Oct. 14, 2011 -- What's behind the 2011 surge in the cost of job-based health insurance?
Over the past decade, workers' share of family health insurance premiums has gone from under $1,800 to over $4,100 a year, up 131% since 2001. Employers now contribute an average $15,000, up 113%.
That increase has been sneaking steadily upward each year. But last year saw an 8% increase in individual plan premiums and a 9% increase for family plans, according to the Kaiser Family Foundation.
Who's to blame? Many pundits were quick to round up the usual suspect: health care reform. Indeed, several major provisions of the Affordable Care Act took effect in 2011.
Three of these changes affect insurers' costs, according to an analysis by Jon Gabel of the University of Chicago and colleagues at the Towers Watson consulting firm:
- At age 19, kids used to get booted from family plans. Now they can stay on a parent's employer-supported plan until they're 26.
- The vast majority of job-based plans now must pay the full cost of preventive health care. That means no co-pay to offset insurer costs.
- Insurers can no longer set an upper limit on lifetime benefits.
Health Care Reform and Health Insurance Cost
So are the pundits right? Only partly. Gabel and colleagues calculate that:
- Keeping adult kids on parent plans added 0.9% to insurance premiums.
- The ban on lifetime maximum benefits added 0.5% to insurance premiums.
- Free preventive services added 0.4% to insurance premiums.
- Other provisions of the Affordable Care Act had no effect on insurance premiums for 2011.
That means that health care reforms are responsible for 2 points of the 9-point increase in family health insurance premiums.
"At least this year, there is a general consensus that the effect of the Affordable Care Act on health costs is modest," Larry Levitt, senior vice president of the nonprofit Kaiser Family Foundation, tells WebMD (Kaiser Family Foundation is not affiliated with the Kaiser Permanente managed care consortium).
On the plus side, these changes in the U.S. health care system provided benefits to large numbers of people, notes Sara R. Collins, PhD, vice president for affordable health insurance at the Commonwealth Fund.
"These are changes that really needed to be made," Collins tells WebMD. "Kids who go off parents' policies at 19 and can't find a job are very costly to the health system. And obviously people don't want to blow through their benefits if they need something like cancer treatment. The span-of-life benefit affected 38 million people."
America's Health Insurance Plans, the trade group that represents the health insurance industry, puts health reform well down its list of factors driving up premiums.
Why Health Insurance Premiums Went Up
So if it wasn't health care reform, what did cause the spike in health insurance premiums?
The AHIP and other experts agree: The price of health care is going up faster than inflation, and much faster than wage growth.
According to a Standard & Poor analysis, health care costs covered by commercial insurers went up 7.73% in the year ending July 2011.
"The big issue is that health care costs continue to climb faster than the rest of the economy," Collins says.
Levitt notes that insurers have to predict in advance what their costs will be. In 2011, he says, they guessed wrong.
"This year many insurers guessed costs would go up faster than they actually have," he says. "The big factor is the economic downturn. Families are struggling financially, and cutting back on health care. Insurers and many of us thought the downturn was ending, and that people would seek health care they had put off."
The AHIP points out another factor. In harsh economic times, healthy people gamble that they will stay that way and don't buy health insurance. That means people who are insured, as a group, are less healthy and need more health care.
What about greedy insurers gouging customers to ensure high profits? The AHIP says this isn't a factor, and that the average profit margin for health insurers is 4.5%.
Collins says that insurers' administrative costs and profit margins vary widely from company to company. But she notes that the Affordable Care Act will force insurers to spend at least 80% to 85% of premiums on health care.
Cutting Your Health Insurance Costs
When the Affordable Care Act takes full effect in 2014, the health insurance game will change. But what can families paying more and more for job-based health insurance do next year?
It's possible that premiums may not go up as much next year as they did this year. But don't count on it.
"The fact of the matter is that over the longer term, premiums have gone up much faster than people's ability to afford them," Levitt says. "Premiums have gone up faster than workers' wages, faster than inflation, faster than the cost of other goods people buy. Nothing suggests this trend will change in future."
For now, Collins says, two specific populations can take meaningful action:
- States already have to offer health insurance plans that cover people with pre-exisiting conditions. "If you have a condition that excludes you from coverage or you need a reasonable premium, that is a place to apply," she says.
- If you're under age 26, find out if your parents have a policy that offers dependent coverage. "This is a group with high unemployment right now, and this is a really broad benefit," Collins says.
Levitt recommends that people access the healthcare.gov web site, which offers a clear guide to buying health insurance.
"Plans can vary a lot in cost and coverage. Comparison shopping is the key," he says. "But it still isn't as easy as it should be, because you can still be excluded or charged more for underlying conditions. That won't change until 2014."