Short Takes On News & Events

Study: Premium Increases To Be Offset By Subsidies, Better Coverage

By Julie Appleby

February 6th, 2013, 2:53 PM

How the federal health law will affect premiums is among the most asked – and most controversial – questions in the final months before new rules kick in requiring most Americans to carry coverage.

A white paper out Wednesday considers how the law will affect premiums for people who buy their own coverage because they don’t get it through their jobs. The answer?  It all depends, said the analysts at the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

The paper says the law’s provision that limits premiums for older consumers to no more than three times what younger people pay will mean those younger beneficiaries, particularly men, will pay more than they do now.  Older people and many women will see lower rates, the paper says.

At the same time, broader benefit packages than are often purchased by individuals today, limits on deductibles and other costs and rules that bar insurers from rejecting people with pre-existing medical conditions will also cause premiums to rise compared with what they would have done without the law.

Starting in 2014, for example, policies must include coverage for maternity care, prescription drugs and mental health treatment, benefits that often are not included in policies purchased by individuals today .

“The more complete benefits will increase premiums when compared to current nongroup policies because there is more coverage,” the paper says.

“It’s not that we should not be concerned about how much some people will have to pay for insurance under reform, but concerns about sweeping rate shock are exaggerated,” said Larry Levitt, a senior vice president at the foundation and one of the co-authors of the report. “Subsidies are by far the biggest factor that cushions the impact of any increases in premiums people might see.”

The paper does not estimate how much premiums will increase. Reports from the Congressional Budget Office in 2009, however, projected that premiums for individuals who buy their own coverage could go up 10 to 30 percent because of the law’s rules. More recent surveys by consultants and insurers have speculated that premiums could rise far higher than that, depending on a person’s age and health. A 27-year-old, for example, could see an average increase of 169 percent in five markets surveyed by the conservative American Action Forum.

Still, Kaiser Family Foundation researchers and others have said that federal subsidies available to low- and moderate-income Americans are likely to offset the increases for many consumers.  The rules on how much premiums can vary among younger and older consumers, for example, are likely to be offset by subsidies for about 80 percent of those currently in the individual market, according to the paper.

“While many younger enrollees would see higher premiums under the three-to-one age limit, they would not pay more because they would receive a tax credit that caps their premium obligation as a percentage of their income,” the paper says.

But that solution raises other concerns, said consultant Robert Laszewski, a former insurance industry executive.

“A lot is made of the fact that federal subsidies will offset (the increases), but there is no Santa Claus,” he said. “Consumers will have much of these increases mitigated and taxpayers will pay for them.”

Insurers, along with some lawmakers and advocacy groups for young people, are urging that the ratio rule be phased in slowly. Most states allow wider variations now – or set no limits at all.

A bill formally introduced Wednesday by Rep. Phil Gingrey, R-Ga., would allow states to set their own ratio.  It has already drawn opposition from AARP, which represents older Americans and which argues it would “be a huge step backward” to allows insurers to continue “the discriminatory practice of charging exorbitant premiums to older Americans.”

The federal health law does allow insurers to sell special policies to Americans under 30 that would provide limited catastrophic coverage in exchange for what are expected to be lower premiums than other types of policies. People buying those policies, however, would pay higher deductibles and are not eligible for federal subsidies.

7 Responses to “Study: Premium Increases To Be Offset By Subsidies, Better Coverage”

  1. Helen says:

    As to the unsustainability of the health care system more generally, it seems fitting that wealthier older people should pay higher premiums to offset the costs associated with greater demand as seniors get older. Why should relatively healthy younger people pay higher premiums to offset use by older (again, wealthier) Americans? Old people may present as a powerful lobby but the reality is in order to make the health care system sustainable, one of two things must happen: 1) make everyone pay higher premiums (something that should be based more on use rather than mere access) or 2) acknowledge that some people regardless as to age can’t afford to pay higher premiums and may need a little help. Finally, my last two thoughts….costs (or put another way) profit margins of health care providers will need to be reined in, too and cost savings by giving people access to health care services that would otherwise go without should provide savings in the long run. Catastophic events eventually do cost everyone more…as individuals or as a society. I firmly believe that health care access is a fundamental right and not a luxury!

  2. Patrick Pine says:

    The one concern I see with this study is the implicit presumption that major insurers will be proposing multiple plans in all of the country and there will be a range of options available on public exchanges (now being called marketplaces). There is reason to doubt that this will be the case in much of the country. I am not opposed to the idea of reform or even to the intent of ACA but do think that the proponents and authors made some assumptions that are not entirely coming to fruition, including: 1) major insurers will submit proposals in most of the markets and there will be a range of options available to choose from; 2) that many of those who go to exchanges will accept that they will be coming up with more money out of their pockets in exchange for arguably “better” coverage – much of the population struggles even with $10 office visit copays or small copays for prescriptions and will really be stretched even with subsidies and I expect some significant backlash; and 3) the assumptions that the relative increases compared to current premiums at 10 to 30 per cent may be too low – many of us are hearing increases may likely be 30 to 50% or more.

