent up demand from individuals having coverage for the first time.

 For a more in-depth analysis of all of these provisions, read the full report from Milliman. 

Other reports have examined the impact of the new law and reinforce the Milliman report’s findings.  An issue brief from the American Academy of Actuaries identifies several factors that will determine premium levels in 2014: the effectiveness of the individual mandate and premium subsidies at attracting low-cost enrollees into the insurance market; new benefit requirements that may lead to higher premiums but lower out-of-pocket costs; decisions by employers about whether to continue offering coverage and the health status of employees whose coverage is dropped; how each state’s current market rules compare to the reforms that take effect in 2014; and the demographic characteristics and health status of consumers purchasing coverage through the new Exchanges. 


The ACA provides premium and cost-sharing subsidies to help low- and moderate-income Americans purchase insurance. Subsidies will clearly help many families pay for health care coverage, but subsidies will do nothing to bring down the actual cost of that coverage. Suggesting that they will is comparable to saying that Pell Grants reduce the cost of college tuition. Pell Grants enormously help families afford the high cost of education, but they do not lower tuition levels. Meanwhile, tuition prices soar.

Importantly, according to the CBO, millions of people are not eligible for subsidies and the amount of the subsidy declines significantly as incomes rise. The CBO states that more than 40 percent of people purchasing coverage in the individual market today would be ineligible for premium subsidies. Individuals with incomes between 250-300 percent of the federal poverty line (FPL) would receive subsidies sufficient to cover 42 percent of the cost of the second lowest-cost “silver” plan while those with incomes between 350-400 percent of the FPL would receive subsidies sufficient to cover just 13 percent of the premium. Moreover, due to how the subsidies are indexed, CBO states that over time “the shares of the premiums that the subsidies cover will decline.” 


There will also be tremendous variation in how the reforms will affect individuals depending on the rules and regulations a state has in place today.  In fact, a recent study by the Society of Actuaries found that “there will be significant variation across states in the impact of the ACA on average cost” for individuals and families purchasing coverage on their own.

The impact on specific individuals will vary significantly depending on their age, gender, location, health status, income level, and what coverage they have today.  The Milliman report found that “young, healthy males could see substantial increases due to the combination of the overall rate change and the age/gender rating requirements” while “older, less healthy individuals could see rate reductions.”

Further, families and employers currently have broad flexibility to purchase the coverage that best meets their specific health care and financial needs. The impact the ACA will have on their premium depends entirely on the type and amount of coverage they have today. For example, a person who currently has comprehensive coverage through their employer will not see the same impact on their premium as someone with individual market coverage who has chosen to purchase a low-premium, high-deductible plan that provides coverage for catastrophic health care costs.  

Simply looking at the average increase does not tell the whole story about what these changes may mean for a particular individual or employer. 

Rising Health Care Costs

Any increase in premiums as a result of the ACA will be on top of the unsustainable rise in underlying medical costs. Soaring medical costs are driving up the cost of coverage, taking up a greater share of federal and state budgets, and threatening the long-term solvency of our nation’s public safety net programs. While the ACA takes a number of preliminary, but promising, steps toward reforming the delivery system, much more needs to be done to control health care cost growth.  

To help shine a spotlight on medical cost drivers, AHIP released a new iPad app that consolidates 50 years of federal health care spending data into a series of easy-to-use, interactive charts. App users can view historical and projected health care spending data at the national level, state-by-state, on a per capita basis, or as a percent of GDP. The app also provides a detailed breakdown of how much the nation is spending on different aspects of the health care system, such as hospital care, physician services, prescription drugs, and health plan administrative costs, and how each of these components contributes to health care cost growth. 

Health plans are leading efforts to reform the payment and delivery system by partnering with providers to reward quality care, promoting prevention and wellness, and helping patients and physicians manage chronic disease. These initiatives have demonstrated results in better health outcomes, improved patient safety, fewer preventable hospital readmissions, and lower health care costs.

Health Care Costs Infographic  Provider Consolidation Infographic 

Frequently Asked Questions

Doesn’t the individual mandate solve the problem of people waiting until they are sick to buy coverage?  

 Individuals and families purchasing insurance in the individual market are guaranteed coverage for pre-existing conditions, and their premiums cannot vary based on their gender or medical history. The ACA also includes a requirement that all Americans carry health insurance. The individual mandate is intended to reduce the incentive for people to wait to purchase coverage until after they are sick or injured, which would unfairly penalize everyone with insurance. Yet many experts question whether the coverage requirement will be sufficient to encourage younger and healthier people to take up coverage, especially when they are faced with significantly higher costs due to the health insurance tax, benefit mandates, and rating restrictions included in the ACA. In fact, the penalty for failing to carry insurance in 2014 will be as low as $95 – far below the cost of purchasing insurance.   

What about health plan administrative costs and profits?  

Health plans’ administrative costs and profits are sometimes cited as a reason why premiums are rising. The evidence clearly contradicts this unfounded claim. Health plan profits account for less than one penny out of every dollar spent on health care. Further, government data show that last year the portion of premiums allocated to health plans’ administrative costs was the second lowest in the last nine years, even though health plans have been incurring new compliance and regulatory costs related to the health care reform law.  

Moreover, despite evidence that medical costs are driving premium increases, the ACA imposes a new arbitrary federal cap on health plans’ administrative costs and profits (referred to as the "Medical Loss Ratio") and establishes a new federal rate review process on top of existing state laws and regulations governing premiums. To make health care coverage more affordable for families and employers, the focus needs to be on all of the factors driving premium increases, including soaring medical costs, changes in the risk pool, and new taxes, benefit mandates, and regulations. Back to top  

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