New Study Examines Reform's Impacts On California Health Insurance Premiums

State Health Plans Moving Forward with Affordable Care Act Implementation

SACRAMENTO, Calif., March 28, 2013 /PRNewswire/ -- A study released Thursday by Covered California, the state's health insurance exchange, provides the first detailed look at the factors that will affect premium prices for the expanded and enhanced new health plan products it will be offering to individuals beginning Oct. 1 as it moves forward with the implementation of the Affordable Care Act (ACA).

The study by the actuarial firm, Milliman, finds premiums could rise for some individuals who will purchase the new health plan products through Covered California, if they don't qualify for federal subsidies offered under health care reform. The study says the factors increasing premiums include the requirements for richer benefits for individual plans, the increasing number of older and less healthy people who will obtain coverage and several other changes mandated by the ACA.

People who are eligible for subsidies, however, could likely pay significantly less in monthly premiums compared to prior years.

The most significant change will be a rebalancing of health insurance premiums, so that the consumer pays less out of pocket in co-pays and deductibles, and the premiums absorb more of the cost of care. This shift could ultimately save money for Californians who use medical services more frequently, but initially will result in higher premiums.

"This report echoes other studies about potential premium increases that will affect a very small segment of the state's population because 6 percent of Californians buy coverage for themselves and their families," said Patrick Johnston, CAHP president and CEO. "A small percentage of Californians will purchase their insurance through the exchange, and most will have the benefit of more predictable and comprehensive coverage, as well as subsidies to help pay for that coverage.  But this report shows that lower cost sharing, richer benefits and more predictable coverage will come at a cost for some."

Individuals and some small businesses will be able to comparison shop for coverage and take advantage of subsidies that will help families earning up to $94,200 annually pay for coverage if they purchase it through Covered California.

"California health plans support the implementation of the ACA and are moving forward to expand coverage to millions of uninsured Californians," said Johnston. "The ACA will improve Californians' access to health care and help them avoid financially crippling medical bills by making it possible for millions more Californians to get the coverage they need."

Among the ACA changes that may impact premium prices for certain Californians are:

  • Richer benefits for individuals and reduced out-of-pocket costs: The ACA's requirement for richer benefits for individual insurance will make these offerings more like employer-provided plans with expanded coverage and lower deductibles and co-pays. With richer benefits, Californians in the individual market may be required to purchase health insurance that is more costly than they currently have and that offers additional benefits they may never use, such as pediatric dental care for beneficiaries who have no children. They also may have higher premiums because deductibles and co-insurance amounts will be limited. However, their overall health care costs could be lower because they will pay less out-of-pocket for doctors' appointments, prescription drugs and other medical expenses.
  • Younger beneficiaries lose some of their advantage: The ACA will change the way health plans calculate benefits, causing significantly higher premiums for younger beneficiaries. Because they were expected to be healthier, younger Californians previously paid about $1 for every $5 in premiums from older Californians. The ACA limits the difference to 3-1, which will bring significant increases for younger people and lower premiums for older people.
  • New taxes imposed: The ACA will impose a sales tax that will average of $10 billion a year to help pay for expanding coverage – adding nearly $5,000 to an average California family's premiums over a 10-year period.

"All these expansions add to the already increasing cost of care – costs that have outpaced inflation as obesity, chronic conditions and many other factors have driven up medical expenditures," said Johnston. "California health plans' first obligation, under law, is to pay their members' medical bills, which consume an average of 89 cents out of every $1 in premiums. Health plans' narrow profit margins and rising medical expenses leave no room for premiums to absorb the increasing costs of care, so we must all work together to lower these costs to ensure coverage is affordable. Affordability is a challenging issue, and we look forward to working with the state and Covered California in the months ahead."

For more information on Covered California and its report, please visit

CAHP is a statewide trade association representing 39 full-service health plans. Through legislative advocacy, education and collaboration with other member organizations, CAHP works to sustain a strong environment in which our member plans can provide access to products that offer choice and flexibility to the more than 24 million members they serve. For more information, please visit or call (916) 552-2910.