America’s Health Insurance Plans have struck a nerve. The carrier’s industry association issued a report warning that Congress is heading for a set reforms that could dramatically increase the cost of health insurance coverage for American consumers. The study, prepared by PriceWaterhouseCoopers warns that various taxes and fees, combined with a weakening of provisions requiring all Americans to purchase coverage, will raise premiums paid by a family in 2013 by $1,700 more than they would pay without the reform. Premiums for a single person would go up by $600 more than would otherwise be the case.
- Requirements on carriers to sell coverage coupled with “weak coverage requirements” on consumers along with rating reforms
- Taxes on so-called “Cadillac plans”
- Cost-shifting resulting from $400 billion in cuts to Medicare
- Taxes on insurance companies, medical device manufacturers and other health care sectors
Significantly, the study did not consider other proposals in the reform legislation that might reduce the cost of medical coverage. Even so, what the report has to say about current medical cost trends and these four elements of the reform package is important to understand.
According to PriceWaterhouseCooper, health care costs in America are expected to “grow over the next decade by approximately 6 percent per year under current law, which is more than double the expected growth in the Consumer Price Index of approximately 2.5 percent per year.” This means the cost of private health insurance coverage is expected to increase by 26 percent between 2009 and 2013 and 50 percent between 2009 and 2016. If the four provisions it reviewed are implemented, however, health insurance premiums would increase by 40 percent between 2009 and 2013 and by 73 percent between now and 2016. Meaning the average cost for single coverage, $4,800 today is expected to increase to $5,800 in 2013 under current law, but to $6,400 in 2013 given these reforms. And instead of costing $6,900 in 2016, the average single policy would cost $7,900. These are average increases. The impact by market segment is even greater:
- 49% increase for the non-group (individual) market
- 28% increase for small employers (those firms with fewer than 50 employees)
- 11% increase for large employers with insured coverage
- 9% increase for self-insured employers.
Again, the impact of other provisions of the Senate Finance Committee’s proposal might reduce this trend, but there’s two conclusions that can be drawn from the report:
First, the status quo is unsustainable. Any system in which the cost of a service increases year-over-year-over-year by more than twice general inflation will eventually become unaffordable. Change is needed.
Second, key elements of the reform package expected to be passed by the Senate Finance Committee today will increase costs significantly beyond the already unacceptable trends.
Not surprisingly, proponents of reform have vociferously attacked the AHIP study. The White House described the report as “Distorted and flawed.” An AARP spokesman called it “Fundamentally dishonest.” Senator Jay Rockefeller described AHIP’s publication of the study as “The misleading and harmful claims made by the profit-driven insurance companies are politicking for corporate gain at its worst.” (That AHIP also represents numerous non-profit health plans has apparently escaped the Senator’s notice).
The harsh tone of the attacks on AHIP and its report reveals correlates with the significance of the study’s conclusions. Supporters of reform had long claimed it would reduce the cost of health care for most Americans or, at the very least “bend the cost curve.” For voters happy with their current coverage this is a critical message. They generally support health care reform, but that support could waiver if the cost to them personally is too high. And AHIP is now demonstrating what the cost to these individuals is in dollars and sense. That could undermine support for reform just as the legislation heads for a crucial stage: consideration and a vote in the next few weeks by the Senate and the House of Representatives.
In the next few days, critics will undermine points in the study. The tax on high-end plans may drive consumers to less rich benefit packages, reducing their premiums. The Medicare cuts could eliminate waste and, consequently, avoid shifting additional costs to individuals with private insurance. The taxes on medical suppliers will be passed through to consumers, but spread over a broader population as more Americans obtain health insurance coverage.
But if nothing else the study will bring highlight an important reality: a requirement on carriers to sell coverage that is not tied to a strong, enforced requirement for consumers to buy coverage will dramatically increase insurance premiums. The Congressional Budget Office concludes the Senate Finance Bill will increase the number of Americans with insurance from 83 percent today to approximately 94 percent. Karen Ignagni, AHIP’s president, says “You really have to have a coverage level in the high 90s to make this work.”
You don’t need high priced analysts to recognize that mandates to buy and to sell coverage need to be balanced. New York and New Jersey currently require health plans to guarantee issue coverage, but has no requirement that their citizens purchase insurance. Not surprisingly, premiums for individual health insurance coverage is two-to-three times what it is in California. The difference is a health reform surcharge paid for by the residents of those states.
But the example of New York and New Jersey isn’t even necessary: common sense shows the impracticality of an unbalanced approach. Imagine if consumers could put off buying auto insurance until the tow truck arrives at the scene of their accident. Auto insurance costs would skyrocket. What would fire insurance cost if it could be purchased after the flames are extinguished?
American consumers will do the math. If the penalty for purchasing coverage is the equivalent of one month’s premium (which is roughly what the Senate Finance Committee is proposing) every month they go without coverage (minus the first month) is money saved. When they face medical charges greater than the penalty, they’ll buy it. Once they’re treated, they’ll drop the coverage. The result will be a surcharge on all those with health insurance coverage.
Passage of the Senate Finance Committee legislation is not the end of the health care reform debate. It’s merely a milestone – and important one, but in the end, just a milestone. As the reforms move forward, lawmakers will need to face up to the need for balanced reforms. That will require making tough decisions, such as telling their constituents they must have coverage. But health care reform, if it’s to be done right, takes both common sense and political courage.