The Truth About Health Insurance Premiums
The new law has brought increases for some. But GOP leaders exaggerate.
November 19, 2010
Leading Republicans in Congress are blaming the new health care law for double-digit rate increases being sought by insurance companies in Washington state, New York and Connecticut. But insurance regulators, leading health care experts and the companies themselves mostly blame an old culprit: rising medical costs.
Improved benefits required by the new law are responsible for a relatively small portion of the increases. Furthermore, the increases apply mostly to those buying policies individually, not the majority who get private insurance through employers. Those with employer-provided plans won’t see as much of an increase in premiums, since many of their policies already include the required benefits, a spokesman for an insurance trade association told us.
Some Republicans have claimed the law is responsible for “whopping” premium increases, but they have misrepresented the facts in the process. For example:
- House Speaker-in-waiting John Boehner said premiums will “skyrocket” because of the law, citing a report on rising premiums by the Kaiser Family Foundation. But the Kaiser report covered increases that took effect before the law was signed.
- Senate Minority Leader Mitch McConnell points to a news story about a Washington insurance provider that blamed premium increases on the health care law. But the state insurance commissioner says the increase had “absolutely nothing to do with health care reform,” and the insurance company later admitted the law is only partly at fault.
- Both politicians refer to premiums for new plans on the individual market, where only about 6 percent of those with insurance now get their coverage.
Stories about some big increases may come as a shock to those who recall President Barack Obama’s often-repeated promise that the new law would reduce most people’s premiums and bring about lower medical costs — optimistic promises that remain question marks at this point. Still, Republicans go too far when they say the law, rather than rising medical costs, is chiefly responsible for big premium hikes.
Premium rates for many in the individual market are going up. But state insurance commissioners and health care experts told us the Patient Protection and Affordable Care Act is responsible in most cases for only a small portion of these increases. The main cause of double-digit rate hikes is rising medical costs.
- A health policy analyst with the National Association of Insurance Commissioners told us that “as a general trend across all carriers in a state … there’s about a 1 to 2 to 3 percent increase” in premiums in the individual market due to the health care law. If the legislation hadn’t been enacted, the bulk of the reported premium increases still would have occurred. “The real driver of the premiums is the costs, and you have to get the costs under control,” the NAIC analyst said.
- These premium increases are mainly in the individual market, where about 14 million people buy their own insurance. That’s only about 6 percent of those with health coverage (non-elderly) in the U.S.
- Stephanie Marquis of the Washington State Office of the Insurance Commissioner told us that rate changes requested because of the health care law are expected to be less than 5 percent, while increases in premiums due to rising medical costs average 13.12 percent for individual plans and 15.54 percent for small-group plans.
Stephanie Marquis, Nov. 5: The large cost driver in what people are paying does not have to do with health care reform, it has to do with things that were happening well before health care reform and would continue to happen regardless of whether we had health care reform.
- In New York, Insurance State Board spokesman Andrew Mais reported similar results. Letters that health insurance providers have sent to customers say that premium increases are largely the result of annual trends in medical care.
- Aetna Health Inc. in New York told its customers in the individual market that it had requested premium increases of 10 percent to 12 percent due to rising costs, plus separate rate changes due to the health care law that “may” result in an additional 4 percent increase in policies covering families.
- Also in New York, Capital District Physicians’ Health Plan described increases of 10.1 percent to 11.5 percent for HMO small-group plans resulting from trends in the medical field, and a 2.5 percent increase attributable to the new federal law and state mandates.
Most of the new law has yet to go into effect — and it won’t until 2014 — but some provisions affecting insurers were instituted this fall. So far, insurers can’t deny coverage to kids because of preexisting conditions, and they must allow dependents to stay on their parents’ insurance until age 26. They also must provide free preventive care and eliminate lifetime and certain annual monetary caps on coverage.
This has had some effect on premiums, particularly in the individual market, which offers plans that are less likely than employer-provided policies to include these features. But, as we’ve said, the vast majority of the premium increase is due to medical costs. Republican leaders in Congress, however, have pinned all the blame on the new law, and they’ve left the false impression that the premium increases they tout will affect all, or most, of the insured, instead of just those buying insurance on their own.
On the Senate Republicans’ website, Senate Minority Leader Mitch McConnell claims that the law is responsible for “whopping rate increases.” McConnell highlights a quote from a Washington state man who says that the health care bill “went into effect and my rates went through the roof.” But that’s highly misleading. In fact, Washington Insurance Commissioner Mike Kreidler is quoted in the very news story McConnell cites as saying that that particular rate increase “has absolutely nothing to do with health care reform.” Kreidler, a Democrat, was elected to his position.
The Washington man in question was reacting to a letter he received from Regence Blue Shield, blaming the large rate increases on the new federal law. The Regence letter — which was not approved by insurance regulators — made no reference to any other factor contributing to the rate increases. In a revised letter approved by the state insurance department, Regence told policyholders: “Premium increases are due in large part to rising medical and prescription costs. High rates of use, technology, and changes to federal and state regulations also have an impact on premiums.”
