AHIP Statement on Rising Health Care Costs

Statement from AHIP Press Secretary Robert Zirkelbach on rising health care costs:

“Political attacks and disinformation campaigns will do nothing to cover more Americans or control the skyrocketing cost of medical care. The facts clearly show that health insurance premiums are increasing due to soaring medical costs and a slowdown in the economy that is causing younger and healthier workers to drop their insurance – not health plan administrative costs and profits.”

FACT CHECK: In 2009, the percentage of premiums that went towards administrative costs and profits declined for the sixth year in a row.

Source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2009.pdf

http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

FACT CHECK: Between 2000-2008, the growth in premiums tracked directly with the growth in benefits.

Source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf (see table 12)

FACT CHECK: The percent of premiums spent on health plan administrative costs have been consistent for decades.

For decades, the percent of premiums spent directly on medical care has been consistent. At the same time, health plans have implemented new innovative services, invested in cutting-edge health information technology, and been forced to spend more on regulatory compliance and higher premium taxes.

FACT CHECK: Putting health plan profits in perspective

Fortune Magazine’s 2009 analysis of industry profits showed that health plans’ profit margin was 2.2 percent, ranking it far below other health care industries. Yahoo! Finance’s latest analysis of quarterly financial data shows the average profit margin in the health insurance industry is 3.4 percent, compared to 11 percent for the entire health care sector.

What Experts Say About Health Plan Profits

• Alwyn Cassil, Center for Studying Health System Change:“‘…this idea that(taking) this $12billion that they have in profits … would fix our health-care spending problems is just a pipe dream.‘”(Louisville Courier-Journal, Health insurers defend profits, 02/21/10)
• Uwe Reinhardt, Economist, Princeton University:“‘Everyone is beating up on the insurance companies, but you may beshooting at the wrong target…’”(AOLNews, Who’s the Bad Guy in Insurance Premium Hikes?, 02/21/10)
• Ezra Klein:“…it’s hard to see how [health plan profit margins of 3.3%] are a primary driver of health-care spending, much less the growth in health-care spending.”
• Henry Aaron, Brookings Institution:“Insurance company profits in the large picture have very little to do with the overall rising cost of health care.”
• Dr. Peter Kongstvedt:“The insurance companies are not the major drivers of cost inflation…”
• Kaiser Health News:“With the nation’s health care spending estimated at $2.5 trillion this year, even theeliminationof insurers’ profits and executive compensation would lower health care spending by just 0.5 percent.”

FACT CHECK: Provider Consolidation Driving Up Costs

Health insurance plans operate in highly competitive markets across the country, and consumers have numerous choices in the types of plans and in insurers. To the extent that research has raised the question of competition as a factor in rising health care costs, it has pointed to consolidation among providers, not health plans.

Important information about health plan competition:

• There are eight or more health insurers in each of the top 40 metropolitan statistical areas (MSAs) in the nation.
• Physicians contract, on average, with about a dozen health plans. Only about half of their practice revenues come from health plan contracts while the rest comes from the federal government through Medicare and Medicaid.
• Aggressive competition among health insurance companies has also increased the number of product options available to both consumers and their employers. New types of products-like consumer-directed health plans, or HSAs-afford more choices, in addition to the many and varied PPO, HMO, POS, and indemnity options, both fully insured and self-funded.
• The states which are allegedly the most concentrated actually have some of the lowest health care costs in the nation.
• The list of participating insurance plans that are available through every state insurance department show that there are a variety of choices for consumers.

Additional information on provider consolidation:

• Massachusetts Attorney General Martha Coakley recently issued a report on hospital consolidation in the state. According to a recent Boston Globe story, the report “points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs” and “found no evidence that the higher pay was a reward for better quality work or for treating sicker patients”.
• According to a new report in Health Affairs, Paul Ginsburg and Robert Berenson found that “providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.”
• A report from the Robert Wood Johnson Foundation found that hospital consolidation has contributed to rising health care costs. The report stated: “Research suggests that hospital consolidation in the 1990s raised inpatient prices by at least five percent and likely significantly more. Prices increase 40 percent or more when merging hospitals are closely located.” The report also found that higher hospital prices do not translate to higher quality of care: “[A] narrow balance of the evidence and the evidence from the best studies indicates that hospital consolidation more likely decreases quality than increases it.”
• According to a brief from the National Institute for Health Care Management:”With only a few exceptions, results consistently demonstrate that hospital consolidations result in higher prices for hospital services. The magnitude of price increase varies by methodology and by the characteristics of the markets under study, ranging from low-end estimates of 5 percent price hikes to increases of more than 50 percent.”
• The Federal Trade Commission and the Department of Justice held extensive health care hearings in 2002 and 2003, and in their subsequent report noted the correlation between hospital concentration and high hospital prices: “Most studies of the relationship between competition and hospital prices have found that high hospital concentration is associated with increased prices, regardless of whether the hospitals are for-profit or nonprofit.”
• Recent reports show how much hospital consolidation has increased in recent years, indicating that:
  • The vast majority (88 percent) of U.S. Metropolitan Areas have highly concentrated hospital markets.
  • Hospitals markets have increased their concentration by 47 percent over 13 years.

* Private Health Insurance: Equals the premiums earned by private health insurers, including premiums paid to Blue Cross Blue Shield, commercial insurance, HMOs, self-insured plans and property/casualty insurance coverage for health care. The difference between health premiums earned and benefits incurred is a measure of net cost, which includes insurers’ costs of paying bills, advertising, sales commissions, and other administrative costs; net additions to reserves; rate credits and dividends; premium taxes; and profits or losses. Link: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/quickref.pdf