Tag Archive: health plan costs

In 2014, the cost of individual health coverage becomes a matter of fiscal policy

As the name suggests, the primary policy goal of Subtitle D, Part 2 of the Patient Protection and Affordable Care Act (PPACA), Consumer Choices and Insurance Competition Through Health Benefit Exchanges, is to restore America’s health insurance market to functionality.  Functioning markets by definition offer buyers meaningful choice among competing sellers.  The health benefit exchange mechanism would create a functional market by “leveling the playing field” to ensure health plan issuers offer the same benefits and otherwise comply with rules governing coverage contained in the PPACA.  Second, the exchanges offer strong market participation incentive for plan issuers by making available millions of consumers who cannot afford relentlessly rising premiums by taking tax dollars these individuals would otherwise pay to the U.S. Treasury and giving them to plans to subsidize their premiums.

In addition to these market interventions, the PPACA — like the Clinton administration’s unenacted health care reform plan of the 1990s before it — takes the insurance out of health insurance. How?  By outlawing medical underwriting of individuals and instead instituting modified community rating where rates vary only based on age, family size and residence and not medical history.  Underwriting is the heart of insurance: selecting who is offered insurance and at what price.  Without underwriting, health coverage can no longer be accurately described as an insurance product.  Perhaps that’s why the PPACA refers to the new, government mandated state insurance markets as health benefit exchanges and not health insurance exchanges.

Since all health plans would be offering the same coverage as mandated by the PPACA come 2014 and can no longer underwrite to obtain the lowest risk (and lowest cost) individuals to cover, they are left to compete solely on service and price.  How will this play out over the long term since the underlying costs of medical care continue to rise and show no signs of abating?  Let’s explore some scenarios.  Plans may compete by absorbing the increased cost of care in order to keep premiums down.  Plans that can do that successfully will survive. Those that cannot will be forced to pass along increased costs to consumers through higher premiums.  As consumers choose cheaper plans offered by competing plan issuers, less price competitive plans face the death spiral of adverse selection and/or insolvency, leaving only the biggest players to compete in the exchanges.  Fewer players mean less choice, which is contrary to a key goal of the exchanges.  Less choice and less competition in turn gives surviving plan issuers greater incentive to pass along rising costs to consumers.

But unlike in the current market, in the exchange market starting in 2014 and going forward, those increased premiums won’t be necessarily be completely absorbed by consumers or lead to their dropping coverage because it’s no longer affordable.  The federal treasury will also share the burden because the advance tax credit subsidies for exchange-purchased coverage will absorb whatever the plans charge above a consumer’s income level (subject to federal review of the reasonability of rate increases), ranging from no more than two percent of income at the federal poverty level (FPL) to 9.5 percent at 400 percent of FPL.  Since tax dollars will be subsidizing insurance rates, how much those rates go up in this soon to emerge market automatically become not only a market regulation issue, but also a matter of national fiscal policy.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Survey forecasts average health plan rate increase of 9.9 percent for 2012

Health plans are paring plan rates they boosted in 2011 to cover health reform mandates, reports Buck Consultants in its National Health Care Trend Survey.  That factor along with reduced medical utilization due to weak economic conditions resulted in the survey projecting a 9.9 percent average increase in 2012, the first time the figure fell below 10 percent since 2001.

Daniel Levin, a Buck principal and consulting actuary who directed the national survey of 129 insurers and plan administrators, noted that despite the lower expected increase this year,  “health care costs continue to outpace both general inflation and wage increases, creating real business challenges for organizations.”  Levin added that plan sponsors are showing increased interest in health insurance exchanges and accountable care organizations.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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