Probably you have seen headlines like this one: “O-Care premiums to skyrocket.”
The warning, which was posted on The Hill, seemed designed to cheer conservatives distraught by Obamcare’s enrollment numbers. It began by announcing that next year, “premiums will double in some parts of the country. The sticker shock will likely bolster the GOP’s prospects in November and hamper ObamaCare insurance enrollment efforts in 2015.”
Where did the reporter get her information? The story is based on interviews with “health insurance officials.”
Why would they issue such dire predictions? Perhaps they are trying to soften us up so that when insurance rates rise by “only” 7% to 10%, we’ll be surprised and grateful? (This is just a thought.)
The truth is that there is absolutely no reason to believe the same old, same old, fear-mongers who claim that in 2015, rates will spiral “by 200% to 300%.”
But what about those who predict double-digit hikes? Wellpoint, the biggest commercial insurer in the Exchanges, recently told Bloomberg that it may ask for “double-digit plus” increases when it proposes 2015 rates sometime next month.
Wellpoint can propose whatever it wishes, but I very much doubt that state regulators would accept such stiff increases. A combination of regulation and competition will keep a lid on premiums both in the Exchanges, and off-Exchange, just as it did this year.
My guess is that, in most states, rates will rise by no more than 2% to 4%. Meanwhile, government subsidies will climb to cover those increases for most who buy policies inside the Exchanges. (This year 80% of shoppers who purchased insurance in the state marketplaces received tax credits to help with premiums.) Folks who purchase coverage off-Exchange won’t receive subsidies, but carriers selling policies to individuals outside the government’s online marketplaces will have to compete with prices inside the Exchanges.
Why am I so optimistic?
The Underlying Cost of Medical Care Is Slowing
Americans have become so accustomed to hearing about “runaway health care inflation” that most do not realize that we have finally “broken the curve” of rising health care costs.
Granted, for most of this century, rates soared: “From 2000 to 2009, health insurance premiums climbed 84%,” Zeke Emanuel, a former White House healthcare adviser and author of Reinventing American Healthcare: How the Affordable Care Act Will Improve Our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System., recently told NBC’s “Meet the Press.”
By contrast, “for the past three years, health care cost growth has dramatically slowed and is just about even with growth in the economy. Some of this is due to lingering effects of the recession in 2008,” he added. “But a part of it is undoubtedly due to the ACA.”
Drew Altman, president of the Kaiser Family Foundation, points out that, despite the aging of the population, “the Congressional Budget Office projects that Medicare will cost significantly less in the future than previously thought,in part because of the ACA’s changes to Medicare’s payments. ” (As I have explained, those cuts do not reduce benefits, but they do force hospitals to cut waste and provide better value for our Medicare dollars.
Both in the public sector and in the private sector, “Overall health spending is growing at the slowest rate in 50 years,” Altman observes, (dating back to when the government first started tabulating health expenditures.)”
“The key for the future is not to eradicate premium increases entirely,” Emanuel adds. The goal “is to make sure [that these increases] aren’t Excessive.”
He stresses that there is still much to be done to rein in healthcare spending. But for the moment “the exchanges are stable,” says Emanuel. “Premiums are likely to rise a little but not excessively.”
If you don’t believe Emanuel and Altman, take a look at the graph below, comparing outlays for all medical services (the orange line) to the PCE (personal consumption expenditures–the blue line) from 2009 to 2014. As you can see annual spending on healthcare services is now growing by well under 1% a year. (For a larger version of the graph, click on the link above.)
Bloomberg News used the graph earlier this week, to illustrate a story that lays out some critical and little-known facts:
Prices “for medical services, which make up the biggest share of health care costs, have eased in the past two years. From February 2013 to February 2014 physician fees edged up just “0.2 percent–down from a 1.6 percent rise 2012,” Bloomberg reported, and “the cost of nursing home care rose by only 0.3 percent,” compared with “1.8 percent two years earlier.”
Meanwhile as prescription drug patents expired, Americans began switching to less expensive generics. Data from Bloomberg Industries reveals that in the last three months of 2013, 82% of prescriptions were filled by generics, down from 60 percent in the first quarter of 2007. CVS Caremark Corp. (CVS), the largest provider of prescription drugs in the U.S., sees that rate rising to 85 percent by 2016.
These are reasons why, when Bloomberg surveyed 24 economists at the beginning of April: “Sixty-three percent said they see health inflation rising in 2014 at a pace that’s short of historical averages, with an additional 8 percent projecting health-care costs will come down. ”Thirteen of the 24 added that the ACA will play a primary role in reducing the prices insurers pay health-care providers.
