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Another Checkup on Obamacare, Health Costs

Another major report on health care is out, bringing with it a mix of good and bad news.

The good news is about the Affordable Care Act: The law has helped young adults, not only by giving hundreds of thousands of them access to health insurance but, in many cases, by giving the ones who already had insurance better coverage than before. The law has also bolstered basic benefits for some older working-age Americans.

The bad news is about the health care system overall. Premiums for employer-sponsored insurance, which had been rising at a more modest pace, spiked again last year. Overall, the increase dwarfed the rise in wages and general inflation. “The average family policy now costs more than $15,000 per year, more than the cost of a Chevy Aveo or a Ford Fiesta,” according to Drew Altman, president of the Kaiser Family Foundation, which co-sponsored the survey.

Also, more people now face high deductibles, of at least $1,000. 

Of course, the higher premiums are not exactly news: The cost of health care has been rising for a long time. This latest data is a reminder that, if we want to change that fact, we have a lot of work still to do. But don’t be surprised if conservatives say Affordable Care Act, which they detest, is the primary reason for higher costs.

It isn’t. Although Obamacare played a modest role in this year's increase, over the long run it remains one of our best vehicles for getting costs under control -- so that premiums don't keep going up as fast as they are going up now.

OK, now to the details:

The report is the annual survey of employer benefits, by the Health Research and Education Trust and the Kaiser Family Foundation. It’s one of the most useful tools we have for observing and analyzing changes in job-based health insurance, which is the form of insurance most working-age Americans have.

On the coverage side, the numbers about young adults are unambiguous – and more impressive, even, than we’ve been hearing lately. The Affordable Care Act allows young adults to enroll in their parents’ policies, up to age 26, if they don’t have access to coverage of their own. Based on the survey, the report that 2.3 million young adults have taken advantage of that provision. "In the past, many of these young adults would have lost coverage when they left home or graduated college," says Gary Claxton, the Foundation's vice president.

That’s more than twice as many as the number of newly insured young adults overall, according to recent reports from the Census Bureau, Centers for Disease Control, and Gallup polling. But it also makes perfect sense. At least some of those 2.3 million had insurance before – but it was likely inferior coverage, with spottier benefits and/or stability. Thanks to the law, they’ve traded up.

In other words, the Affordable Care Act has helped many young adults get insurance. It’s also helped many other young adults get better insurance. And they’re not the only ones who have benefited. The report estimates that more than a quarter of workers belong to plans that modified cost-sharing because of the law's requirements. Most likely, those plans eliminated cost-sharing on basic preventative services, which the Affordable Care Act mandates must be free.

But don't those extra benefits cost more? Sure. As noted last week, after the CDC and Gallup surveys, mandating that insurance policies cover more services is bound to make insurance policies more expensive, all other things being equal. But the effect of these new mandates appears to be small: One to two percentage points, according to Claxton, or roughly 1/9 to 2/9 of the total increase. Also, it may be something of a one-time bump: Firms that bolstered coverage this year won’t have to do it again. 

The bulk of the increase reflects other factors, among them underwriting cycle: Insurers anticipated the use of health care services would rise because of the economic recovery and raised rates accordingly. But the largest single component is the ongoing rise in health care costs – something that’s been happening for a long time and was, in fact, a primary motivation for passing health care reform in the first place.

Remember, the Affordable Care Act calls for a combination of reforms – some of which will raise the cost of coverage (like requiring all plans to make preventative services free) and some of which will reduce the cost of coverage (like offering incentives for use of electronic medical records). The hope is that the latter are big enough to offset and, ideally, overwhelm the effect of the former. 

Whether it all works out that way depends on a lot of variables, among them our political willingness to sustain the law's cost-cutting experiments and then strengthen the ones that work best. This report, hopefully, will strengthen that resolve.