House Republican Leader John Boehner, the presumptive House speaker in the next Congress, issued a press release Sept. 7 that highlighted a Seattle Times story about “whopping” rate increases in Washington state and a report on rising premiums by the Kaiser Family Foundation as evidence rates will “skyrocket” because of the new federal law. But his examples are bogus.
Boehner, Sept. 7: [B]etween reports from the Kaiser Family Foundation and the Seattle Times indicating that health care costs will skyrocket under ObamaCare, the Democrats’ claims that their government takeover of health care will make health insurance more affordable doesn’t pass the straight-faced test.
Not true. The Kaiser report gave absolutely no indication that “health care costs will skyrocket under ObamaCare.” It found that premiums for families with employer-sponsored health care plans rose a modest 3 percent in 2010, but workers’ share of the cost jumped 14 percent as companies shifted health care costs to employees during the recession. None of those increases had anything to do with the new federal law. The Kaiser report was the result of an annual survey of more than 3,000 companies that was conducted between January and May of 2010 — before the mandated changes in health care coverage went into effect on Sept. 23. In fact, these increases reported by employers took effect before the law was even signed.
Furthermore, the Seattle Times story refers to the Washington state increases that we’ve already mentioned. They have less to do with the new federal law than they do with trends in the health care industry.
Boehner and McConnell aren’t the only Republicans making inflated claims of this sort. GOP Rep. David L. Camp of Michigan sent out a press release with the headline: “Democrats’ Health Care Law to Sharply Increase Premiums — by as Much as 20 Percent Next Year.” But the Sept. 8 release concedes that the increases were only “in part” because of the law.
Impact of the Law
The Obama administration estimated that changes brought about by the health care law so far would cause a 1 percent to 2 percent increase in premiums — an average that includes both individual and employer-provided policies. But some companies are claiming that the law has had a bigger impact than that.
For example, in a Wall Street Journal article in September, Aetna said new plans it would offer — in the individual market — would have to include extra benefits that would raise rates from about 5.5 percent to 7 percent in Nevada and California. Those who already have individual insurance can avoid the increases by keeping their existing, “grandfathered” plans even if those plans don’t meet new requirements, such as free preventive care. But anyone who switches plans or buys a new one will have to purchase one with the increased coverage, at higher cost.
Plans on the individual market vary greatly in terms of benefits offered and cost, as well as the health status of those covered. That variation makes it “difficult, if not impossible, to make generalized statements of the effect of the new law on premiums,” Linda J. Blumberg, a senior fellow with the Urban Institute’s Health Policy Center, wrote in a July report on the law’s impact on the small group and individual markets.
For instance, the ban on lifetime coverage limits would only affect some plans. Those that now have lifetime limits of $2 million or more, Blumberg writes, would see an increase in premiums of less than 1 percent. But, she says, “according to America’s Health Insurance Plans, the vast majority of individual market plans have limits of $5 million and above, making it highly unlikely that this change will cause a noticeable impact on non-group premiums.”
As for the impact on employer-provided policies, economist Gail Wilensky says the surveys she has seen indicate there will be an 8 percent to 9 percent increase in premiums, of which she attributes about 2 percent to 3 percent to the health care law. Wilensky was the head of Medicare during the George H.W. Bush administration and is now a senior fellow at Project HOPE, a health training and humanitarian organization. She cites three factors that she sees as increasing costs: more use of care, higher costs of care, and the provisions of the health care law. Her projections are in line with those of Hewitt Associates, a human resources consulting company, which estimated that there would be an average premium increase of 8.8 percent in 2011 for employer-provided plans, with 1 percent to 2 percent of that attributable to the health care law.
Wilensky says “the dominant reason” premiums go up “is because we use more [medical care] and we use more expensive stuff.” She adds, “Unless we do something that changes that behavior … it’s going to be harder to stabilize health care spending, let alone reduce it.” The provisions of the legislation that aim to do that — evaluating and implementing new payment models — are going to take much longer. “If we can start seeing positive effects in the second part of the next decade, we will be doing exceedingly well.”
In the individual market, some companies currently sell very cheap plans with limited benefits, geared to healthy adults. Those benefits must now be upgraded significantly.
John Sheils, senior vice president of The Lewin Group (a subsidiary of UnitedHealth Group), told us that overall the effect on premiums “should be closer to what the administration has said,” a 1 percent to 2 percent increase. But Sheils says the increase would be higher for those insurers that currently offer stripped-down plans costing perhaps $50 or less per month. He and others say free preventive care would be the one change that would produce a noticeable difference in premiums for these individual market plans.
Kenneth Thorpe, professor and chair at the Rollins School of Public Health at Emory University, puts the increase for preventive services in “the 1 to 3 percent range,” higher if the current preventive package isn’t very good. The impact of the other changes insurers have had to make so far “are very small,” says Thorpe, who worked in the Clinton administration. But overall, “clearly the key drivers [of rate increases] are underlying health care trends — rising rates of chronic disease.”
The analyst for the National Association of Insurance Commissioners, however, told us preventive care wasn’t having as large an impact as the bans on certain annual coverage limits and preexisting condition exclusions for children, a provision that was affecting insurers that offered children-only plans. (NAIC told us its policy was to not have staff members quoted by name but to attribute the information to the organization.)
