The Facts: Premiums and Underlying Medical Costs

Premiums track directly with the underlying cost of medical care.

  • According to National Health Expenditure data released by the U.S. Department of Health and Human Services, from 2000-2010 the growth in premiums tracked directly with the growth in benefits – a trend that has been consistent for decades.

  • According to the S&P Healthcare Economic Composite Index, between January 2003 and August 2010 medical costs for commercial health insurance programs grew 74 percent.

The focus needs to be on 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.

Prices for medical services continue to rise.

  • Data released today by the S&P Healthcare Economic Composite found that “healthcare costs covered by commercial insurance increased by 8.03% over the year ending September 2011, also increasing for the fifth consecutive month.”
  • 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.
  • According to a recent Aon Hewitt survey, the impact of new benefit mandates “is likely to be highly variable, with disparate impacts being seen across different lines of business and different health plans.”

Many experts believe that the provisions in the law that are intended to reduce costs are insufficient and that the underlying medical costs that drive premium increases will continue to grow. Unfortunately, the law also imposes new taxes and benefit mandates that will increase the cost of health care coverage, including:

  • New premium tax that will raise the cost of coverage for small employers, individual market customers and beneficiaries in public programs.
  • Essential benefits requirements that will force many consumers and small businesses to “buy up” and purchase more coverage than they may want or can afford.
  • Age rating restrictions that will cause premiums to skyrocket for younger workers.

Health plans are doing their part to improve the quality and safety of patient care and help put our health care system on a sustainable path.

This entry was posted in Fact Check, Health Care Costs and tagged , . Bookmark the permalink.

Comments are closed.