Insurance companies will pay more for claims, study says
By Ricardo Alonso-Zaldivar
Washington — A new study finds that insurance companies will have to pay out an average of 32 percent more for medical claims under President Barack Obama’s health care overhaul.
What does that mean for you?
It could increase premiums for at least some Americans.
If you are uninsured, or you buy your policy directly from an insurance company, you should pay attention.
But if you have an employer plan, like most workers and their families, odds are you don’t have much to worry about.
The estimates from the Society of Actuaries could turn into a political headache for the Obama administration at a time when much of the country remains skeptical of the Affordable Care Act.
The administration is questioning the study, saying it doesn’t give a full picture, and costs will go down.
Actuaries are financial risk professionals who conduct long-range cost estimates for pension plans, insurance companies and government programs.
The study says claims costs will go up largely because sicker people will join the insurance pool. That’s because the law forbids insurers from turning down those with pre-existing medical problems, effective Jan. 1. Everyone gets sick sooner or later, but sicker people also use more health care services.
“Claims cost is the most important driver of health care premiums,” said Kristi Bohn, an actuary who worked on the study. Spending on sicker people and other high-cost groups will overwhelm an influx of younger, healthier people into the program, said the report.
The Obama administration challenged the design of the study, saying it focused only on one piece of the puzzle and ignored cost relief strategies in the law, such as tax credits to help people afford premiums and special payments to insurers who attract an outsize share of the sick.
The study also doesn’t take into account the potential price-cutting effect of competition in new state insurance markets that will go live Oct. 1, administration officials said.
Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can’t be compared to the comprehensive coverage available under the law. “Some of these folks have very high catastrophic plans that don’t pay for anything unless you get hit by a bus,” she said. “They’re really mortgage protection, not health insurance.”
Sebelius said the picture on premiums won’t start coming into focus until insurers submit their bids. Those results might not be publicly known until late summer.
Another striking finding of the report was a wide disparity in cost effect among the states.
While some states will see medical claims costs per person decline, the report concluded that the overwhelming majority will see double-digit increases in their individual health insurance markets, where people buy coverage directly from insurers.
The differences are big. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said.
Part of the reason for the wide disparities is that states have different populations and insurance rules. In the relatively small number of states where insurers already were restricted from charging higher rates to older, sicker people, the cost effect is less.
The report did not make similar estimates for employer plans that most workers and families rely on. That’s because the primary effect of Obama’s law is on people who don’t have coverage through their jobs.
A prominent national expert, recently retired Medicare chief actuary Rick Foster, said the report does “a credible job” of estimating potential enrollment and costs under the law, “without trying to tilt the answers in any particular direction.”
“Having said that,” Foster added, “actuaries tend to be financially conservative, so the various assumptions might be more inclined to consider what might go wrong than to anticipate that everything will work beautifully.” Actuaries use statistics and economic theory to make long-range cost projections for insurance and pension programs sponsored by businesses and government. The society is headquartered near Chicago.
Bohn, the actuary who worked on the study, acknowledged it did not try to estimate the effect of subsidies, insurer competition and other factors that could offset cost increases. She said the goal was to look at the underlying cost of medical care.
“We don’t see ourselves as a political organization,” Bohn added. “We are trying to figure out what the situation at hand is.”
On the plus side, the report found the law will cover more than 32 million uninsured Americans when fully phased in. And some states, including New York and Massachusetts, will see double-digit declines in costs for claims in the individual market.
Uncertainty over costs has been a major issue since the law passed three years ago, and remains so just months before a big push to cover the uninsured gets rolling Oct. 1. Middle-class households will be able to buy subsidized private insurance in new marketplaces, while low-income people will be steered to Medicaid and other safety net programs. States are free to accept or reject a Medicaid expansion also offered under the law.