“Even if there’s a rise in cost, I don’t think it’ll be very large,” concluded Jason McGorman, a health-care analyst at Bloomberg Industries in Princeton. “They’ll be trying to do everything they can to keep those costs down.”
Many on Wall Street agree: “Health-care inflation levels are not going back to pre-recession levels,” says Omair Sharif, an economist at RBS Securities.
The Health Care Industry Saw Obamacare Coming
Today, the Congressional Budget Office (CBO) announced that the ACA will cost $1 billion less than projected, while covering more Americans. This is largely because Exchange premiums are lower than expected.
Why are they lower?
In September of 2013, KFF’s Altman put his finger on how and why Obamacare is holding down costs: Passage of the ACA in 2010 put the health care industry on red alert.
I agree. Back in 2011, I began writing about how health care inflation was beginning to ease as hospitals tightened their belts. Anticipating Obamacare, providers began to reduce waste and improve care.)
Altman explains: “Already feeling pressure from insurers and employers, providers saw Obamacare coming,with its reductions in the rate of growth in Medicare reimbursement and Medicare payment demonstrations: ”“Historically, we have always seen the health-care marketplace respond by lowering costs when there is the threat of impending health reform legislation or government action on costs,” he adds.
“When President Jimmy Carter threatened aggressive cost-containment legislation in 1977, the industry responded with something called ‘the voluntary effort,’ and for several years cost growth came sharply down. Similarly, cost increases came down when Bill Clinton’s health reform loomed, spurring the so-called managed-care revolution that reached its apex in the mid to late 90s’
“Now we have not only the threat” of reform, Alterman points out, “but the reality.”
In part 2 of this post I will address the “mix” of new enrollees in our insurance markets (not how young they are, but what we know about how healthy they are), as well as how both competition and the ACA’s regulations will lower prices.
I spent some time looking at helathcare.gov and was surprised at the number of policies offered that had high deductibles. I looked at a family of 3 that were parents 30 years old with a child of 12. and an income of $30,000 per year. It said the child should be covered under medicade so I was looking for policies for just the parents. I found one with a premium of $21 per month and a deductible of $3000 and one with a deductible of $150 for $71 per month. the deductible of $3000 would send most families at this income level into bankruptcy but I fear the $50 a month diffference may entice them to sign up for the the larger deductibe. hopefluly the policies offered will be more realistic as time goes by.
Great post, I do not listen to journalist any more who say that insurance is going to skyrocket. It always ends up just going up by a small amount. Thanks for this valuable information!
Thank you !
My premium went up 55% in 2011, 26% in 2012, and 40% in 2013. I’d be absolutely thrilled if it only went up 10% this year.
Your premiums went up so much because the underlying cost of care (what doctors, hospitals, drug=makers and
device-makers charged) were soaring. Your insurance company passed those costs onto you.
The good news is that, since health care reform passed, the new rules have caused hospitals, in particular, to become more efficient and tighten their belts.
Since 2010 (when the ACA passed) health care spending is no longer growing by 8% or 9% a year. It’s now down to 2% to 3%–and in the future, the ACA should force health care inflation down to 0% to 1%.
This means that your premiums will flatten–and even fall–unless your employer decides that he wants to shift more costs to you
If that happens, the good news it that within a few years, it’s likely that you will be able to buy insurance in the govt Exchanges (where premiums will be lower)–even if you work for a large company.
(Right now, employees of large companies that provide affordable health care benefits are not eligible to go to the Exchanges and receive subsidies. But the ACA makes it clear that in a couple of years, the Exchanges will be open to them.
You were right. I just renewed my health insurance for the year through July 31, 2015. My premium was unchanged from the previous year. I was very pleasantly surprised.
I am so glad. (Not that I was right, but that the ACA is working out well for so many people.)
I actually recently received a notice telling me that my Exchange plan is asking New York State to lower its premium by 10%!
This is actually not quite as good as it sounds. It’s an expensive plan (Platinum), but it comes with a 0 deductible and very low co-pays, which is
what I felt I needed. The company explained that they had over-estimated just how sick people would be who signed up for this plan And, of course, they know that, under the ACA if they don’t pay out a certain percent of premiums to doctors, hospitals and patients, they will have to rebate the difference to customers.
This is one of the very smart provisions in the ACA. It will help bring premiums down.
Finally, thanks for telling me that my advice worked out. (Most people are more inclined to get back to me to say “You were wrong.”