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FactChecking Rising Insurance Premiums

From Factcheck.org:

By Lori Robertson

October 24, 2011

Summary

Health insurance premiums for employer-sponsored family plans jumped a startling 9 percent from 2010 to 2011, and Republicans have blamed the federal health care law. But they exaggerate. The law — the bulk of which has yet to be implemented — has caused only about a 1 percent to 3 percent increase in premiums, according to several independent experts. The rest of the 9 percent rise is due to rising health care costs, as usual.

Furthermore, the increase caused by the law is a result of the increased benefits it requires, a factor Republicans generally ignore. So far, insurance companies have been required to do the following:

  • Cover preventive care without copays or deductibles.
  • Allow adult children to stay on parents’ policies until age 26.
  • Increase annual coverage limits.
  • Cover children without regard for preexisting conditions.

On the other hand, the fact that the law caused any increase at all cast more doubt on Obama’s promise that the law “could save families $2,500 in the coming years.” We’ve been calling that claim into question for several years now. The plain fact is that — so far — the law has caused an increase in premiums, though not so large an increase as some Republicans claim.

Analysis

The potential impact of the Patient Protection and Affordable Care Act on insurance premiums has been a source of dubious claims since the legislation was being debated. Republicans said premiums would go up; President Barack Obama said they would go down – compared with what they’d normally be without the law. The Congressional Budget Office said they wouldn’t change much at all, at least for those on employer-sponsored plans. The individual market, where individuals buy their own policies, would see an increase, though many of those plans would also be purchased with the help of subsidies.

But the truth is that it remains to be seen how the law will affect health care costs and insurance premiums in the long run. We’re now starting to see the impact of early provisions of the law – free preventive care, a phasing out of annual coverage limits and other requirements – which are now in place. The bulk of the law – the individual mandate, insurance exchanges, subsidies – comes later, in 2014.

We looked at the premium issue last fall when some insurance carriers in a few states announced double-digit hikes for plans on the individual market and Republicans quickly blamed the health care law. Insurance companies, regulators and experts told us the law was responsible for about 1 percent to 3 percent of rate increases in this market. And it’s the same this time around.

This year, in late September, the Kaiser Family Foundation released its annual survey of employer-provided insurance, stating that the average premium cost for family plans had gone up by 9 percent from 2010 to 2011. That’s a big jump from the 3 percent increase the year before. Again, Republicans pounced on this news as a sign of negative effects of the law. And again, experts we consulted — as well as an independent study by a large private research firm — all place the effect on premiums in the range of 1 percent to 3 percent.

The Senate Republican Policy Committee touted the Kaiser survey results on its website and added: “In other words, Obamacare isn’t lowering premiums – in fact, premium increases have accelerated since Obamacare passed last year.” The Republican National Committee, too, saidthat “the costs of family coverage increased a ‘whopping’ 9 percent for families” under a headline that claimed “Obama’s Past Promises Are Not Adding Up for American Families.” The House Energy and Commerce Committee, chaired by Republican Rep. Fred Upton of Michigan, said that “Obamacare … makes matters worse. The survey released today reveals family premiums have increased by 9 percent.”

But experts we spoke with weren’t too surprised by this year’s findings. They point out that the 3 percent growth from 2009 to 2010 was unusually low. While it’s tough to discern a clear, long-term trend in the growth rates, the annual increase was holding steady at around 5 percent or 5.5 percent from 2007 to 2009. The growth rates had been at 10 percent and higher from 2000 to 2004. (See our chart below, which uses Kaiser’s employer survey numbers.) So, the 3 percent growth rate was “abnormally low,” says John Sheils, senior vice president of The Lewin Group, a subsidiary of UnitedHealth Group that operates independently of the health care company. He says it “would stand to reason that we’d get a boost” this year, possibly due to recovering losses or catching up on the cost of new equipment. A health policy analyst with the National Association of Insurance Commissioners agreed, saying that it was “not surprising to see it rebound like that.”

Source: Kaiser Family Foundation

Also, that 9 percent increase already had been estimated last fall. Here’s what we said back then:

FactCheck.org, Nov. 19, 2010: 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.

Wilenksy told us recently that the estimate that 2 percent to 3 percent of the increase is due to the law comes from others and that “I don’t know any differently.” She says the “law has a small effect,” but that effect is in one direction: up. “There’s precious little or nothing to slow down or lower spending,” she says.

