Obamacare's enemies are gearing up to make rising health insurance premiums a major attack point during the coming election season.
One of their talking points will be a disingenuous generalization derived from the double-digit rate hikes that some insurers in some parts of the country are seeking for the individual plans they sell on the exchanges.
Few people will hear or understand that those rising rates apply only to individual plans sold on the exchanges, which comprise less than 10% of covered lives with private insurance. They will look only at their own rising coinsurance, copays and deductibles in their employer-provided plans—which cover over 150 million people—and incorrectly blame Obamacare.
As I noted in an earlier editorial, increases for families with employer coverage, which have been larger than overall healthcare inflation, are primarily due to employers shifting more of the overall financial burden onto employees.
The reality is that overall healthcare costs remain tame with one glaring exception—the skyrocketing price of prescription drugs. Employer premiums have risen 4% to 5% in recent years (about the same rate as the rest of the economy after backing out inflation).
And the indications are that it will stay the same for 2017. The rates being quoted to employers, according to one major benefits consultant, are about the same as they were a year ago—in the 6% to 8% range. Employers will get that down to 4% to 5% by switching carriers or continuing the recent trend of shifting more of the cost on their employees. Nearly 40% of the privately insured market now pays the first $1,250 or more of all healthcare costs.
The bottom line is that the employer cost-shifting and rising drug prices that are the actual causes of popular anger are not related to the double-digit increases that we'll see in some individual policies sold on the exchanges.
The reasons for those projected rate hikes for individual plans are well-known. The penalties attached to the individual mandate in the Affordable Care Act are not large enough to force everyone without insurance to buy the heavily subsidized product. Even though the vast majority of the remaining 30 million Americans without coverage would qualify for subsidies, their out-of-pocket expenses in bronze and silver plans are still significantly higher than the penalty.
That means people who already signed up for coverage tended to be significantly sicker than the individual insurance market pool as a whole. Rates set by many companies to gain market share in the early years of the exchanges now have to be adjusted to cover their actual costs of care.
The law did create a fail-safe mechanism, the so-called risk corridor that made adjustment payments to insurers. But that became a favorite whipping boy for Republican candidates—defeated presidential hopeful Sen. Marcio Rubio took to the pages of the Wall Street Journal again last week to attack this “bailout” for insurers—and Congress refused to fully fund the program. Not surprisingly, some insurers are suing to get what they thought the law had promised.
The fear among insurers now is that these rising rates could turn into a death spiral where younger, healthier members of the pool drop out and the sicker, costlier patients drive rates skyward. But those fears are overblown.
A Commonwealth Fund study released last week showed a majority of people with marketplace-purchased individual plans are satisfied with their coverage. The availability of physicians is comparable to the choices people in employer-based plans have.
The central problem remains how to get the rest of the uninsured—the most recent estimate is 12.7% of working-age adults—to actually buy coverage.
Given that the presidential election will take place right in the middle of the next enrollment season, who wins will have a major impact on whether the annual rate changes on exchange-based plans begin to look like the rest of the private insurance market or head toward a death spiral.