The Washington Post’s Wonkblog: Did health reform drive up insurance premiums? Depends on the plan.
The Washington Post’s new Wonkblog had a must read post on Friday examining the impact that health care reform has on premiums. Check it out here: Did health reform drive up insurance premiums? Depends on the plan. The article states that “when it comes to rising health premium costs and the health reform law, there’s no one-size-fits-all explanation” and highlights a new Aon Hewitt survey to demonstrate how the impact may vary depending on the type of coverage a person had prior to the new requirements going into effect.
The piece includes a quote from AHIP President and CEO Karen Ignagni: “The impact depends on where you start. If an individual has purchased primarily catastrophic coverage, it will add to the cost of coverage much more than for a small employer or large employer who already had a broader benefit package.”
Other highlights from the blog post:
- “Across the board, Aon attributes 1.5 percent of premium bumps in 2011 to the reform law…But that 1.5 percent increase is an average and doesn’t say much about different insurance-market segments.”
- “What health reform’s early-to-implement benefits mean for the cost of premiums really depends on what the starting benefit package looks like.”
- “Because so many benefits packages are starting from very different places right now, any blanket statements or average numbers are likely to miss what’s actually happening in different insurance-market segments.”
New Aon Hewitt report: 2011 Health Insurance Trend Driver Survey
Aon Hewitt conducted a survey of health plans and recently issued a report to “provide a general framework for looking at the health care trends and the relationship between trends and premium increases” as well as provide information on health plans’ “expectations for the overall level of health care cost increases” and “the components driving these increases.” The report analyzed the impact of core health care trend, changes in the covered population, fixed cost-sharing effects (e.g., deductible leveraging), and benefit changes driven by PPACA on premium increases.
Highlights from the report:
Core health care trend
- This component reflects the trend of payments to health care providers and includes changes in the price of health care services, the mix of services provided, and changes in the overall level of health care utilization.
- In most situations, the core health care trend will represent the largest single component of any premium rate increase.
- The majority of surveyed responses reported core health care trends between 7.0% and 10.0% during the past three years. The average core rates, weighted by covered membership, were 8.3%, 9.0%, and 7.9% for 2008, 2009, and 2010, respectively.
- On a prospective basis, weighted average trends for 2011 and 2012 do not materially differ from the 2008 through 2010 levels, with projected trends of 8.3% in 2011 and 8.7% in 2012.
- The average price increase for health insurance plans has been consistently near 6.0% over the three years from 2008 through 2010. This level of increase is projected to continue during the next two years, with health plans projecting annual increases of 6.2% in 2011 and 6.5% in 2012.
- After reviewing core trend, it is important to consider the additional factors that contribute to overall premium increases – including changes in the covered population, deductible leveraging, and benefit changes driven by PPACA. These items are usually smaller than core trend, but can still have a significant impact on premium increases.
Changes in the covered population
- Health care costs increase significantly with age, with average cost increases for each year that a person ages typically in the range of 1% to 4%.
- Changes in the demographics of the insured group often vary significantly by plan and line of business, with the impacts being specific to an individual health plan or even an individual policy.
Fixed cost-sharing e!ects (e.g., deductible leveraging).
- While not necessarily obvious, plans with higher deductibles or other flat-dollar cost-sharing features often have higher trends than plans with lower deductibles.
- An example may help illustrate this impact. Compare two nearly identical plans, the first with a $250 deductible and the second with a $1,000 deductible. For a $5,000 procedure, the first plan pays $4,750 and the second plan pays $4,000. The next year, the cost of the $5,000 procedure increases by 6% to $5,300. The first plan would pay $5,050 ($5,300 – $250), with an overall trend increase of 6.3%. In this instance, deductible leveraging increased the trend by 0.3%. The second plan would pay $4,300 ($5,300 –$1,000), with an overall trend increase of 7.5%. The high deductible plan experienced a 1.5% deductible leveraging impact in this example.
Legislative and regulatory impacts
- Due to the nature of legislative/regulatory changes and variations in the current state of health care, the impact of these changes on health care cost is likely to be highly variable, with disparate impacts being seen across different lines of business and different health plans.
- For many plans, the pre-2014 changes brought about by PPACA are expected to have an impact on trends in the short term, with these impacts expected to be far greater for plans in the individual line of business.
- Overall, PPACA is anticipated to increase costs by an average of 1.5% in 2011 across the surveyed health plans. Other surveys have offered similar cost estimates. However, it is important to understand that these averages cannot be easily extrapolated to any particular health insurance policy or across different lines of business.
- Within a line of business, there was also a wide range of reported impacts for many PPACA provisions.
- Certain individual policies could see premium increases of 20% or greater based on reported trend components. As an illustrative example, a policy could have core trend increases of 8%, with additional increases of 2% for deductible leveraging, 3% for changes in the covered population, and 10% for PPACA-related changes.
- Determining whether a particular premium increase for a given policy is appropriate requires a thorough understanding of the components driving the premium increase.
Discretionary design changes/“benefit buy-down”
- Based on the premium increases that result from these factors, it is common for employers or other purchasers to make changes to their plan design in order to help control the impact of premium increases. For example, an employer faced with a large premium increase may elect to increase deductibles or copays in order to lower the premium increase. This is commonly referred to as “benefit buy-down.”
- Benefit buy-downs are best viewed as a reaction to potential premium increases rather than a direct component of premium increases.