Premiums for employer-provided health insurance rose by 50 percent from 2003 to 2010 as employers passed on high costs to workers, boosting their annual share of premiums by 63 percent over the seven-year period, according to a report issued this week by The Commonwealth Fund. That’s much faster than overall inflation and wage growth during the period. The numbers reflect an affordability crisis confronting health insurers given the rate of growth of premiums is taxing the ability of employers and individuals to pay them at the same time the nation struggles to regain economic growth.
The report looks to a combination of insurance market reforms, payment incentives and delivery system changes to potentially reduce insurance costs by an average of 1 to 1.5 percentage points per year over the next decade. But even with the higher savings figure, coverage would remain costly, putting the average national family premium at $16,912 in 2015 and $20,620 by 2020, the report estimates.
While not specifically called out in The Commonwealth Fund report, the premium increase data underscore the enormous social cost of the poor health habits of many Americans — unhealthy diet and lack of adequate exercise and sleep — that underlie chronic conditions such as heart disease and diabetes that in turn drive up medical costs. Insurance market reforms alone can’t address those factors that according to the Preventative Medicine Research Institute account for 75 percent of health care costs that can be prevented by lifestyle changes.
The Washington Post is the latest news outlet in the past few months to report on low initial enrollments in state Pre-existing Condition Insurance Plans (PCIP) established earlier this year under the Patient Protection and Affordable Care Act (PPACA). During the fall, tepid interest in the PCIPs — referred to in the PPACA as the Interim High Risk Pool designed to provide coverage regardless of pre-existing medical conditions until health insurers must accept all applicants in 2014 — were also the subject of stories by the Associated Press and The New York Times.
The purpose of the PCIP is to help pare down the number of medically uninsured who can’t get coverage under current health insurance medical underwriting guidelines. The Post reports state PCIPs are proving to have narrow appeal, attracting those needing very costly care and raising the question of whether the $5 billion appropriated by the PPACA to subsidize PCIPs will be enough before 2014 despite low early enrollments.
What’s likely suppressing enrollments are provisions in the PPACA that require PCIP premiums be set at standard market rates based on age. For the oldest members of the pool, premiums are limited to four times those charged the youngest members of the pool. That means those most likely to be served by PCIPs — those with pre-existing conditions in their fifties and early sixties — are finding the premiums out of reach, just as are individuals in that age range who are healthy, acceptable risks for individual health plans and insurers.
As federal officials stress it’s too early to draw conclusions, it remains to be seen whether the PCIPs will make any appreciable reduction in the number of medically uninsured Americans. Early indications are not promising. They suggest PCIPs will serve a narrow demographic of very sick but relatively affluent people aged 50-65 who are too young to enroll in Medicare and who need coverage for costly conditions as a hedge against medical bankruptcy.
Rising medical costs — a key driver of the health insurance crisis — appear to be easing, the Wall Street Journal reported this week. According to the newspaper, there are two factors at work. The first is the recession. Since a large majority of people get health coverage through employment, their coverage gets more costly once they lose their jobs since they must buy costly COBRA coverage (many long term unemployed have lost that coverage) or pricey individual health insurance or HMO memberships.
In the case of the latter, more are opting for more affordable high deductible plans, which serve as a built in deterrent to the utilization of medical services. “People just aren’t using health care like they have,” Wayne DeVeydt, WellPoint’s chief financial officer, told the newspaper. “Utilization is lower than we expected, and it’s unusual.”
If the U.S. economy enters a post recession deflationary period as some economists expect and some Federal Reserve bankers worry aloud, premiums might even fall. That along with decreased utilization might head off potential market failure in the individual and small markets, troubled market segments that might not otherwise survive in their current form by the time most provisions of the Patient Protection and Affordable Care Act take effect in 2014 if sharp increases in medical costs and premium rates continue.
By the time individuals become eligible to buy coverage through the Patient Protection and Affordability Act’s (H.R. 3590) American Health Benefit Exchanges on Jan. 1, 2014, the individual market risk pool could undergo a major depopulation particularly among individuals with pre-existing conditions.
