PPACA and Premium Increases

healthcare reformMy Comments: 40 years ago I cut my teeth as a financial advisor, selling health insurance policies to local families. Many of them were employed at the University of Florida and all paid exactly the same premiums. Older folks were effectively subsidized by younger folks, which meant that if what I sold was age sensitive, and you were younger than the average, you could get the same coverage for less money from me than if you bought through payroll deduction.

Over the years I’ve watched the industry change, sometimes dramatically, but a constant was the annual increase in premiums caused by inflation in drug prices, bills charged by hospitals, by physicians and of course, the need by insurance companies to make more money. Twenty years ago it was obvious something had to change because the upward trend in annual premiums charged would eventually reach 100% of the Gross Domestic Product, or GDP.

State governments did nothing, Hillary tried to do something back in the 90s, but got shot down. And now we have ObamaCare, which while not perfect, is a dramatic improvement over the status quo. I can’t tell you how pissed off I get about Congressional efforts to kill it, without offering any meaningful alternative. Much of that comes down to allowing drug companies, the hospital and insurance industry to re-write the rules to first benefit themselves at our expense.

Margot Sanger-Katz   SEPT. 22, 2014

In the Affordable Care Act marketplaces, which now serve 7.3 million Americans, some premiums are going up while others are going down. Based on data available so far, we reported last week that the average premiums for last year’s most popular plans would rise 8.4 percent, but that people willing to switch plans could get much better deals — an average 1 percent increase, and even decreases in some markets.

But is 8.4 percent an alarming increase or a good deal for a plan you like? Is a 1 percent increase a disappointment or a terrific bargain? To put both increases in context, we’ve assembled some historical data on insurance markets that existed before the Affordable Care Act.

None are a perfect comparison group — there are many reasons the new marketplaces and the people shopping there are different from customers in the older markets. But, taken together, they can give us some sense of whether the health law is giving customers a good deal on insurance.
The overall assessment: By nearly any comparison, the average 1 percent premium increases available to consumers willing to switch plans is remarkably low. We are in a period of record-low health-care spending growth. But even in this period, premium increases lower than inflation are unusually good news.

Even the average 8.4 percent increase for people who renew in the most popular plans falls within the range of historical increases in the individual market. It’s not on the low end, but it’s not in the category of runaway premium growth that many critics of the Affordable Care Act warned might be coming.

Recall that back before January, when the marketplace plans launched, the individual insurance market was a very different place. Insurance companies were free to exclude customers with previous illnesses. People tended to cycle in and out of coverage very frequently as their income and employment status changed.

And regulations in some markets limited the amount that insurers could vary premiums by age, making products unaffordable for many young, healthy customers.

But the old individual market still remains the best comparison group for the new individual market — the Affordable Care Act marketplaces. By that standard, even an 8.4 percent annual increase looks pretty good.

A Commonwealth Fund study conducted by the M.I.T. economist Jonathan Gruber this summer found that, before the Affordable Care Act passed, premiums were rising by higher rates: 9.9 percent in 2008, 10.8 percent in 2009 and 11.7 percent in 2010. Those are average rates. As in the current marketplaces, there was a lot of local variation in price increases.

The employer market has seen smaller recent increases, but that market has not seen an average 1 percent increase in recent memory. The Kaiser Family Foundation recently published its 16th annual survey of employer health plans. It found that 2014 was a year with a record-low premium increase for family plans: 3 percent. That number makes 8.4 percent look less rosy. But the 1 percent available to marketplace switchers looks good.

By Medicare standards, an 8.4 percent increase seems absurdly high. Medicare, the public insurance program for those 65 and over and the disabled, is enjoying a period of unusually slow growth. In that program, per capita spending is quite flat, and looks to be going down over the next few years.

Medicare’s spending numbers are helped by demographic changes. The baby boomers began aging into the program in 2011, pulling down the average age of beneficiaries and making the population in the program healthier. Since 2006, when the Medicare Part D prescription drug benefit went into effect, annual per capita spending growth has been less than 5 percent — and in the last two years, it’s been less than 1 percent.