Premiums

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Health Insurance Premium Growth

October 4, 2011 in Employee Benefits, Health Insurance | 7 comments

Health Insurance premium inflation is back.  According to the Kaiser Family Foundation Employer Health Benefits Survey 2011, health insurance premiums for single individuals was $5,429 for single individuals and $15,073 for a family plan.  Premium growth for single and family plans was below 6 percent per year over the last 5 years (2005-2010). However, between 2010 and 2011, premiums grew 7.5 percent for single plans and 9.5 percent for family plans.

Many economists may think that inflation is a driver, but the overall inflation rate in 2011 was only estimated to be 2.1 percent.

Additional Information from the EHBS is below.

Read the rest of this entry »

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How to stop health premium increases?

June 6, 2011 in Health Insurance, Regulation | 1 comment

California think they have found the answer.

“The bill in question is AB 52, introduced by Assemblyman Mike Feuer (D-Los Angeles). It would prevent health insurance premium increases from going into effect without the prior approval of the commissioner of insurance or the director of the Department of Managed Health Care, who share jurisdiction over health insurers.

The bill would give insurance regulators the same prior-approval authority they were given over auto and homeowner policies by Proposition 103 in 1988. Under current law, California health insurance regulators can’t reject a rate increase even if they think it’s unreasonable — they can only try to jawbone the insurance company or shame it with a public objection.”

Small business support this measure.  That is likely because small business care more about cost control than the quality of health care.

If the state forces insurance companies to cut premiums, however, something has to give.  Likely there will be more rationing, physician and hospital payments will be cut, and the quality of care will decrease.  Although there is much waste in healthcare, cutting spending with such a blunt tool as AB52 will decrease the quality of health care.  At this point, however, reducing (or simply holding constant) health plan premiums may be a more important goal than improving quality.

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Does WellPoint care about quality…or reducing cost?

May 19, 2011 in Health Insurance, Hospitals, Value-Based Purchasing | 2 comments

One large insurer is planning to begin paying hospitals based on quality.

“WellPoint is replacing the system it uses to help offset rising medical and other costs at hospitals in 14 states that serve its Blue Cross Blue Shield plans, which cover 34 million people. In recent years, it has raised its payments to those hospitals by an average 8% a year.

Under the new system, the company will pay increases only to hospitals that score high enough on a test based on 51 indicators of treatment quality. The indicators include whether the facility tries to prevent patients from relapsing after they leave the hospital, whether it follows a safety checklist and how satisfied the hospital’s patients say they are with their treatment.”

Does Well Point really care about quality?  The answer is maybe.

Improving quality of care could improve WellPoint’s bottom line.  If patients demand improved quality of care, implementing a hospital VBP system could attract more members. Further, WellPoint could just be altruistic and this may be an attempt to improve the health of its members (the Healthcare Economist is skeptical of this point).

It could also be the case the WellPoint does not care at all about quality.  High-quality hospitals will get the same annual increase they did before; low-quality hospitals will get less.  The chairman of the Federation of American Hospitals (FHA) accurately notes that hospital quality measures are far from perfect and are less-than comprehensive.  Nevertheless, even if the selected metrics measured quality inaccurately, certain hospitals would still receive lower payments and WellPoint would benefit either through increased profits or increased market share (by lowering premiums).

Rather than responding to pressure to increase qualityof care, WellPoint’s VBP efforts may in fact be a response to employer and beneficiary pressure to reduce premiums.

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Labor Day Post II: Health Insurance Cost Shifting

September 6, 2010 in Health Insurance | 2 comments

Sticky wages is the concept that few employees will agree to a nominal decrease in wages even if there is a decrease in productivity.  However, the Kaiser Family Foundation found that although nominal wages may not be decreasing, the amount of money workers are paying for health insurance is rising quickly (full report).

“Workers on average are paying nearly $4,000 this year toward the cost of family health coverage – an increase of 14 percent, or $482, above what they paid last year… The jump occurred even though the total premiums for family coverage, including what employers themselves contribute, rose a modest 3 percent to $13,770 on average in 2010, the survey found.  In contrast, the amount employers contribute for family coverage did not increase.”

With employees bearing a larger and larger share of health insurance costs, pressure to increase decrease benefit generosity will build as workers begin to switch to less generous health insurance plans.

Source:

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The Cost of Health Insurance Mandates

March 30, 2010 in Health Insurance | 1 comment

Health insurance mandates increase health insurance cost.  By compelling insurance companies to cover certain medical treatments, cost inevitably rise.  Of course the people who receive these treatments benefit while those who do not must pay additional premiums.  A recent paper by the Pacific Research Institute summarizes the findings of various studies of the impact of mandates on health insurance premiums.