According to a Kaiser Family Foundation survey released this week of people with individual coverage aged 18-64 conducted between March 19 and April 2, annual premium increases are averaging about 20 percent. Given that individual rates are already high and remain headed upward in a weak economy, such increases are unsustainable and will likely be seen in retrospect as the tipping point of market failure in the individual health insurance market. Individuals can only trade down so much before premiums for a higher deductible, less generous plan also become unaffordable. Sixty five percent of the Kaiser Family Foundation survey respondents reported they worry their premiums will rise out of reach as do 81 percent of those with medical conditions.
If premium rates for the Act’s Interim High Risk Pool provide even modest relief, it could spark a migration of those with preexisting conditions out of the individual market into the Interim High Risk Pool. The pool took effect this month and is intended to provide coverage for those with preexisting medical conditions who have been uninsured for at least six months until insurers must accept all applicants in 2014. It remains to be seen exactly what members of the pool will be charged for coverage. While the Act requires the pool to set premiums at a “standard rate for a standard population,” those premiums may also end up being unaffordable as I’ve previously speculated.
Nevertheless, individuals with medical conditions may soon be knocking on the pool’s door as this item from the New York Times Prescriptions blog illustrates. In the blog post, Deborah Chollet, a senior fellow at Mathematica Policy Research, suggests a self employed individual with cancer who fears he’ll no longer be able to afford rising premiums may wish to consider the pool as an alternative to dropping his coverage. But under the Act, he’ll have to go medically uninsured for six months in order to qualify for coverage.
There’s another aspect that bears watching. If the premiums charged in the Interim High Risk Pool are significantly lower than those charged by health plans and insurers in the individual market or lag their recently sharp premium hikes, it could produce a so-called “crowd out” effect in which individuals drop coverage for six months in order to qualify for coverage in the Interim High Risk Pool. Many — probably most people over age 45 — would meet the Act’s expansive definition of a pre-existing condition.
California and federal policymakers are on convergent paths when it comes to regulation of premium rates charged by health plans and insurers. The California state Assembly this week approved and sent to the upper house legislation that would subject managed care service plans overseen by the Department of Managed Health Care and indemnity insurance policies regulated by the Department of Insurance to a prior approval rate regulation scheme. Such as scheme has been in place in California since 1989 for property/casualty insurers after voters approved a ballot measure instituting it. Helping push the ballot measure over the top by the slimmest margin of voter approval was anger over rising auto insurance rates.
Similarly, increasing health insurance premiums and particularly a big jump in individual policy rates that Anthem Blue Cross had planned effective March 1 (the rate increase has since been withdrawn) are providing impetus to AB 2578 after a nearly identical bill stalled in 2009.
The Patient Protection and Affordability Act (H.R. 3590) also authorizes a prior approval rate regulation scheme. Section 1311(e)(2) of Part II the Act (Premium Considerations) requires “justification for any premium increase prior to implementation of the increase.” That provision would take effect Jan. 1, 2014 as part of the Act’s requirement that states establish American Health Benefit Exchanges — mandatory on line markets through which individuals and small employers (and by 2017, anyone) can compare and shop for health plans.
AB 2578 is likely to end up on Gov. Arnold Schwarzenegger’s desk by September. A rational policy argument could be made that a prior approval scheme makes far better sense for an oligopolistic health insurance market than the much more competitive property/casualty insurance markets. But Schwarzenegger isn’t likely to sign the bill into law. The lame duck Republican governor doesn’t tend to favor market regulation generally and has voiced concern about the “fragility” of California’s individual health insurance market segment — a segment dominated by just five major players. Since rapidly rising medical treatment costs limit their ability to compete on price, they primarily compete on risk selection by limiting coverage to healthier individuals and pass through increased medical costs via rate increases. Schwarzenegger’s veto message will likely assert AB 2578 is not needed given the prior approval scheme contained in H.R. 3590.
