Health Care Policy Update: Premium Reduction Options: Just Bad Choices

President Obama repeatedly promised the American people his health care law would lower family premiums by $2,500 per year. But last week, the President’s top health care advisor – Health and Human Services Secretary Kathleen Sebelius – admitted that some people will see their premium costs go up because of the health care law. While it may come as a surprise to the Obama Administration, more than 30 separate studies already confirm the health care law will cause health insurance premium rates to rise.

Two recent examples are:

• A January 2013 study, conducted by actuarial firm Oliver Wyman for the American Academy of Actuaries, found the President’s health law will increase premiums in the individual insurance market on average by 10 to 20 percent. Four million uninsured people (age 21 to 29) can expect to pay more out of pocket for single coverage than they would have before the health law was enacted – even with the premium tax subsidies.

• A March 2013 study by the non-partisan Society of Actuaries, warns that average medical claims costs for individual health insurance policies could jump 32 percent per person. Medical bills are obviously a key factor in calculating premiums.

State insurance commissioners are rightly concerned about the negative effect the health care law’s projected premium increases will have on consumers next year. This anxiety prompted the National Association of Insurance Commissioners to release a paper outlining options for states to mitigate the law’s expected rate increases. The New York Times examined the NAIC suggestions and provided evidence why some will not address the problem. States may just be left with a choice between a series of bad options.

First, NAIC’s paper suggests states tighten local premium rate regulation and deny insurance company premium increase requests even when increases are justified. “In order to minimize the impact of rate increases, states may consider establishing annual maximum average rate increases on an aggregate, market-wide basis and essentially force insurers to either operate at a short-term loss or find alternative ways to reduce costs.” 

NAIC is essentially telling states that it is better to force insurers out of business than allow the health care law’s premium increases to take effect. If insurance companies “operate at a loss,” they may have difficulty paying patient claims and may eventually be forced to exit the market. NAIC concedes this point, saying, “Caps can also delay actuarially justifiable rate increases and result in higher future rate increases or threaten insurer solvency.”   

Additionally, NAIC indicates rate compression will force insures to find other ways to cut costs. The health care law already mandates health insurers comply with very strict Medical Loss Ratio standards. MLR measures the share of a health care premium dollar spent on medical benefits – not other company expenses or profits. It is unclear how much more the insurance companies could reduce costs without negatively impacting the quality and supply of health insurance in the marketplace.

Second, NAIC proposes states offer extra financial assistance to consumers to help them buy more expensive, government-mandated insurance. This is money states would pay on top of the federal premium subsidies that will be available to people between 100 and 400 percent of the federal poverty level. Over the past three years, Washington Democrats never indicated the states would have to help cover the cost of the President’s health care law. Now NAIC says this may be one of the only tools states have left to mitigate the health care law’s premium increases.

Responding in the New York Times article, an HHS spokeswoman said, “The vast majority of people won’t see significant changes in 2014 because they get quality insurance from their employer … people who buy their own insurance will be able to shop in a competitive marketplace, and most will receive tax credits [to help pay for] their coverage.”

Tell that to the eight million people the Congressional Budget Office estimates will lose their employer-sponsored coverage due to the President’s health care law. No doubt this news will comfort the five million people CBO determined are not even eligible for a subsidy to help pay for President Obama’s more expensive insurance.

Health Care Headlines

The Wall Street Journal: “Some Small Businesses Opt for Health-Care Penalty” Small business owners brace for the health law that kicks in next year, fearing they will increase the cost to provide insurance to employees.

The Hill: “HHS Opens Applications for ObamaCare ‘Navigators”” HHS started the process for $54 million in grants to help people navigate the new insurance marketplace under the Affordable Care Act.

Kaiser Health News: “Worries Mount About Enrolling Consumers in Federally Run Insurance Exchanges” Consumers do not know what they will have to do in order to sign up for health insurance in the exchange. Advocates worry about the Administration’s outreach strategy.

Bloomberg: “How Obamacare Will Distort the Health-Care Market” This column notes that President Obama and his fellow Democrats sold many Americans on the Affordable Care Act largely by emphasizing two arguments: The law would help to reduce overall health-care costs, and it would provide health insurance to those who, for financial or health reasons, cannot get it now. Unfortunately, both of these arguments are flawed.

The Washington Times: Obamacare Creator Sen. Jay Rockefeller Now Says Law ‘Beyond Comprehension’  Democratic Sen. Jay Rockefeller of West Virginia, a leading force in the creation of Obamacare, now says the health reform is at risk of falling under its own regulatory weight and that it’s becoming too complicated to properly implement.