Mismatch Between Premium Inflation and Health Care Inflation

Today’s Managing Health Care Costs Indicator is $15,073

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Kaiser Family Foundation and the Health Research Education Trust (KFF/HRET) released their 2011 health insurance survey results – and the increase in premium inflation is disheartening.  KFF/HRET reports that overall health care premium costs have increased by 9%, to over $15 thousand for a family plan. This is despite reports of diminished health care demand – with fewer discretionary surgeries at hospitals.  It’s also despite a reduced fertility rate associated with the Great Recession. 

·        Health care premiums have more than doubled over the last 10 years.  Employers are paying 113% more for premiums than 10 years ago; employees are contributing 131% more.
·        31% of employees have at least a $1000 deductible for single coverage, and 12% have at least a $2000 deductible for single coverage.
·        60% of all firms offered health care coverage; this was only 48% for firms with 3-9 employees.

How could health care premiums be going up even if utilization is going down?

è Cost per unit could be increasing, even though utilization is going down.  There’s a lot of evidence of this – see my post of September 27
è Younger or healthier people are dropping their insurance. This would be consistent with layoffs of the most junior workers.  America’s Health Insurance Plans suggests that this is the problem.
è Family size has increased. This certainly happened with the Affordable Care Act (ACA) requirement that adult children could continue on their parents’ policies until age 26.   Higher family size could also represent more single people losing their insurance, or more families with two working spouses where one lost a job, and was added to the spouse policy.
è Health plan actuaries could have overestimated future costs, and thus charged  higher premiums than would be justified.  The ‘underwriting cycle” for health insurance premiums does not match actual health care costs perfectly – there is some lag. Further, health plans facing future constraints on their profitability could seek to increase their premiums now – especially when many will attribute price increases to health care reform.
è Coverage mandates can increase the cost of care.  The ACA increases costs through mandates including a prohibition of excluding preexisting illness, removal of lifetime maxima and requiring for full coverage of preventive care. Most actuaries estimate the cost of these mandates at 1% -  so this wouldn’t explain the high rate of overall premium inflation.

The increase in health care premiums during 2011 is ill-timed.  The economy is shaky – even more so with the threat of a Greek default in the Eurozone.  Unemployment remains high, consumer confidence low, and employers are reluctant to hire new employees.  Further, families are increasingly unable to pay their larger share of health care costs.  They are facing the double whammy of high premium increases, a larger share of premium costs, and higher member cost share when care is delivered.
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