Health Plan Prices Tied to Reform Measures

Reports Project Effects of Senate, House Bills on Premiums

Debate over national healthcare reform has left Americans concerned about how changes might impact the price of their insurance premiums, and the inclusion of new subsidies in premium calculations has added to confusion over the actual price to enroll in a health plan if reform proposals are enacted. As leaders in the House and Senate work to reconcile differences between their respective reform bills, proponents and critics of healthcare legislation were citing reports by the Congressional Budget Office (CBO) and the Centers for Medicare & Medicaid Services (CMS) to make their case for whether health insurance premiums will rise or fall under proposed legislation. On average, new insurance requirements are expected to add to both the cost of health insurance and the value of benefits, and new federal subsidies are expected to make plans more affordable for those with lower incomes.

A national survey conducted November 24 by Rasmussen Reports found the cost of healthcare to be a top priority. Respondents were asked which of the following is the biggest problem with healthcare: the lack of universal coverage, the cost, the inconvenience of scheduling, or the quality of care. Of the 1000 likely voters polled, 62% said cost was the biggest problem followed by 18% who cited lack of universal coverage, 6% chose inconvenience of scheduling, and 5% said quality of care is the biggest problem.

Analyses of the effects these bills will have on premiums have focused largely on the current Senate bill, the Patient Protection and Affordable Care Act (S.AMDT.2786 an amendment in the nature of a substitute to HR 3590). There have also been attempts to estimate the financial impact of the House bill, the Affordable Health Care Act (HR 3962), but these have focused more on overall costs to the government than on health plan premiums. At press time, reformers in the Senate were tweaking the design of one of their most contentious proposals—the government-run health plan known as the public option.

Senate Bill

At the request of Sen. Evan Bayh (R-IN), the CBO and the Joint Committee on Taxation (JCT) analyzed how health insurance premiums might be influenced by enactment of the Patient Protection and Affordable Care Act, as proposed by Sen. Reid on November 18, 2009. In the report, released on November 30, CBO and JCT estimated the effect of the legislation on premiums in the nongroup, small-group, and large-group insurance markets, as well as the contributions to the changes in premiums from each of those 3 sources of change.

The report noted new requirements under which insurers would operate if the bill were enacted. These requirements include individual and employer mandates for minimum coverage, taxes on high-value plans, insurance exchanges, and creation of a government-run health plan. After 2013, health plans could not impose lifetime limits on the total amount of services covered, coverage rescissions would be limited, certain preventive services would need to be covered with no cost sharing, and unmarried dependents could remain under their parents’ policies up to age 26. Those changes would also apply to new coverage provided by large employers, including companies that self-insure.

In addition, by 2014 insurers would have to accept all applicants during an annual open-enrollment period, and insurers could not limit coverage for preexisting medical conditions. Moreover, premiums could not vary to reflect differences in enrollees’ health or use of services and could vary on the basis of an enrollee’s age only to a limited degree.

The largest effects on premiums would be seen in the nongroup market, which would grow in size under the proposal to 17% of the overall insurance market in 2016. The effects on premiums would be much smaller in the small-group and large-group markets, which would make up 13% and 70% of the total insurance market, respectively. CBO and JCT estimate that the average premium per person covered, including dependents, for new nongroup policies would be about 10% to 13% higher in 2016 than under current law. About half of those enrollees would receive government subsidies. The percentage increase in the average premium per policy for family policies is larger, and that for single policies is smaller because the average number of people covered per family policy is estimated to increase under the proposal.

The report explained that average premiums would be 27% to 30% higher due to the greater amount of coverage that would be obtained under new rules defining qualified plans and new subsidy structures. Changes in the rules governing the nongroup market would allow a reduction in premiums of 7% to 10% because of a net reduction in costs that insurers incurred to deliver the same amount of insurance coverage to the same group of enrollees. And an influx of enrollees with below-average healthcare expenses would result in a 7% to 10% reduction.

Under the Senate bill, CBO and JCT said average premiums per policy in the nongroup market in 2016 would be roughly $5800 for single policies and $15,200 for family policies under the proposal, compared with approximately $5500 for single policies and $13,100 for family policies under current law. The projections do not account for new federal subsidies that would be received by about 57% of nongroup enrollees and cover an average of two thirds of the total premium.

In the small-group market, defined as employers with ≤50 workers, CBO and JCT estimated that the change in the average premium per person resulting from the Senate bill could range from an increase of 1% to a reduction of 2% in 2016 relative to current law. In the large-group market, defined as employers with >50 workers, the legislation would yield an average premium per person that is 0% to 3% lower in 2016.

Regarding the CBO estimate of increased average premiums under the Senate bill, Senate Republican Leader Mitch McConnell (R-KY) went to the Senate floor to claim that the bill will not reduce costs as proponents suggest. “At the beginning of the healthcare debate, we were told that this trillion-dollar experiment would lower premiums for American families…CBO provided an analysis showing that the Democrat bill will actually increase premiums for American families. So a bill that’s being sold as a way to reduce costs actually drives them up,” Sen. McConnell added.

“The bottom line is this: after 2074 pages and trillions more in government spending, massive new taxes and a half-trillion dollars in cuts to Medicare for seniors, most people, according to the Congressional Budget Office, will end up paying more or seeing no significant savings,” Sen. McConnell continued.

Also reacting to the proposed Senate legislation, Karen Ignagni, president and CEO of America’s Health Insurance Plans, alluded to the need for a stronger individual coverage mandate to prevent an increase in premiums and said the bill would increase costs for those with private insurance.

“This proposal encourages people to wait until they are sick to purchase coverage, which will significantly drive up costs for those who are currently insured. The legislation also imposes rating rules that will raise the cost of coverage for millions of young families in more than 40 states,” Ms. Ignagni said. “This bill will also exacerbate the healthcare cost shift as healthcare providers offset reductions in public program reimbursements by charging more to families and employers who have private coverage. The new government plan will cause even more cost-shifting and threaten the employer-based coverage with which Americans are overwhelmingly satisfied,” she continued.

House Bill

With the Senate leading the reform debate in early December, less attention was being paid to the effects the previously passed House bill would have on premiums. HR 3962 would also impose requirements on insurers, businesses, and individuals similar to those contained in the Senate bill. On November 13, CMS released a report estimating the financial effects of the bill, noting that it includes premium credits in Section 343 that would limit premiums to 12% of income for individuals earning between 150% and 40% of the federal poverty level. The bill also includes out-of-pocket spending limits and a 2.5% income penalty for individuals who do not purchase qualified health plans.

In response to questions about subsidies and cost sharing for enrollees in relatively low-cost plans in the new insurance exchanges set up under HR 3962 as introduced in the House on October 29, Douglas W. Elmendorf, CBO director, sent a letter to Charles B. Rangel (D-NY), chairman of the House Committee on Ways and Means, providing a preliminary CBO/JCT analysis of subsidies and payments at different income levels.

Although the report noted that premiums under HR 3962 would vary by geographic area and age, the approximate national average for a lower-cost reference plan would be $5300 for single policies and about $15,000 for family policies in 2016. The model assumed that about 57% of individuals eligible for the insurance exchange under HR 3962 would purchase insurance coverage to avoid a penalty tax of 2.5% of adjusted income above the income level exempted from penalties.—Charles Boersig