The Affordability of the Individual Markets in the Affordable Care Act : Analyses of Premium Increases and Cost Reductions from an Expanded Cross-Subsidization Perspective

In response to the significant premium increases and the “death spiral” concern, this research examines the stability and affordability of the ACA individual markets by quantifying appropriate premium increases in expanded cross-subsidization groups and determining cost reduction potentials. The results indicate that the required premium increases of the Marketplace insurers are definitely affordable when spreading among the enrollees in expanded cross-subsidization groups. Furthermore, premium increases or government subsidies are actually unnecessary if conservative cost reductions are achieved through efficiency improvement. This research suggests that premium increases and cost reductions be implemented through a subsidized reinsurance program or an individual market guaranty fund, financed by shared assessments from customers, providers, and insurers, or government subsidies. The estimated premium increases and cost reductions of this research provide important targets for financing assessments and government subsidies