AHIP Statement on KFF/HRET Employer Health Benefits Survey
Washington, D.C. – AHIP President and CEO Karen Ignagni released the following statement today on the new Kaiser Family Foundation/Health Research & Educational Trust 2011 Employer Health Benefits Survey:
“This report is just the latest warning that far more needs to be done to address the rising cost of health care. Policymakers in Washington and the states need to address all of the factors that are driving premium increases: soaring prices for medical services, changes in the covered population that has resulted in an older and sicker risk pool, and new benefit and coverage mandates that add to the cost of insurance. Reducing health care cost growth will make it easier for consumers and employers to afford coverage, ease the burden on federal and state budgets, and put our vital safety net programs on sustainable and fiscally responsible paths.”
Why premiums are increasing:
Prices for medical services continue to rise
- Recent data from the S&P Healthcare Economic Composite found that “healthcare costs covered by commercial insurance increased by 7.73% over the year ending July 2011.”
- The annual Milliman Medical Index (MMI) found that “between 2010 and 2011, the MMI increased by $1,319 or 7.3%.” Moreover, the report noted that “even though hospital spending is only 48% of total healthcare spending, increases in facility spending (inpatient and outpatient combined) account for over 60% of this year’s total increase in cost of healthcare.”
- PricewaterhouseCoopers (PwC) Health Research Institute’s “Behind the Numbers: Medical Cost Trends for 2012”, which examines the medical cost trends for employers in 2012, found that “medical cost trend is expected to increase from 8% in 2011 to 8.5% in 2012.”
- Medco’s Drug Trend Report, an annual look at prescription drug price and utilization trends, found that “overall drug inflation climbed 5.4%”, “record inflation of branded drugs at 9.4% exceeded generic inflation by a wide margin”, and “specialty drug trend was 17.4% in 2010, fueled by unit cost growth of 11.5%.”
- According to National Health Expenditure Data released by CMS, the growth in health insurance premiums has tracked directly with the growth in benefits.
Changes in the covered population have resulted in a risk pool that is older and has higher health care costs
- During the economic slowdown there has been a trend of younger and healthier people choosing to drop their current coverage and fewer choosing to take up coverage offered by their employer.
- High unemployment has resulted in employers hiring fewer younger workers. Combined with a reduction in the number of early retirees, many employers are facing a workforce that is older and has higher health care costs.
New federal benefit and coverage mandates add to the cost of coverage
- Expansion of dependent coverage has increased the number of people covered under many health insurance policies.
- New benefit mandates – such as no cost-sharing for preventive care and restrictions on annual and lifetime limits – has resulted in increased coverage and thus higher premiums.
Medical inflation is only one factor contributing to rising health care costs
- The medical component of the Consumer Price Index (Medical CPI) simply measures the inflationary component of prices charged for a defined group of services.
- Medical CPI is designed to measure the inflation rate for consumer out-of-pocket health costs. The main components of the CPI-M are prices for non-covered goods and services, such as over-the-counter medications and supplies, dental services, and eyeglasses.
- It does not include other major factors that drive increases in health care spending, such as increased utilization, the needs of an aging population, and the development of new medical technologies and prescription drugs.
Health plan administrative costs and profits are not driving up the cost of coverage
- According to the latest Yahoo! Finance data, the health plan sector has an average profit margin of 4.5 percent.
- In 2010, health plan profits accounted for less than 1 percent of total health care spending in the U.S.