Consumers purchasing through the exchanges will receive coverage through private insurance companies, with many receiving federal tax credits to help pay for policies. While the consumer may not be paying the full price of the policy, the insurance companies will still receive the full premium. With millions mandated to receive coverage, how much are those who are currently uninsured worth to the health insurance industry?
To answer this question we looked at what the uninsured would pay in monthly premiums for coverage with private insurers. (See our methodology below) Based on our estimates the uninsured are worth a potential $92+ billion in annual premiums to the insurance companies. The Affordable Care Act requires that 80% of the value of the premiums be used to service health care costs, leaving a little over $18.4 billion to be spread across employees, marketing, overhead and profits. Insurance companies we've looked at could expect anywhere from 2% to 4% of all premiums to come in the form of profits. This would amount to $1.8 to $3.6 billion dollars annually.
Total Uninsured (2011)
Uninsured Over 138% FPL
Total Annual Premiums
Profit Margin (2-4%)
|$1.8 - $3.6 billion|
It will take a number of years for all of the uninsured to get coverage, with the CBO estimating that it may not occur until 2015. Accounting for annual increases in insurance premiums the annual total would easily exceed $100 billion by then.
To estimate the potential value of the uninsured we needed to determine how many were uninsured and what their premiums would be for insurance. While the consumer may be paying only a fraction of the actual premiums due to tax credits, the insurance companies would still receive the full value of the premiums.
Prices for plans vary dramatically between states and even between counties within states. In order to account for this, we approached our analysis at a county by county level.
For the cost of plans, we used the premium for the second lowest-cost silver plan (SLCSP) available in each county. We chose this plan for the following reasons:
- The SLCSP is the plan used in the determination of the available subsidies. The cap on what your family spends on health insurance is applied to this plan with any excess paid in the form of tax credits.
- For those with incomes of less than 250% of FPL only silver plans are adjusted to have improved cost-sharing, making silver plans a better deal for those that qualify.
Using data from the 2011 census, that underlies our county-by-county map we could get an idea of how many people were uninsured. For our calculations, we only included people who had household incomes over 138% of the Federal Poverty Level. Those with incomes below that line do not qualify for subsidies and were much less likely to be able to afford on-exchange private insurance.
The number of uninsured in each county was then broken down by age and a total potential premium was calculated using an age-adjusted price for the SLSCP.