More Signs of Rate Shock and Awe

More Signs of Rate Shock and Awe

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Last week, I reported on my informal survey of health insurance companies and their estimate for how much rates will rise on account of the Affordable Care Act (“Obamacare”).

Today, there are press reports quoting the CEO of Aetna with their estimate. The Aetna estimate is worse than mine.

From Bloomberg:

Health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014, Aetna Inc. (AET)’s chief executive officer said.

While subsidies in the law will shield some people, other consumers who make too much for assistance are in for “premium rate shock,” Mark Bertolini, who runs the third-biggest U.S. health-insurance company, told analysts yesterday at a conference in New York. The prospect has spurred discussion of having Congress delay or phase in parts of the law, he said.

“We’ve shared it all with the people in Washington and I think it’s a big concern,” the CEO said. “We’re going to see some markets go up as much as as 100 percent.”

Bertolini’s prediction is at odds with Congressional Budget Office estimates that the law will have little effect on small and large-employer plans and the Obama administration’s projections that middle-class families will actually save money. The 2010 law is expected to extend health care to about 30 million people who otherwise couldn’t get insurance, paid for by new taxes and fees on companies and wealthier individuals.

Those taxes will make coverage more expensive for insurers, as will other provisions such as a ban on discriminating against people with pre-existing medical conditions, Bertolini said. Premiums are likely to increase 25 percent to 50 percent on average in the small-group and individual markets, he said, citing projections by his Hartford, Connecticut-based company.

You might recall that I found baseline individual rates are likely to rise 30% to 40% with younger people’s rates doubling because of the change in age-rating to 3:1 that will drive substantial rate compression. I found small group rates increasing by about half this.

My sense is that rates in a few states that have already had significant market reforms and already have the most mandates––Massachusetts and New Jersey, for example––will see little change. But for the vast majority of states there will be rate shock.

I can also tell you that, so far, I have detected no serious effort on the part of Democrats to delay anything. Frankly, I think hard core supporters of the new health law and the administration are in denial about what is coming.

I expect more health insurers to be echoing the Aetna’s comments in coming weeks. There is a real concern in the industry they need to get out ahead of this telling people why rates are shooting up to counter the “shoot the messenger” attacks that will be sure to come.

And, while the administration is beginning to understand the disruptive effect of converting to 3:1 age bands, they have not been able to find a way to phase it in or cancel it––the statue is very clear that we have to go to 3:1 age rating on January 1, 2014.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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56 Comments on "More Signs of Rate Shock and Awe"


Guest
Dec 13, 2012

I’m guessing we’ll just see individual insurance disappear all together. It just won’t be economical to sell. Thoughts?

Guest
Candy Leonard
Dec 13, 2012

The reason for the increases is neither complicated nor inevitable: it’s greed. Health insurance companies are serving their shareholders, not the public. Our current system is both dysfunctional and immoral. Until we have single payer, insurers will be the trolls under the bridge, raising rates for any excuse they can come up with. What is Bertoluni’s salary and what was his last bonus?

Guest
Dec 13, 2012

Stephen J. Hemsley, CEO of UnitedHealth Group, got $48.8 mil last year.

Guest
Jonathan
Dec 14, 2012

$48.8 million is 0.045% of United’s 2011 revenue. So, if you pay a $500 premium every month to United, less than 25 cents goes to Mr. Hemsley. Over the course of a year you are buying him one latte. You can argue it should be 10 cents a month, or whatever, but you can’t argue his income accounts for a significant part of your health care costs.

The problem of exploding executive pay over the last 20 years is primarily located in Wall Street and finance (hedge funds, private equity, etc.).

Guest
Dec 14, 2012

The U.S. Secretary of Defense oversees an operation with a budget nearly 7x that of UHG’s yearly gross revenue. His annual salary is $199,700.

Guest
aurthur
Dec 14, 2012

If you had read the 2400+ pages of the bills, you would know that thankfully, obama has limited the tax deductibility of earnings paid to these evil, greedy, do nothing insurance executive to $500,000. I am sure Mr. Bertolini and Mr. Hemsley will work (steal) just as hard for 1% of the money. I guess it’s ok to be one of these are 1%ers. Or better yet we can these guys and hire someone that will take the $500,000 per. Then these companies may run almost as well as your average government program. Shoot, all they really need to do is one calculation…what is $500,000 times all my co employee buddies divided by 15%. That’s what will charge the exchange.

Guest
Dec 14, 2012

I’ve only read the 906 pages (w/2″ margins) actually IN the law. I somehow missed the other 1,500 or so.

I could send you a copy of my PDF.

Guest
aurthur
Dec 17, 2012

You should read more carefully. I said the 2400+ pages in the bills. I contend it is about 200 times easier to spew out ridiculous legislation and even more ridiculous regulations than it is to comply with them and deliver a product someone voluntarily purchases at a modest profit. Please note a substantial portion of the U.S. Secretary of Defense’s compensation is in the form of a very generous lifetime pension as well as lifetime medical coverage which could be valued in the millions of dollars. It’s a bit easier to order folks to do things under penalty of imprisonment than create a product or service of value that is voluntarily purchased.

