Health reform: affordable premiums, but high out-of-pocket expenses

May 16, 2011

New subsidies available through health insurance exchanges established under the law will make premiums affordable for most families. But the report authors also warn that high out-of-pocket costs will likely mean some families will still be unable to afford health-related expenses.

Ninety percent of American families living above the federal poverty level will be able to afford health insurance under the Affordable Care Act, according to a new Commonwealth Fund report by Jonathan Gruber and Ian Perry of the Massachusetts Institute of Technology (MIT). The report finds that new subsidies available through health insurance exchanges established under the law will make premiums affordable for most families. But the authors also warn that high out-of-pocket costs will likely mean some families will still be unable to afford health-related expenses.

The report, “Will The Affordable Care Act Make Health Insurance Affordable?” uses consumer spending data to analyze family budgets across income levels, and compares them to the costs of purchasing health insurance through the health insurance exchanges scheduled to begin in 2014, and typical out-of-pocket healthcare spending. The analysis finds that the majority of American families, even lower-income families, have room in their budgets for premiums and typical out-of-pocket costs. For example, households between 100% and 150% of the poverty level (up to $33,525 for a family of four) spend 75% of resources on necessities, leaving most families in that income range able to afford some health-related expenses.

However, in each income range that the authors examined, some families would still struggle to afford all their healthcare because of high out-of-pocket costs. For example, 10.8% to 17.5% of families with incomes between 100% and 200% of poverty, and about a quarter of families earning between 200% and 300% of poverty, who have high out-of-pocket costs could not afford all their necessities plus health-related costs. Families with incomes more than 500% of poverty, or $111,750 for a family of four, have room in their budgets for healthcare, even with high out-of-pocket costs.

"All Americans deserve the peace of mind that comes with access to affordable, quality healthcare, and the reform law is a good first step. By providing subsidies for lower income people to make insurance more affordable and widening eligibility for Medicaid, the law aims to increase access to care for 30 million people- a very positive outcome,” says Dan Hilferty, president and chief executive officer of Independence Blue Cross, Philadelphia, Pa., in response to the report. “However, the law focuses more on expanding access than on improving the quality of care and lowering costs. What's more, the law requires a number of insurance reforms, such as defining what 'essential benefits' must be included in health plans, that-unintentionally - may increase the cost of health insurance.

"Fixing our health care system requires change from everyone -insurers, physicians, hospitals, employers, and each of us as consumers,” Hilferty continues. “By collaborating with employers and healthcare providers, we are making important changes in our region to raise quality and lower costs through pay for performance, patient-centered medical homes, and accountable care organizations -all key steps to jump-start the transformation of healthcare."