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Don’t blame Obamacare if your health insurance premium went up

The rising cost of healthcare is a big budget-buster for many families, and a lot of them fault the Affordable Care Act for straining their finances. But the controversial healthcare law appears to be getting far more blame than it deserves.

New analysis by the Commonwealth Fund examines data explaining the biggest increases in healthcare premiums for certain plans, and essentially lets Obamacare, as the ACA is known, off the hook.

The study found that rising medical costs are the biggest cause of higher insurance premiums — which has been the case for years. About 30% of insurers didn’t cite any cost increase linked to Obamacare. Among the other 70%, new taxes and fees associated with the ACA -- and that started in 2014 -- accounted for about one-third of premium increases. But many of those fees will decline and some will phase out altogether.

“It’s notable there aren’t more insurers blaming the ACA for these increases,” says Mark Hall, a law professor at Wake Forest University who co-authored the Commonwealth study. “Premium increases are being driven by medical costs, not by corporate profits, and not to a strong extent by government regulation.”

Obamacare critics have predicted all sorts of cost increases and other dire outcomes on account of the law, and it will take years before the ACA’s full impact on the healthcare system and the broader economy can be measured effectively. The Commonwealth study tackles a small but important part of the law’s economic impact: Its effect on the cost of policies offered in the individual and small group markets. These are policies typically purchased by people who don’t get coverage through a big company and don’t qualify for Obamacare subsidies or other government programs such as Medicaid.

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These are the types of policies that ignited a furor over Obamacare when insurers began cancelling them en masse in the fall of 2013, because many of them didn’t cover everything the new law required starting in 2014. That fiasco invalidated President Obama’s claim that “if you like your existing health insurance, you can keep it,” and could go down as the biggest embarrassment of his presidency. In response, Obama modified the rules to grandfather in many policies that otherwise would have been canceled.

The Commonwealth researchers focused on individual and small-group plans with premiums that rose by more than 10% from 2013 to 2014, because the ACA requires insurers to file documents with regulators when premiums exceed that threshold, explaining what happened. The government can’t tell insurers what to charge, but the idea is that the disclosure requirement will limit price gouging and give consumers insight into why costs go up.

Following the natural trend in rising medical costs

The researchers examined 113 filings regarding large premium increases and found that the rising cost of doctor visits, hospital stays, surgeries, tests, medications and other types of direct care were responsible for 84% of the premium hikes in the individual market and 78% in the small group market (which typically includes small-company plans and others with only a minor volume discount). The filings also suggest the typical patient is receiving more health care, another reason medical costs are going up.

Most Americans don’t face premium increases as high as those reflected in the Commonwealth study. In its annual survey of health insurance costs, the Kaiser Family Foundation found that premium increases during the last year averaged just 3% for a typical family plan and 2.4% for an individual plan. What has changed, however, is that many insurance plans cover less or come with higher deductibles, which is pushing up out-of-pocket costs for many patients even as premiums stabilize.

The types of policies studied by the Commonwealth researchers account for less than 10% of all U.S. policies, yet they probably represent overall trends—and may even overstate them. “We’re looking at the worst-case scenarios,” says Hall. “I’m sure the findings are true of the large plans as well.” If that turns out to be true, controversy over the ACA should subside over time, as dire predictions about the law’s nefarious impacts fail to materialize.

One problem the Commonwealth study didn't capture is the burden faced by people buying insurance in the individual market whose policies got canceled and stayed canceled. Many such people were unable to find replacement policies at a cost similar to what they had been paying, and their incomes were too high to qualify for Obamacare subsidies. That forced them to shell out hundreds of dollars per month more for coverage that didn't enhance benefits, in many cases. This small subset of Americans ended up the biggest losers under Obamacare, which made the whole program seem unfair in the eyes of many.

Many businesses dislike the ACA and the additional rules it imposes on them, but the law has been good news for health insurers, since they’ve signed up millions of new customers. In its 2014 earnings report, for instance, UnitedHealth Group (UNH) reported higher net income than expected, partly because the ACA boosted enrollment in its health plans. The company’s stock rose, as did shares of competitors such as Aetna (AET), Cigna (CI) and Anthem (ANTM). Higher enrollment helps insurers minimize cost increases that often get passed along to consumers.

The future of the ACA remains uncertain, since the new Republican Congress could modify it and the Supreme Court might even overturn a central pillar of the law. But the ACA is basically becoming a central part of the U.S. healthcare system, with uncertainty about its impact fading. Maybe we’ll be able to live with it after all.

Rick Newman’s newest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.