Guest
Jonathan
Dec 21, 2012

Bobby, you failed to address my point. 0.045% of revenue is not a significant cost driver for private insurance. Relative pay of public and private sector is another matter.

Guest
spike
Dec 13, 2012

“We’re going to see some markets go up as much as as 100 percent.”

i.e. “That swiss cheese policy we were selling in South Dakote for $49 a month will definitely be a lot more expensive now that we actually have to start covering services!”

Guest
Dec 14, 2012

Duh–this is precisely the point. If you ban underwriting, the average cost will go up. BUT you’ll get a subsidy to buy it. How is this news???

Guest
Dec 13, 2012

Mr. Hemsley the fellow at United who suggested buying up Quality Software Services, Inc. (QSSI) and created a massive conflict of interest for United and HHS? http://thehill.com/blogs/healthwatch/health-reform-implementation/265659-conflict-of-interests-concerns-raised-as-obama-races-to-implement-health-reform

ACA’s drawfs the old Military Industrial complex and the CEO’s ill prepared to deal with the PR that comes from this massive Medico Gov Industrial Complex.

Young people who could purchase care at a 1 to 5 ratio of costs to their parents now pushed into a 1 to 3 ratio. A massive shift of wealth from young to old.

United and AARP thought they’d profit big time with Obama care selling to the young at a premium but I suspect they’ll find the young individual market just drying up.

Sure the CEO’s will still profit (as will AARP) but they’ll find themselves twightly wound in with Government now, and more subject to investigations than they ever were, and with a public angry getting pushed into Medicaid.

I’m guessing none of the insurance CEO’s ready for the storm headed their way.

Guest
Dec 13, 2012

Hemsley now owns everything under the “Optum” brand, including HIE platforms such as Axolotyl (which is our HIE vendor). My health coverage through work is United. I’m a United Health Group serf. Company town.

Guest
MikeTheGeek
Dec 13, 2012

I suspect that at least some of the hard core supporters do not care as they feel it will only push the country toward single payer anyway. The companies are greedy, the CEOs are overpaid, so let’s just make it impossible for them to exist, and blame something nice and ambiguous like “greed” for the high prices. Or is it something like Cloward-Piven? Gotta hand it to them, it is probably going to work.

Guest
Dec 13, 2012

Bingo on the plan MikeTheGeek except it’s not financially doable, or operationally… speaking as a former HCFA (now CMS) Medicare/Medicad auditor and budget analyst. Obamacare simply isn’t going to fly because 20% of the Economy is just too much for the Gov to manage.

Guest
Barry Carol
Dec 13, 2012

A seldom discussed provision of the PPACA allows for a 4 to 1 age rating band in the high risk pools. So, if too many young people opt to pay the penalty instead of purchasing health insurance, there would be some rationale to increase the regular rating band from 3 to 1 to 4 to 1.

I think it’s also worth noting that Medicare spent over $550 billion last year of which about 12% was covered by beneficiary premiums, mainly for 25% of the cost of Part B coverage and IRMAA surcharges paid by high income beneficiaries. With roundly 48 million beneficiaries, of whom about 16% are under 65 years old and qualify because they are receiving social security disability payments for at least two years, spending works out to $11,500 per year or about $950 per month per beneficiary. That’s for a policy that requires a deductible of roughly $1,100 for each hospitalization, a 20% co-pay for all Part B services with no out-of-pocket maximum, and a $320 drug deductible plus 25% co-insurance until the donut hole is reached, several thousand dollars of out-of-pocket exposure in the donut hole and then 5% coinsurance in the catastrophic zone also with no out-of-pocket maximum. Most beneficiaries find it necessary to spend an additional $200 a month or so for a Medigap plan to cover the portion of the bills that Medicare doesn’t pay for.

Payments per service, test or procedure are based on CMS’ relatively low dictated prices which often don’t even cover hospitals’ costs, especially for outpatient care. My understanding is that the actuarial rating for standard Medicare is 56% which is below the 60% rating mandated for the least expensive bronze commercial insurance plans under PPACA. There are no big executive salaries and bonuses in Medicare and no profit but care is largely unmanaged and there is plenty of fraud and waste. This is what single payer insurance looks like for the elderly and for taxpayers. It doesn’t sound very attractive to me and I haven’t even talked about the potential significant adverse impact on medical innovation if standard Medicare were expanded to the rest of the population.

Guest
civisisus
Dec 20, 2012

Barry, I’m surprised you of all people are unaware that “most” medicare beneficiaries don’t buy medigap policies, which by the way are practically worthless.

between 25 & 30% of medicare beneficiaries have medigap coverage. another 25% or so have Medicare Advantage coverage, which of course is not “gap” coverage.