If veteran Democratic Governor Jerry Brown is elected governor in November, however, legislation similar to AB 2578 will likely reappear in 2011 and potentially get signed into law effective Jan. 1, 2012. That would give California a two year head start on the feds and provide federal regulators drafting regulations to implement H.R. 3590’s prior rate approval scheme real world experience on how such a scheme actually plays out in the nation’s largest health insurance market.
The Patient Protection and Affordable Care Act’s Interim High Risk Pool — aimed at making medical coverage available at standard market rates for those with preexisting medical conditions until insurers and health plans are required to accept all applicants regardless of preexisting conditions in 2014 — will likely run out of money before then.
That’s the conclusion of a recently issued paper by the National Institute for Health Care Reform. The paper warns that while 5.6 million to 7 million Americans may qualify for the pool, the $5 billion the Act allocated may be enough to cover only 200,000 people a year. “Policy makers will need to tailor eligibility rules, benefits and premiums to stretch the dollars as far as possible,” the paper recommends.
There are multiple factors that could affect demand for the $5 billion set aside to subsidize Interim High Risk Pool coverage as well as cover administrative costs of operating the pool. Individual market premium rates are trending upward so even the standard rates required to be charged those in the pool (insurers charge nonstandard, surcharged premium rates to individuals with certain controlled preexisting conditions) could as this blog previously noted end up roughly equal to current nonstandard rates. In a struggling economy, those higher premiums would reduce the incentive for people to sign up for coverage.
The other unknown is how the states ultimately implement the Interim High Risk Pool and how the 35 states that have high risk pools in place coordinate (or don’t) their pool rules with those of the new, temporary federal program. Some states have already indicated they will be opting out of the federal program, which means the feds will designate a nonprofit organization in those states to administer the Interim High Risk Pool there.
In those states as well as states that have indicated they intend to integrate their high risk pools with the federal program, there could be disparities between the new pool and existing state high risk pools that could create incentives for individuals to go uninsured (individuals must be uninsured for at least six months to qualify for coverage via the Interim High Risk Pool) in order to obtain more generous, lower cost coverage than their state high risk pools offer. That would accelerate the drawdown of the $5 billion set aside for the program.
High risk health insurance pools to cover Americans with pre-existing medical conditions who fall short of medical underwriting standards of individual market insurers and managed care plans must be in place within 90 days of the March 23 enactment of the Patient Protection and Affordability Act. That mandate was put in place by H.R. 3590, Subtitle B, Section 1101.
Going forward, several aspects bear watching. Among them is how states — the majority of which already have high risk pools in place — implement the pool in their jurisdictions and conform their existing high risk pools to the new federal requirements.
In the interim before the high risk pool mechanism ends Jan. 1, 2014 and health insurance purchasing exchanges that must accept all applicants regardless of pre-existing medical conditions start up, a key question will be the number of people who actually sign up for high risk coverage. The number in large part will be driven by the size of the premiums.
California’s high risk pool, the Managed Risk Medical Insurance Program (MRMIP), is required by statute to set premiums 125 to 137 percent of standard market rates and has an annual coverage cap of $75,000 and a lifetime limit of $750,000. Currently the program covers just 7,100 Californians — a tiny fraction of the 1 million potentially medically uninsured Golden State residents projected by Harbage Consulting in 2008.
MRMIP has been limited on the supply side by enrollment caps due to limited funding and on the demand side by relatively high premiums. HR 3590 requires premiums to be established at a “standard rate for a standard population” that can vary based upon age, an important factor considering a large segment of medically uninsurable are between 50 and 64 years old. For the oldest members of the pool, premiums are limited to four times those charged the youngest members of the pool.
Standard rates however are on an upward trajectory as evidenced by a sharp increase being implemented for indemnity-based policies by California’s dominant player Anthem Blue Cross. Those rates if ultimately approved by the California Department of Insurance would be as high as those previously charged those in the MRMIP pool. For many, they would likely prove unaffordable. Particularly in a tepid economy that some economists predict won’t fully recover until the high risk pools are slated to end in 2014.
The upshot is HR 3590’s temporary high risk pool may not make much of a dent in the number of medically uninsured not covered through employment-based insurance or government insurance programs.