Last year, Sheils told us an increase of 1 percent to 2 percent because of the law sounded about right. There’s some indication that the free preventive care provision may have led to more follow-up visits, however. There’s “some possibility that those initial estimates were low,” he says. Kenneth Thorpe, professor and chair at the Rollins School of Public Health at Emory University, who worked in the Clinton administration, also told us via email that the law would add 1 percent to 2 percent to premiums “at most.”

Indeed, a 1, 2 or possibly 3 percent increase is emerging as the consensus. Kaiser Family Foundation President and CEO Drew Altman wrote in a column published after the group’s survey came out that the law was responsible for a “modest” 1 percent to 2 percent increase.

Altman, Sept. 27, 2011: Critics of the national health reform law passed in 2010 like to blame everything but the weather on “Obamacare,” but regardless of how you feel about the Affordable Care Act, its effect on premiums this year is modest. Most of the law’s provisions don’t go into effect until 2014. The two biggest changes this year allow young adults up to age 26 to stay on their parents’ insurance policies and require some insurance plans to cover preventive services at no cost to patients. These are popular provisions that provide real benefits, and combined they account for about one to two percentage points of this year’s premium increase.

The Kaiser survey of employers was conducted from January through May 2011. An earlier survey of 26 health plans covering 32 million Americans found that the projected increase due to the health care law was 1.5 percent for 2011; that’s an average for both employer-sponsored and individually purchased plans.

That survey was conducted in September 2010 by Aon Hewitt, a consulting company that came about when the largest insurance brokerage company in the world, Aon Corp., bought Hewitt Associates last year. Hewitt was one of the biggest human resources consulting firms.

The survey found wide variation in the estimated cost increases, depending on the type of plan. “[F]or 2011 health plans reported estimated increases due to PPACA of 4.7% for individual policies, 1.5% for small group plans, and 0.8% for large group plans on a weighted average basis.” That’s because the improved coverage requirements in the law affect plans on the individual market more so than employer-sponsored plans, which would already meet some or most of the law’s requirements.

An Increase Still Isn’t a Decrease

The law may have had a “modest” impact on premiums, but it’s causing them to go up – not down, as the Obama administration has claimed it would. The president campaigned on a promise to “lower premiums by up to $2,500 for a typical family per year,” largely by pushing doctors and hospitals to use electronic medical records. We looked at the claim and the study it was based upon in-depth, and experts told us getting widespread adoption of the technology in Obama’s first, or even second, term was wishful thinking.

Obama repeated a version of that vow during debate over the federal law, saying the legislation plus some effort to reduce costs from labor unions, and insurance, drug and medical industries “could save families $2,500 in the coming years – $2,500 per family.” That time, the administration had determined the savings in national expenditures could total $2 trillion over 10 years, and with a little math, that works out to $2,500 a year for a family of four. That assumes the savings happen, that is, and that every penny saved somehow translates to lower prices, lower taxes or higher wages for families.

It should be noted that Obama is promising to slow the rate of growth of premiums or health care spending, so costs would still rise, but not by as much.

White House Deputy Chief of Staff Nancy-Ann DeParle told ABC News that the law needs to play out before savings materialize. She said “by 2019 we estimate that the average family will save around $2,000.”

It has only been 19 months since the federal health care law was enacted, but so far, there’s little to back up the president’s $2,500 — or even $2,000 — savings claim. And some experts don’t see much down the road, either.

“I wouldn’t attribute most or all of the increase to the health care law,” Wilensky says, “but the notion that there’s anything there that’s going to make life better … is equally implausible.”

As a whole, the law could provide some guidance on new, efficient, delivery systems, Wilensky says, but she thinks it’s “very unlikely” that the law will lead to cost savings.

The provisions that have been enacted so far increase costs — by adding in preventive care coverage, or adding adult children to parents’ policies. Out-of-pocket costs, however, could decrease for some, depending on their use of such provisions. But the impact on families’ bottom lines would vary widely, depending on the plan, what provisions it did or didn’t have before the law, and how much a family used any added benefits.

The Aon Hewitt survey gives a breakdown for what each new provision of the law is projected to do to premium costs, according to the health plans (see Exhibit 11). Elimination of preexisting conditions for those under age 19 has the biggest impact on increasing costs for individual plans. That measure isn’t estimated to have much of an impact on small and large group plans. For large group plans, the biggest impact is the provision requiring dependent coverage to age 26, though some plans reported that the provision would lower costs. Small group plans reported the largest driver of cost-increase would be covering preventive care for free.

