The Affordable Care Act Did Not Cause Unjust Premium Increases

Today’s Wall Street Journal reports that some health insurance companies are blaming the Affordable Care Act for premium increases that were planned long before the law was passed. We knew this would happen, which is why the President called on insurance companies not to use the Affordable Care Act as an excuse to implement unreasonable premium increases. In fact, when one insurance company in the State of Washington was called out for telling its beneficiaries that rate increases were due to the Affordable Care Act, that company agreed to issue a new letter clarifying the reasons for the increase.

The premium increases discussed today – many of which were planned before the Affordable Care Act was even signed into law– demonstrate that reform came at a critical time.  In fact, consumers have faced unreasonable double digit premium increases for more than a decade, including employer-sponsored plans where premiums have more than doubled since 2000. 

The most recent round of premium increase announcements are at odds with a number of health care cost related projections. The Bureau of Labor Statistics reports that medical inflation is currently projected to be 3.2 percent this year.  Similarly, The Kaiser Family Foundation concluded that family premiums were rising only 3 percent for this year.  Finally, we estimate that any potential premium impact from the new consumer protections and increased quality provisions under the Affordable Care Act will be minimal – no more than 1-2 percent -- which will be further offset by other out of pocket savings implemented in the law. Here’s how: 

• Reducing the “hidden tax” on insured Americans: Today, families with insurance pay a $1,000 hidden tax to subsidize care for the uninsured. By making sure insurance covers people who are most at risk, there will be less uncompensated care and the amount of cost shifting among those who have coverage today will be reduced by up to $1 billion in 2013. 
• Improving Americans’ health: By making sure that high-risk individuals have insurance and emphasizing health care that prevents illnesses from becoming serious, long-term health problems, the law will reduce avoidable hospitalizations. 
• Preventing bankruptcy:  Medical costs contribute to about half of the more than 500,000 personal bankruptcies in the U.S. in 2007.  Bankruptcies can be avoided through ensuring insurance companies can’t drop people when they get sick, can’t place a lifetime or unrestricted annual limit on coverage, or discriminate against kids with preexisting conditions.  
• Preventing illness:  Reducing preventable illness through new prevention coverage will result in significant savings. For instance, preventing obesity will lower premiums by .05 to .1 percent. Every dollar spent on immunizations could save $5.30 on direct health care costs and $16.50 on total societal costs of disease.  Reducing preventable illness can also increase worker productivity – today, increased sickness and lack of coverage security reduce economic output by $260 billion per year. 
• Reducing Out of Pocket Costs:  Preventive health benefits will also help reduce out of pocket costs. For example, guidelines suggest that a 58-year old woman who is at risk for heart disease should receive a mammogram, a colon cancer screening, a Pap test, a diabetes test, a cholesterol test, and an annual flu shot; under a typical insurance plan, these tests could cost more than $300 out of her own pocket.

The Affordable Care Act also includes new resources and authorities to crack down on unjustified rate hikes.   Today, 46 states are using resources under the new reform law to pass or strengthen rate review laws which will have a significant impact on keeping rates low.  In a number of states (California, Massachusetts, Maine) regulators have already reviewed and rejected these proposed increases. We expect this pattern to continue. 

And the new law provides HHS with new authorities to prevent unreasonable increases, including: 

• Requiring insurance companies to publicly justify any unreasonable premium increases in 2011 by posting them on their websites.
• Requiring insurance companies to spend at least 80 percent of premium dollars on health care instead of overhead, salaries or administrative expenses, in 2011. If they fail to do so, they will be required to provide a rebate to consumers.
• Denying insurance companies, who unreasonably raise premium rates, participation in insurance market Exchanges in 2014.  

When reform is implemented, costs will be reduced across the board, premium increases will need to be justified and consumers will be protected.  

Stephanie Cutter is Assistant to the President for Special Projects