  3. Dennis Gerber says:

    There seems to be a real disconnect in what’s going on in the HMO world, and what is happening in the indemnified health insurance world. The fact that the insurance companies want to charge older people more is like AARP talking out of both sides of its mouth. On the surface, (and PR side) AARP puts on a good show of jumping up and down, railing against the idea of new legislation, that would allow charging older people more, to happen. On the other side – AARP sold out the senior members in backing Obama Care no matter what its members said by majority. Why? AARP makes a ton of money selling supplemental insurance – which if a smart senior joins an HMO – does not need.
    Seniors need to shop carefully instead of just opting that my choice of doctors can only remain if I stay with standard fee-for-service Medicare. Those days are disappearing fast, and Obama Care is one of the biggest causes. However, the good news, many groups of doctors are joining HMOs or thinking about setting up their own HMOs for their patients. It puts them in a collaborative position with other physician-providers and controls the treatment of their patient, much better, and more cost effectively as it is a direct contract service between the physician network and CMS. By foregoing sub-contracting to the third party insurance companies, or big hospital syndicates, under the guise of Accountable Care Organizations, these doctor owned HMOs can contain the cost of care as CMS pays their HMO directly and eliminates the double and sometimes triple overhead of the administration of the Insurance Company, and in some cases and add-on additional layer of administration to a hospital the medical group have sub-contracted with. The statutes of rules and regulations have been in place for some time for physicians to do this themselves. They are governed by the State the HMO is located in, and by CMS. It caps the cost through a per-member, per-month fee, and in effect – it provides better bundled services as the physicians and hospital (contracted by the physicians) collaborate to maximize the dollars provided for healthcare and reimbursement.
    AARP is not alone in being nothing more than a middleman reselling the doctors and hospitals services through their relationship with supplemental carriers (and what they used to think was the locked in vote of their members) – and they make a lot of money doing that. All the layers of administrative costs by the insurance company, the hospital running an Accountable Care Organization, and commissions made by third party sales operations, take a good chunk of the health care dollar off the top, no matter how many pundits try to blind-side the public on this issue.
    I am a very disappointed Medicare user that has watched the egregious actions of AARP of selling the interest of its members, to feed a process that does not save one dime in healthcare costs, nor improve the process to make it any better. Something does have to happen to contain Medicare costs, and it is not through the addition of more middlemen. HMOs are a viable answer in the way they contract with CMS. As seniors, learning who owns an HMO, the integrity of the plan, who are the doctors in the network, how does the plan rate with the State and CMS, are not difficult time consuming tasks – especially when it is your health. We have to realize the run-away costs in health care must, and will, come under control – like it or not. However, as informed seniors, we can learn to make better decisions about what is realistically sustainable, and what is not, and act sensibly.

  4. Jim K. says:

    Massachusetts has already made all, or nearly all, the changes imposed by the Affordable Care Act, and in some cases has even more stringent rules. Our insurance premiums are higher than the national average, about 13% higher, but are also a lot richer (better coverage) than most other states. By the way, about 98% of the people in Massachusetts have health care coverage, more than any other state. The Massachusetts reforms are supported by the majority of people in the state.
    The article doesn’t mention new taxes on insurance, which will increase premiums across the country by several percentage points: the taxes will help to pay for the subsidies going to lower income people.

  5. larry says:

    “Why should relatively healthy younger people pay higher premiums to offset use by older (again, wealthier) Americans?”

    Uh, maybe because that’s how all insurance works? Uh, maybe because there’s a benefit to having large risk pools in any insurance market? Uh, maybe because the more people in a risk pool, the more people paying premiums, the less the cost for everyone? Uh, get it? Besides, what necessarily makes you wealthy just because you are older? Geez! The Heritage Foundation, an ultra-conservative extreme right-wing think tank, invented the individual mandate to create a universal risk pool so that everyone would buy private insurance and lower the cost for everyone. It was such a great idea that Governor Mitt Romney got it passed and enacted in Massachusetts and now Massachusetts has Romneycare. Romneycare is mandated healthcare and is a huge success. Obama liked what Romney did in Massachusetts and so he copied the idea and now we have Obamacare. Mandated health insurance so that virtually everyone will eventually have comprehensive private health insurance that’s affordable. It’s an overwhelmingly successful Republican idea. Got that? It’s a Republican idea!

  6. mandy says:

    Just a speed bump on the road to single-payer universal healthcare. Glory hallelujah! What a day that will be when we stop being held hostage by the private insurance companies and completely eliminate them from the healthcare equation.

  7. Allen Feezor says:

    How much the new 3:1 rule will impact rates depends on the age distribution of the folks enrolling AND how wide the disparity in rates that each state has allowed (or if any states since passage of ACA took steps to mitigate the impact of the eventual 3:1 rule by compressing the rates over the last two years). State efforts at market reforms in the early 90s, led by the NAIC and a few of the more perceptive health plans had recommended an evolution to the 3:1 ratio. Some states actually got to that rate. In other states the industry was successful in watering down this ratio, or rolling it back, or allowing other rating factors to dilute this compression. The band aid is about to come off…all at once rather than what could have been one hair at a time. The lack of foresight, better policy, and/or leadership will mean that indeed there will be sticker shock for a lot of folks – with or without premium subsidy – in 2014.