Survey Finds Health Insurance Premiums Increasing

As the economy continues to sputter and salaries remain stagnant, health insurance costs are increasing at a rapid rate, creating a difficult financial situation for many people and companies struggling to adapt to the prolonged slump. From 2010 to 2011, the average annual health premiums for family coverage rose 9% to $15,073, according to the 13th annual Employer Health Benefits Survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust. Premiums for single coverage rose 8% to $5429. On average, workers covered by family insurance contributed 28% of the premiums, while singles contributed 18% of the premiums, which were both similar to 2010. Meanwhile, the study found that workers’ earnings increased 2.1% while general inflation increased 3.2%. Since 1999, the survey’s first year, premiums have increased 160% compared with a 50% increase in workers’ earnings and a 38% increase in inflation. Drew Altman, PhD, the Kaiser Family Foundation’s president and chief executive officer, said the survey was not designed to determine the causes of the sharp premium increases. However, he provided a few potential reasons: employers and insurers assumed the economy would improve, healthcare utilization would return to a more normal level, and employees would not hesitate to visit doctors and buy medications; healthcare costs are growing; insurers are charging more to improve their financial performance; and provisions in the Patient Protection and Affordable Care Act (ACA) are contributing to added expenses for insurers. According to Dr. Altman, the ACA mandates on insurers, such as offering more preventive services and extended benefits to children up to age 26, accounted for only 1% to 2% of the premium increases and thus did not explain why the premiums were much higher in this survey than in previous years. The survey estimated companies’ plans added 2.3 million young adults (up to age 26) who can remain on their parents’ policies if they do not have coverage from their employers. Also, 56% of workers surveyed were in “grandfathered” plans that were exempted from several ACA provisions, including covering preventive benefits. In the previous 4 years, premiums for families rose 5%, 5%, 5%, and 3%, between 1% and 2% higher than the increase in workers’ earnings. This year’s 6% gap between premium increases and workers’ earnings increases was the highest since 2004. “What makes the big premium increase troubling is it’s happening in a struggling recovery and weak economy,” Dr. Altman said in a conference call on September 27. “We don’t know if this is a one-time spike or a period of sustained higher increases.” Shortly after the survey’s publication, Karen Ignagni, America’s Health Insurance Plans president and chief executive officer, issued a news release defending the health insurance industry and providing explanations for the premium increases. Ms. Ignagni cited data that indicated medical services costs are increasing, with the S&P Healthcare Economic Composite finding healthcare costs covered by insurers rose 7.73% from July 2010 to July 2011 and the Millman Medical Index increasing 7.3% from 2010 to 2011. Also, she said that insurers are covering an older, higher risk/higher cost population of workers because people are working longer and younger people are having trouble finding jobs or are choosing to drop insurance coverage. In addition, Ms. Ignagni said the ACA provisions, such as expansion of dependent coverage, no cost-sharing for preventive care, and restrictions on annual and lifetime insurance limits, have contributed to the higher premiums. “This report is just the latest warning that far more needs to be done to address the rising cost of healthcare,” Ms. Ignagni wrote. “Policymakers in Washington and the states need to focus on all of the factors that are driving premium increases: soaring prices for medical services, changes in the covered population that has resulted in an older and sicker risk pool, and new benefit and coverage mandates that add to the cost of insurance. Reducing healthcare cost growth will make it easier for consumers and employers to afford coverage, ease the burden on federal and state budgets, and put our vital safety net programs on sustainable and fiscally responsible paths.” For the 13th consecutive year, preferred provider organizations (PPOs) were the most common type of health plan, enrolling 55% of covered workers. Health maintenance organizations (HMOs) and high-deductible health plans with a savings option, such as a health savings account or health reimbursement arrangement, each covered 17% of workers. High-deductible plans are becoming more popular, increasing from 8% of covered workers in 2009 to 13% in 2010 and 17% in 2011. The survey’s authors noted the plans are more affordable for employers, who are “potentially seeking to shift increased costs to workers.” In 2011, the average annual deductible for single coverage was $675 for workers in PPOs, $911 for workers in HMOs, $928 for workers in point-of-service plans, and $1908 for workers in high-deductible plans. “In the short term, I would expect to see more high-deductible plans,” Dr. Altman said. “It’s a clear trend year after year. This is the quiet revolution going on in healthcare. We can debate whether it’s good or bad. Those plans are cheaper, which is good for employers.” The survey’s findings were gathered via a telephone survey of 2088 randomly selected public and private companies with ≥3 employees. The survey was designed and analyzed by the Kaiser Family Foundation, the Health Research and Educational Trust, and the University of Chicago’s National Opinion Research Center. National Research, LLC, a data collection firm, conducted the research between January 2011 and May 2011. Nancy-Ann DeParle, President Barack Obama’s deputy chief of staff for policy, discussed the report in a blog post on the White House’s Web site. She noted that insurers set their premiums in 2010, when they anticipated medical costs would rise significantly, but she cited a study from the Bureau of Labor Statistics that the price of healthcare services in the first half of 2011 was the lowest in 10 years. In addition, she said the costs associated with the ACA provisions were lower than insurers projected. “In the end, both assumptions were wrong—but insurance companies still charged high premiums and earned impressive profits,” Ms. DeParle wrote. “Wall Street analysts’ review of results from the first quarter of 2011 found that 13 of the top 14 health insurers exceeded their earnings expectations, with profits that were over 45% higher than estimated.” According to Ms. DeParle, premiums may decrease in 2012. She cited a survey from Mercer, a management consulting firm, that predicted health insurance costs would increase 5.4% next year, the smallest growth rate since 1997. She also noted a few ACA provisions that could contribute to lower premiums. For instance, beginning in 2012, insurers must justify any rate hikes that are >10%. In addition, new medical loss ratio rules require insurers to spend ≥80% of the premiums they collect on patient care. “The Kaiser report is informative, but it’s a look backwards,” Ms. DeParle wrote. “When we look to the future, we know that the Affordable Care Act will help make insurance more affordable for families and businesses across the country.”