Sticker shock ahead for health premiums

Mark Bertolini

Get ready for sticker shock in 2014 on the premiums for individual and small group health insurance premiums.

The estimates for overall increases in health costs in the nation during the bruising congressional battle over ObamaCare were for an increase of a couple of points. But overall costs and the price of insurance are two different matters.

Smart people in the insurance industry have told me that they expect premiums to rise as much as 50% after January 1, 2014. They sounded histrionic, but then the top two executives of Aetna said publicly that some rates could double.

CEO Mark Bertolini said that in some markets premium increases could “go as high as 100%. And we’ve done all that math.” Average markets will show rises of 20% to 50%, he predicted.

Executive Vice President Frank McCauley had said earlier that the dramatic rate hikes would prevent many small businesses from using the new public exchanges.

The average cost of a family health plan in the country is more than $16,000 per year. Imagine, then, the reaction to a health care policy that costs more than $30,000. It will be run, not walk away from that kind of expensive coverage.

The drivers for the new round of hyperinflation are obvious to anyone who has examined the new law:

• “Guaranteed issue” will bring sick people into the pools, adding expense.

• The mandate on “essential health benefits” will add coverage of previously uncovered items. All providers in the country are lobbying to add more of their products and services to the coverage list.

• “Community rating” will force young people to pick up more of the tab for older people.

• Requirements for “minimum actuarial value” will cause insurers to enrich plans from where they are now.

• The requirements for an acceptable “medical loss ratio” will incentivize insurers to raise prices on care so they can meet the 20% or 25% allowed for overheads and profits.

* Effective Jan. 1 is a new tax on medical devices of 2.3%, which will be passed on by device makes and providers to consumers and will show up as premium increases.

• The public exchanges will be paid for by a tax on policies, which will raise the price tag for consumers.

* Pending cuts in Medicare reimbursements mean providers will have to find substitute revenues. That likely will mean price increases to private payers, the hidden tax that has occurred in the past when the federal government uses price controls to avoid paying its fair share. Again, premiums will rise.

* In addition to the new law, Congress is considering as part of the fiscal cliff fix a tax on health care benefits paid by employers. Any such tax hike would also show up in premiums in either insured or self-insured plans.

You may argue persuasively that all of those provisions in the new law are just and necessary, but you can’t argue that each of them doesn’t jack up the price of policies.

You are already seeing political reactions to the pending sticker shock. Republican governors have taken a hands-off posture on the exchanges, punting the political fallout for sky-high prices back to the federal government and its exchanges.

When the new prices begin to be rolled out in late 2013, expect the finger pointing to begin. Democrats will attack the “greedy” insurance companies. They will duck the obvious truth that prices are largely a function of costs, not profit taking.

Expect also a call for higher subsidies to make the new policies affordable to consumers.
Expect in the long run a renewed call for a government-run single-payer system, because only the government has enough money to pay for the bloated price tag.

Meanwhile, in the private sector, about half the companies will continue to offer health benefits, and they will continue their creation of a new market-based, value-based, consumer-based business model for the delivery of health care in America.

When and if the political finger pointing stops, maybe the pols will adopt those private sector reforms and get the costs/premiums under control.

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  • Jessica

    What exactly does a “consumer-driven health care plan” look like? Are you referring simply to plans with high deductibles and corresponding savings methods like HSAs and HRAs? Or is there some other kind of option outside of the traditional insurance system?

    What cost-effective health coverage alternatives do you imagine for potential 2014 implementation that comply with federal law?