Repealing protections for people with pre-existing health conditions could be on Congress’ agenda as early as next week. Facing pressure from the Trump administration, Congress may be ready once again to try to repeal the Affordable Care Act, or ACA. This time around, Congress is discussing including an amendment that would allow insurance companies in the individual market to charge higher rates to consumers based on health status.
Under the deal that was leaked, states would be able to waive protections for pre-existing conditions for any reason, as long as they set up a high-risk pool or participated in a federal risk-sharing program. Before the ACA, all but seven states allowed insurance companies to charge higher premiums to people with pre-existing conditions.
Without pre-existing condition protections, health care would become prohibitively expensive for those who need it most. People with asthma, a relatively minor chronic condition, would face a markup of about $4,000 for coverage, while those with severe illnesses such as heart trouble or cancer would face premiums tens of thousands of dollars above standard rates.
The cost of care varies by state, and health insurance costs do too. The Center for American Progress has estimated the premium surcharges that consumers in each state—and the District of Columbia—would face for five conditions under the new congressional Republican proposal: breast cancer; pregnancy; major depression; diabetes; and asthma. We have also accounted for the federal risk-sharing program that Republicans in Congress have put forward as a means of limiting premium increases. The numbers in the table are the average increases that people currently experiencing the listed conditions would pay on top of the standard rate for health coverage, including the new risk-sharing program.
However, as evidence from before the passage of the ACA shows, insurance companies would also set rates based on previous ailments. More than 130 million nonelderly Americans have pre-existing conditions, and the return of rating on health status would subject them to thousands of dollars of extra expenses for individual market coverage.
To download the table of pre-existing condition surcharges by state, click here.
Sam Berger is a Senior Policy Adviser at the Center for American Progress. Emily Gee is a Health Economist at the Center.
Methodology
Under the ACA, insurers can vary premiums according to standard age rating curves but cannot vary them by health status. To estimate how rating up would affect premiums without pre-existing condition protections, we used relative cost factors from the Centers for Medicare & Medicaid Services’, or CMS’, risk adjustment program, which is calibrated to the costs of the individual market population.
The starting point for our estimate is the Congressional Budget Office, or CBO, score of the American Health Care Act, or AHCA, which projected that the premium for an individual of age 40 would be $6,050 per year in 2026. Because the CBO score assumed that pre-existing condition protections were still in effect and because 40 is the average age in the exchanges, we believe that $6,050 is a good approximation of what the average premium would cost in that year for the exchange population. We therefore assume that $6,050 would be the premium for someone with average plan liability risk, or a score of 1.0. This person would be of average health status and therefore not perfectly healthy.
We then introduced state variation in premium levels because the cost of care varies by state. We compared each state’s 2017 average benchmark silver-level premium to the average premium among all states using the HealthCare.gov enrollment platform, calculating each state’s premium level as a ratio to the national average. In states where data on the statewide average benchmark premium were unavailable, we used the benchmark premium for the state’s largest city, as reported by the Kaiser Family Foundation. For each state, we multiplied that relative cost ratio by $6,050 to approximate the premium for someone with average plan liability risk in the state.
We applied just the CMS risk adjustment factors for age and sex in order to represent the plan liability for a healthy individual. We took the risk factors for a male aged 40 to 44 (score of 0.221) and a female aged 40 to 44 (0.455), to generate a weighted average risk score for a 40-year-old (0.347) using the current male/female proportions in exchange enrollment. Multiplying the risk score by the average premium implies that $2,100 would be the actuarially fair premium for a 40-year-old with no health conditions.
Health plans would set premiums at the time of application and would need to price in unforeseen conditions among apparently healthy people. For example, enrollees may not become pregnant or receive a cancer diagnosis until after enrollment. Because current diagnoses and medical history are not perfect predictors of future health status, we assume the risk score for an enrollee with no conditions at the time of application would be 0.674, halfway between the average among all enrollees (1.0) and that of a person who remains healthy all year (0.374). This equates to a standard rate premium of roughly $4,020 annually for individuals healthy at the time of application.
We then used the CMS risk adjustment factors to estimate the relative cost of selected health conditions relative to the cost of a healthy individual. We then converted these into dollar amounts representing premium surcharges and lowered each amount by 1.5 percent to simulate the effect of the invisible risk pool. For example, an asthma diagnosis adds 0.717 to an individual’s risk score, increasing it by 106 percent. An asthma patient in Georgia would pay a surcharge of $4,140 on top of standard rates for coverage because of that condition. Breast cancer adds a factor of 4.738 to an enrollee’s risk score, such that a Georgian with breast cancer would pay an additional $27,330 for coverage.
Note that because the risk adjustment program calculates scores using each year’s current diagnoses, rather than medical history, we were unable to apply our method to estimate the rate-ups that individuals would face for prior health conditions. Our method also does not account for the adverse selection that would occur if community rating were repealed. The surcharges for pre-existing conditions would likely deter some relatively healthier sufferers of each condition to forgo insurance. Actual surcharges would, therefore, reflect the cost of treating the more severe cases of each condition and would be higher than the amounts we estimate.
Seven states had pre-existing condition protections in place before the ACA: Maine; Massachusetts; New Jersey; New York; Oregon; Vermont; and Washington. We assume that these states would not seek an AHCA waiver to allow rating based on health status and therefore did not calculate health-based surcharges for these states.