Beware of hysteria over new health insurance rates

 

Last month, Maryland made public the premiums that health insurers want to charge next year under the Affordable Care Act, one of the first states to do so. Premiums for non-employer health-insurance coverage were eye-popping, with a proposed average increase of 25 percent.

As insurers submit their proposals in every state this spring, a pattern of such large premium increases may emerge. And opponents of the 2010 health-care law will pounce. But the news media and the public shouldn’t succumb to their hysteria.

The proposed premium increases in Maryland were driven by a projection of the health status of the insured population, known as morbidity. Because the health-care law guarantees all sick people access to insurance, the pool of insured people could become less healthy overall, increasing expected costs.

This is the same reason that a recent report by the Society of Actuaries projected a 32 percent increase in average costs for non-employer insurance coverage nationwide. (The authors of the report are affiliated with companies owned by UnitedHealth Group Inc., a major insurer.) But this projection takes into account only one factor that influences costs.

A more comprehensive analysis was recently conducted for Covered California, the state’s new health-insurance marketplace. California is among the states where current insurance market protections are the weakest — and where the health-care law will have the most impact.

The law’s market protections guarantee access to insurance to people who are ill or who have pre-existing conditions, and they prohibit insurers from charging them higher rates. They also limit how much more insurers can charge older people versus younger people. In California, these protections are projected to increase premiums by an average of 14 percent.

Other reforms under the health-care law require insurers to provide greater coverage — for example, by paying for prescription drugs, mental health care, maternity care and other essential benefits. In California, this additional coverage is projected to increase premiums by another 17 percent.

Do these projections mean that Californians can expect to pay 31 percent more under the health-care law? No. The projections don’t involve employer-provided coverage, which 89 percent of privately insured Californians have. And most people with non-employer coverage will pay much less for better coverage.

How can this be? For starters, people who make less than 400 percent of the federal poverty level — up to $94,000 for a family — will get tax credits that reduce their average premium costs by more than 65 percent.

What’s more, premiums aren’t consumers’ only costs; they also have deductibles, co-insurance and co-payments. While providing more coverage increases premiums, it lowers out-of- pocket costs. And to help with these, the health-care law provides subsidies for low-income people.

In California, the Affordable Care Act is expected to lower total health-care costs by an average of more than 40 percent for most people who now have non-employer coverage.

The benefits will be even greater for people who are currently uninsured, who have been offered Swiss cheese insurance, who were priced out of the market or who were denied insurance altogether. A narrow focus on premium changes ignores the millions of Americans who have been shut out of a dysfunctional market.

Premium proposals are just that: starting bids that will be reviewed by state and federal regulators, who should heighten their scrutiny. Fortunately, by limiting profits and administrative costs, the health-care law helps recoup any excessive premiums. This protection has already returned more than $1 billion to consumers.

When comparing premiums before and after the health-care law, we also shouldn’t lose sight of the benefits of improved coverage and insurance market protections. A plan that covers prescription drugs is very different from one that doesn’t; comparing their prices is like comparing apples and oranges.

More important, when people get sick or are diagnosed with a medical condition, or just grow older, their premiums will now remain stable. That security has real value — even to the fraction of high-income, young and healthy people who may pay more.

Topher Spiro is the vice president for health policy at the Center for American Progress.

© 2013, Bloomberg News

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