  • CBO (2000): 4 to 9 percent of premiums, all mandates aggregated
  • Graham (2008): 5 to 23 percent of premiums, all mandates aggregated
  • Bunce and Wieske (2009): 20 to 50 percent of premiums, all mandates aggregated
  • New (2006): 15 percent of premiums, all mandates aggregated
  • Congdon et al. (2006): 0.3 to 0.7 percent of premiums, per mandate above 20
  • Wisconsin OCI (2002): 1 to 3 percent of premiums, five specific mandates aggregated
  • GAO (2003): 3 to 5 percent of premiums, all mandates aggregated
  • Krohm and Grossman (1990): 0.2 percent of claims, specific mandated benefits
  • Maryland HCC (2006): 2 percent of premiums, all mandates aggregated
  • Maryland HCC (2008): 0.01 to 1 percent of premiums per each of five specific mandates

Of course, the actual mandate will affect the increase in premiums. For instance, a mandate to cover one specific vaccine likely would provide only a small increase in premiums, especially since many insurance policies would already cover this treatment. On the other hand, a mandate to cover all forms of cancer treatment for all types of cancer likely would drive up premiums significantly.  What one can conclude from the above studies is that mandates do increase cost.  The degree to which health insurance premiums increase, however, is not a settled matter.

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Income not keeping pace with health insurance cost

March 24, 2009 in Health Insurance | 1 comment

A recent report from Cover the Insured.org reviews the how health insurance trends have evolved over the last ten to fifteen years.  The percent of uninsured individuals has increased from 16.0% of the population in 1995 to 17.5% of the population in 2006.  The increase is entirely due to the increase in uninsurance among working aged adults (i.e., aged 18-64).  Among children, uninsurance rates dropped from 13.7% of children in 1995 to 11.7% of of children in 2006.  SCHIP expansions likely played a large role in the increase in childhood insurance coverage.

Why are more and more working-aged adults left without insurance?  The reason is that health insurance costs are increasing faster than income.  Let us look at the following table:

Between 1996 and 2006, overall health insurance premiums for employer-provided plans increased by 4.87% for single coverage and 5.98% for family coverage.  These are average annual increases above secular inflation (i.e., CPI).  However, median real income increased by only 0.76% per year between 1994 and 2006.  Is there really a 5% gap in between income and health insurance premium growth?

The answer is yes and no.  There is still a large gap between income and health insurance premium growth, but the gap is not 5%.    Using salary as the only measure of workers compensation does not take into account the fact employer contributions towards health insurance plans has increased over time. While salary has increased only by 0.76%, employer health insurance contributions have increased by 4.62% (single) and 6.03% (family) per year.  After taking into account employer health plan contributions, we see that the true increase in real worker compensation ranges between 1.01% and 2.02% per year.

Even after taking into account the increased employer contributions, we still see that real health insurance premiums have outpaced real labor compensation by about 3.9%.  In order to decrease the number of uninsured, we need to bring down the cost of health insurance.  This means either increased cost-sharing or enacting more limitations on medical services provided.  If we do not want to increase cost-sharing or limit care coverage, premiums will continue to increase.  Whether these premiums are paid by individuals, the employer or the government, they represent a real cost to society that needs to be spent efficiently.

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Slowing medical CPI may not last

November 13, 2008 in Supply of Medical Services | No comments

The Bureau of Labor Statistics reports that Medical CPI is only 3.2%.  This is less than the 4.1% average inflation rate over the past ten years and the 6.0% average medical inflation rate over the past 30 years.  In most markets, a slowing economy reduces demand and reduces prices (see the recent decline in oil prices).  With the economic slowdown, will medical care get cheaper soon?

Joe Paduda predicts not.  Why?

  1. Insurance.  Less people will have insurance for two reason.  First, as people lose their job, they will also lose their health insurance.  Secondly, as firms profits decline, it is likely that some firms will drop their health insurance benefits. When less people have insurance, this  will lead to more charity care by doctors and less on-time payment by patients.  Doctors will have to raise prices in order to compensate for the increased number of patients who don’t pay their bills.  However, for elective procedures where patients bear most of the cost, physicians may actual decrease costs (see “Red Light Special…“).  
  2. Utilization.  How will the worsening economy affect medical care utilization.  Mr. Paduda claims that as the economy worsens, individuals that still have insurance will ”…get all their elective procedures done, prescriptions filled, and preventive care taken care of while still on their employer’s policy.”  However, the causation could go the other way as well.  If you have a health plan with significant deductibles or coinsurance, you may want to forego medical care in order to save more money (since you just lost your shirt in the stock market).
  3. Retroactive Adverse Selection.  With the economy in a downturn, firms are most likely to layoff younger workers with less seniority.  This means that the insurance pool at the firm will be older and more expensive to serve.  Thus premiums increase which could lead to firms dropping health benefits (see point 1).

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