Overall, for some consumers on the individual market, total out-of-pocket costs might not change much because of the health care law, since benefits are getting better. Thorpe points out that because of the free preventive coverage, for instance, consumers may pay more in premiums but would no longer pay copays or deductibles for that preventive care.
Jonathan Gruber, professor of economics at Massachusetts Institute of Technology who was paid by the Obama administration for health care analysis work, says consumers “have to decide is it worth the trade off.” Are the better benefits worth the higher cost? But he doesn’t believe high rate increases can be attributed to changes in the law. “These increases are basically coming from the cost of medical care.”
Premiums in the individual market were rising rapidly even before the law was signed. According to a late March survey by the Kaiser Family Foundation, three-quarters of those in this market said insurers recently had raised their premiums by 20 percent on average. Some policyholders switched to a cheaper plan. While the average cost for a single policy in this market was less than the average for employer-sponsored insurance, the average deductible was four times that of employer coverage, according to the survey.
For employer-sponsored coverage (where 157 million have health insurance), family premiums went up just 3 percent in 2010 from the previous year, and 5.5 percent in 2009, according to Kaiser. Workers’ contributions to those premiums have also been increasing — that contribution went up 14 percent in 2010.
It remains to be seen, after the law is fully implemented, whether it will “reduce” premiums or lower costs, as Obama has claimed again and again. The nonpartisan Congressional Budget Office estimated that premiums for most persons won’t change significantly because of the law. And the chief actuary of the Centers for Medicare & Medicaid Services said overall health spending would go up by less than 1 percent over the next decade, because insurance coverage, and the use of medical services, will expand.
A Case Study: Connecticut
Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a trade association that represents insurance companies, said the impact of the new health care law on rates depends on where you live and what kind of coverage you have.
“For some people, including those in large employer plans, they already have many of the new benefits that went into effect in September. Those people aren’t going to see as big an increase in their premiums,” Zirkelbach told us. “But a number of people in the individual market who tend to be price sensitive — they will see a bigger impact. Those people have chosen lower benefit plans in exchange for lower rates.”
One case study is Connecticut, where one insurer has proposed substantial increases for some new policies. But these are accompanied by improved benefits, and other policies are seeing very small increases.
Anthem Blue Cross and Blue Shield, Connecticut’s largest health insurer, has proposed only minimal increases for “grandfathered” renewals of existing policies. If approved, those plans would go up just 0.2 percent on Jan. 1, 2011, as a result of the new federal law — a result of the requirement that insurers cover adult children of policyholders up to age 26. The rate filing request said two other requirements of the federal law would have a “negligible impact” on rates. They were: “unlimited lifetime maximum” (eliminating monetary caps on coverage) and the “rescission changes” (prohibiting companies from canceling policies for undisclosed preexisting conditions).
New customers are seeing larger increases, which vary depending on the type of policy. The company’s low-benefit plans, in particular, went up substantially to cover the cost of better benefits.
In September, Connecticut regulators approved Anthem’s request to raise rates for its non-grandfathered individual plans, effective Oct. 1, 2010. The Anthem filings show the new federal law raised rates from 5.5 percent to 36.4 percent, depending on the type of coverage. There were no increases for the unlimited lifetime maximum and the rescission changes, and only a slight increase (0.2 percent) for dependents who remain on their parent’s policies until age 26. “Current Connecticut law requires dependent coverage to age 26 excluding married dependents,” the filing said in explaining the slight increase.
Where the biggest increases occurred for non-grandfathered individual plans:
- Requiring coverage for preexisting medical conditions raised rates 4.8 percent for all plans.
- Free preventive care raised rates from 0 percent to 8.5 percent, depending on the plan.
- Lifting the cap on how much insurers will pay each year for “essential benefits” raised rates from 0.5 percent to 22.9 percent, depending on the plan. In its filing, Anthem said “the largest impact to claim cost is the removal of the pharmacy annual maximums for each product.”
In explaining the significant increases for new customers who purchase individual plans, Anthem spokeswoman Sarah Yeager said: “Low cost low benefit plans experienced a higher rate adjustment because with the health care reform provisions the plans now offer richer benefits. Other plans that already offered rich benefits did not experience as much of an adjustment.”
Once the law is fully implemented, the individual market will see the biggest changes in terms of premiums and benefits, according to an analysis by the Congressional Budget Office. More people will also get insurance through this market, such as through the state-based exchanges. CBO estimates 32 million will be in this individual market in 2016.
CBO said premiums for the large and small group markets (those are employer plans) won’t change significantly because of the law — they may go up or down slightly or not experience a change, strictly due to the health care law. But the average premium per person in the individual market will increase by 10 percent to 13 percent. The reason is that required benefits will make these plans more generous, by and large, and a good portion (57 percent) of those buying these policies will get federal subsidies, which will encourage them to get a more expensive plan than they otherwise would. In the end, for those who get subsidies, out-of-pocket premium costs will be lower than what they would have paid without the health care law.
– by Lori Robertson, Eugene Kiely and Kelsey Ferguson
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