Health Insurance Premium Update

Today, we received two updates on health insurance premiums. The Kaiser Family Foundation’s annual survey on health insurance looked back at the premiums insurers charged businesses and families in 2011, while the Office of Personnel Management looked ahead to 2012 and provided some important insight into the premiums large employers are negotiating with insurers for the coming year.

First, the Office of Personnel Management announced that the average premium for the 8 million people enrolled in the Federal Employees Health Benefits (FEHB) program will increase by 3.8 percent in 2012, nearly half of the 7.3 percent increase in premiums for 2011.  The premium increase for the popular Blue Cross Blue Shield Standard Plan will be only 1.6 percent for 2012. 

Second, the Kaiser Family Foundation released its annual survey on health insurance premiums, which found that that premiums increased by 9 percent in 2011.When evaluating the Kaiser study, it’s important to remember a few important facts:

• High Insurance Company Profits. The Kaiser report shows that premiums increased 9 percent in 2011. These premiums were generally set in 2010, when insurance companies thought medical costs would be significantly higher than they turned out to be. The Bureau of Labor Statistics found that the health insurance employer cost index (a measure of the price of health care services) was the lowest it has been in over 10 years in the first half of 2011. Additionally, some insurers assumed  that the Affordable Care Act would dramatically raise their costs. In the end, both assumptions were wrong – but insurance companies still charged high premiums and earned impressive profits. Wall Street analysts’ review of results from the first quarter of 2011 found that 13 of the top 14 health insurers exceeded their earnings expectations, with profits that were over 45 percent higher than estimated.
• Policies to Hold Insurance Companies Accountable Kicking In. Key Affordable Care Act policies are starting to take effect that make insurance more affordable. For example, insurance companies that want to raise premiums for 2012 by more than 10 percent will have to publicly justify their rate hikes. And a growing number of States have the power to reject unjustified premium hikes. Additionally, insurers are required to spend at least 80 percent of your premium dollars on medical care, rather than advertising, overhead and bonuses for executives. If they fail to meet that standard, they will be required to provide a rebate to their customers.
• Premium Growth is Slowing. The data released by Kaiser cover 2011, but signs indicate that premium growth will slow significantly in 2012. On September 20^th, Mercer, a well-known independent benefits consulting firm released a survey of employers showing that  their health insurance cost increases will average 5.4 percent for 2012, the smallest increase it has measured since 1997.  Goldman Sachs reported “Widespread anecdotal observations suggest health reform may be a factor contributing to slower growth in per capita health spending.”
• Exchanges Work. The Affordable Care Act established Affordable Insurance Exchanges – State-based marketplaces where consumers will be able to purchase affordable, private health insurance. Examples of these kinds of marketplaces already exist and in two important cases, premium growth is falling.
  • As noted earlier, the average premium for 8 million Americans who get their insurance through the Federal Employees Health Benefits (FEHB) program will increase by 3.8 percent in 2012. The FEHBP was a model for the Affordable Insurance Exchanges included in the Affordable Care Act. 
  • CalPERS which insures 1.3 million California workers and retirees through a marketplace that is similar to the Exchanges reported that premium growth in 2012 would be 4.1 percent, down from 9 percent in 2011.

These examples only underscore what independent experts have already told us: Exchanges and other tools in the law will help save money for middle-class families.

• Other Key Statistics: Millions Already Helped by Reform. Other key statistics from the Kaiser report include:
  • 2.3 million young adults were added to their parents’ plan as a result of health reform.  This number is larger than the 1 million uninsured young adults who gained insurance since it includes those switching from an individual market plan. 
  • 47 million Americans who get insurance at work were helped by the Affordable Care Act rule that ensures preventive care is covered without a co-pay or deductible. 31 percent of workers were in plans that added preventive services and 23 percent were in plans that lowered their cost sharing due to the Affordable Care Act. 
  • Contrary to what opponents of the Affordable Care Act claimed would happen, 60 percent of employers continue to offer health insurance to their employees – compared to 59 percent in 2009. And when the law is fully implemented, employers will have new tools that will make it easier for them to provide benefits to their workers.

The Kaiser report is informative, but it’s a look backwards. When we look to the future, we know that the Affordable Care Act will help make insurance more affordable for families and businesses across the country.