By Tom Murphy
Some Americans could see their insurance bills double next year as the health care overhaul law expands coverage to millions of people.
The nation’s big health insurers say they expect premiums, or the cost for insurance coverage, to rise from 20 percent to 100 percent for millions of people because of changes that will happen when key provisions of the Affordable Care Act roll out in January 2014.
Mark Bertolini, CEO of Aetna Inc., one of the nation’s largest insurers, calls the price increases “premium rate shock.”
“We’ve done all the math, we’ve shared it with all the regulators, we’ve shared it with all the people in Washington that need to see it, and I think it’s a big concern,” Bertolini said during the company’s annual meeting with investors in December.
To be sure, there will be no across-the-board rate increases for everyone, and there’s no reliable national data on how many people could see increases. But the biggest price increases are expected to hit a group that represents a relatively small slice of the insured population. That includes some of the roughly 14 million people who buy their own insurance as opposed to being covered under employer-sponsored plans, and to a lesser extent, some employees of smaller companies.
The price increases are a downside of President Barack Obama’s health care law, which is expected to expand coverage to almost 30 million uninsured people. The massive law calls for a number of changes that could cause premiums for people who don’t have coverage through a big employer to rise next year, at a time when health care costs already are expected to grow by 5 percent or more:
- Changes to how insurers set premiums according to age and gender could cause some premiums to rise as much as 50 percent, according to America’s Health Insurance Plans, or AHIP, an industry trade group that’s financed by insurers.
- A new tax on premiums could raise prices as much as 2.3 percent in 2014 and more in subsequent years, according to a study commissioned by AHIP. Policyholders with plans that end in 2014 probably already have seen an effect from this.
- Requirements that insurance plans in many cases cover more health care or pay a greater share of a patient’s bill than they do now also could add to premiums, depending on the extent of a person’s current coverage, according AHIP.
The Obama administration said the law balances added costs in several ways, including tax credits that will bring down what many consumers will pay for insurance.
“The health care law will bring down costs and save money for young people and families,” said Erin Shields Britt, a spokeswoman for the Department of Health and Human Services. “It’s misleading to look at one provision of the law alone. Taken together, the law will reduce costs.”
Where ‘rate shock’ might strike
The effect of some cost increases will be wide ranging. The new premium tax, for instance, will affect individual insurance, some employer-sponsored coverage and Medicare Advantage policies, which are privately-run versions of the government’s Medicare program for the elderly and disabled.
Other price increases will vary because of factors such as a person’s coverage and age. Young people who have low-cost coverage might see some of the biggest increases.
In many states, insurers charge a 60-year-old customer $5 in premiums for every $1 they collect from a 24-year-old. The logic behind that is that older people use health care more and generate more expensive claims than younger customers, so insurers need to collect more to help pay their bills.
But the overhaul will narrow that ratio to 3-to-1. That alone could cause the premium for a 24-year-old who pays $1,200 annually to jump to $1,800, according to AHIP. Meanwhile, the 60-year-old who pays $6,000 will see a 10 percent drop in price.
Gender also can be a factor in whether premiums go up or down. The law will prohibit insurers from setting different rates based on gender, something they do because women generally use more health care. That means premiums for some men could rise, while they fall for women.
Prices also might change depending on a person’s coverage. Many policies on the individual market (coverage not sold through employers) exclude maternity coverage, but that will be considered an essential health benefit under the overhaul. That could mean higher prices for some.
Vikki Swanson, 49, of Newport Beach, Calif., resents that the added benefit might lead to higher costs for her. “I had a hysterectomy, I have no need for maternity coverage, but I have to now pay for it,” she said.
As a self-employed accountant and financial analyst, Swanson has paid for her insurance coverage on the individual market for about 13 years. She watched her monthly premium climb from around $136 in 2001 to more than $600 before she could find cheaper coverage. She’s frustrated that the overhaul might add to her bill.
“I have to pay not only my own premium but I have to subsidize everybody else,” she said.
Cushioning the blow
While insurers forecast instant premiums increases starting next January, the overhaul also is expected to tame health care costs for many.
Starting next year, the law will require insurers to cover everyone who applies. That means health care costs dramatically could fall for people who have been unable to find coverage because of a chronic condition such as diabetes or high blood pressure.
There also will be tax credits, or subsidies, given to people with incomes that fall within 400 percent of the federal poverty level. For 2013, 400 percent of the poverty level for all states except Alaska and Hawaii would be $94,200. These credits won’t lower premiums, but they can ease the insurance bill depending on a person’s income.
The credits should help the 20-something customers that insurers warn will see big premium hikes, said Linda Blumberg, an economist with the Health Policy Center of the Urban Institute, a nonpartisan policy research organization. She noted that people in that age range are more likely to be either working for an employer that doesn’t offer coverage or earning low wages that would entitle them to a sizeable credit.
“While these folks are potentially facing some premium increases due to all these reforms, they also are the ones most likely to get the financial help from the exchanges,” she said.
There are other changes that will benefit young and poor people. Some might qualify for coverage under the state-federal Medicaid program for the poor and disabled, which will expand in many states next year.
Additionally, people younger than 30 who face big premium increases will be able to buy plans that charge low premiums and just provide coverage for big or catastrophic costs. Those plans also will be available to people required to pay more than 8 percent of their income for coverage.
Plus, people who are 26 and younger are eligible to receive coverage under a parent’s plan, because of another overhaul provision that already started.
In addition to those changes, insurers will have to compete for business on the exchanges, which could restrain price increases, said Larry Levitt, a private health insurance expert with the Kaiser Family Foundation, which analyzes health policy issues. He noted, for instance, that some already are creating narrow networks of low-cost providers to help keep costs in check.
“Plans are very focused on trying to get these premiums down,” he said.
But Robert Laszewski, an industry consultant and former insurance executive, said that theory assumes there is no competition in the marketplace now. He noted that a small company might get quotes from as many as 10 insurers competing for business when it tries to find coverage through a broker.
“I haven’t had one person in the industry remark to me, ‘Gosh, I wonder what the other guy’s charging,'” he said. “They’re worried that all this stuff is so expensive, they’re not going to get the pricing right.”