A health policy analyst at the National Association of Insurance Commissioners told us more information will be available as insurance carriers start facing a review of any rate increases beyond 10 percent. (Right now, NAIC too says the law has added about 1 percent to 3 percent to premiums. NAIC has a policy of not allowing its staffers to be quoted by name.)

The federal law requires rate increase filings above 10 percent to be reviewed by the state or federal government, as of Sept. 1, for individual and small group markets. The carriers’ justification for the rate hikes will be made public, so there will at least be more information from the insurance companies’ point of view.

Wilensky says that “over time, we are likely to see several things that may make the spending more of a problem. Increasing demand without … increases in supply is a way to induce more inflation, as well as produce shortages in access.” And excise taxes on the health care industry will get passed on to consumers.

The actuaries of the Centers for Medicare and Medicaid Services have estimated — and Sheils agrees — that private health insurance spending over the long-term will settle into about a 6 percent increase per year. But, Sheils says, there will be “lots of bumps in the interim” as insurers try to anticipate costs.

CMS’ projections show a big bump in 2014 (when the bulk of the law kicks in) — a 9.4 percent increase in private insurance spending — before its estimates come back down to around 6 percent. The total national health expenditures also spike at 8.3 percent in 2014, and then go down to around 6 percent or 6.5 percent through 2020.

Sheils says uncertainty among actuaries could cause them to raise prices higher than necessary in advance, particularly in 2014 when uninsured individuals begin getting subsidized plans through state-based exchanges. “My concern is actuaries are going to be very cautious,” Sheils says. “They’ll price high, wait to see what the impact is on cost … and if costs are lower … then they can lower the price.” And if that happens, and there’s a high premium increase that year — even an artificial one — we could see fewer healthy people sign up, because they’d rather just pay the penalty. The government also would have to pay more in subsidies.

But Sheils says he tells people to look at the projection for long-term growth — 6 percent, or 6.5 percent. That’s not that different from the increases that occurred several years before the law was passed.

Of course, that raises the question of cost control and whether the law can have any success on that front. For now, what happens to health care spending and premiums in the future is an educated guessing game.

Sources

Kaiser Family Foundation. Health Reform Source. Implementation Timeline. accessed 24 Oct 2011.

Robertson, Lori and Eugene Kiely and Kelsey Ferguson. “The Truth About Health Insurance Premiums.” FactCheck.org. 19 Nov 2010.

Kaiser Family Foundation and Health Research & Education Trust. “Employer Health Benefits — 2011 Summary of Findings.” 2011.

U.S. Senate Republican Policy Committee. “Today’s Big Story: How Obamacare Sparked Higher Premiums.” Blog post. 27 Sep 2011.

House Energy and Commerce Committee. Worst Week in Washington: Obamacare. Press release. 27 Sep 2011.

Republican National Committee. Research Briefing. “ObamaCare’s Disappearing Promises.” 30 Sep 2011.

Sheils, John, senior vice president of The Lewin Group. Interview with FactCheck.org. 5 Oct 2011.

Health policy analyst, National Association of Insurance Commissioners. Interview with FactCheck.org. 6 Oct 2011.

Wilensky, Gail, senior fellow at Project HOPE. Interview with FactCheck.org. 6 Oct 2011.

Thorpe, Kenneth, professor and chair at the Rollins School of Public Health at Emory University. Email to FactCheck.org. 5 Oct. 2011.

Altman, Drew. “Rising Health Costs Are Not Just a Federal Budget Problem.” Kaiser Family Foundation website. 27 Sep 2011.

Aon Hewitt. “2011 Health Insurance Trend Driver Survey.” 2011.

Henig, Jess and Lori Robertson. “Obama’s Inflated Health ‘Savings.’ ” FactCheck.org. 16 Jun 2008.

Robertson, Lori. “Health Savings Still Optimistic.” FactCheck.org. 15 May 2009.

U.S. Department of Health and Human Services. Affordable Care Act helps fight unreasonable health insurance premium increases. Press release. 19 May 2011.

Tapper, Jake. “New Study Underlines Unfulfilled Promises of Health Care Bill.” ABC News. 29 Sep 2011.

Centers for Medicare & Medicaid Services. Office of the Actuary. “National Health Expenditure Projections 2010-2020.” accessed 24 Oct 2011.

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