Guest
Dec 13, 2012

To my knowledge, no other wealthy nations have any age rating at all — not 3 to 1, 4 to 1, or any of the above.

Insurance costs instead are determined essentially by income. A wealthy young person pays more than a poor old person.

This is what Joseph White calls “The international standard” .

The ACA attempts to create a shadow tax system, to accomplish what other nations do openly.

First we let insurers charge an actuarially correct premium, based in large part on age, which is totally unaffordable to many taxpayers.

So in come the subsidies, which try to reverse the effects of age rating by sending out tax credits.

This will be a massively bureaucratic operation with lots of snafus.

Guest
DeterminedMD
Dec 13, 2012

“Frankly, I think hard core supporters of the new health law and the administration are in denial about what is coming.”

Hey, if Harry Belafonte is a spokesperson for the Democrap movement (how ironic that sounds), in his comments recently if anyone does not blindly support Obama they should be jailed, what the hell does that say about hard core supporters!

And I think the author here is being too respectful, these hard core supporters are not in denial, they are disingenuous, dishonest, and deceitful. Every time a new fact is revealed that shows true consequences of PPACA, the usual suspects come on to try to deflect, disengage, and minimize. And these are the same loyalists who would scream how inappropriate and outlandish Republicans were when Bush and company ran the show just 6 years ago. Man, hypocrisy does not discriminate party, let me tell you as a totally disillusioned independent!

Frankly, I hope the legislation crashes and burns so fully that everyone who demanded full genuflection and obedience is scalded irrevocably. People don’t learn in the end, they all have to touch the stove and deal with the consequences. Just remember though, the bastard who wanted this done will be out of office and free of fall out when the crap happens.

Oh, and the Democrats want the filibuster process eliminated so they can ram more partisan, one sided agendas down our throats. Just remember this, you partisan idiots, history of elections show that the pendulum will swing to the other side, and WHEN Republicans win a majority in the Senate down the road and then ram their equally offensive agenda down our throats later, damn all you Democrats screaming how unfair things will be then.

Frankly, maybe the world ending in about a week is a blessing. Doubt there will be universal coverage in an afterlife if there is one.

Idiots!!!

Guest
Dec 13, 2012

“Idiot” comes from the Greek “Idios” — consumed with only oneself.

Fits you perfectly.

Guest
DeterminedMD
Dec 13, 2012

Thanks for stepping forward and illustrating exactly who and what I mean.

Idiot!

Guest
Barry Carol
Dec 13, 2012

Bob Hertz –

In Switzerland, there is a low rate for children from 0-18, a higher rate for young people between 18 and 25, and a somewhat higher rate for those older than 25. People can buy policies with varying deductibles up to 2,300 CHF (about $2,500) per person. About 30% of healthcare costs are paid out-of-pocket in Switzerland (vs. 12% in the U.S.) and general tax revenue covers a significant percentage of hospital operating costs to keep insurance premiums low, at least by Swiss standards. 45% of the population qualifies for a subsidy to help them pay for health insurance.

In Germany, there is a payroll tax of 14.5% of so, a good chunk of which is nominally paid by the employer and it’s capped at around €45,000 of wages. Higher income people can opt out and go into the private system where premiums are lower for younger and healthier people. However, if you go into the private system, you can’t reenter the public system unless you’re destitute. I believe France uses a similar approach at least in terms of the payroll tax structure.

Since health insurance lends itself to being priced, I think the Germans and French are correct in capping the income subject to the payroll tax at a middle class level. If you make $1 million per year, I don’t think it’s fair or reasonable to expect that person to pay $150K for a health insurance policy that’s not worth more than one-tenth of that at most (for family coverage). By contrast, services like defense and law enforcement or environmental protection that don’t lend themselves to pricing to the individual are best financed by progressive taxation, in my opinion.

Guest
Cynthia
Dec 13, 2012

Obama dealt away the “ace” of single-payer before anyone sat down to play, and to make matters worse, he dealt away the only other card that made sense “public-option” before anyone anted-up. What we’re left with is a band-aid on a limb seriously infected and oozing pus. Sorry for the graphic description, but I’m pissed-off.

The only solution to this is to let the 1% keep their gold-plated, expensive and ineffective “private” insurance and let the rest of us have Medicare-For-All as a single-payer plan. Unfortunately we live in a country where politics rules over solutions. But I, for one, think that’s about run its course.

Guest
tcoyote
Dec 14, 2012

There were maybe 30 Senate votes for single payer and maybe 40 for the “public option”, whatever that was. Obama didn’t “deal them away”; they were not politically feasible. And it’s going to be “Medicaid for all” if that ever happens. . .

It amazes me that despite continuing and lavish displays of our political system’s incapacity to deal with our problems (see Cliff, Fiscal, etc.), some people continue pining for the government to fix all these problems with a sweeping and all knowing expansion of its powers. It’s like those Pacific Islander’s weird “cargo cult” religion.

Guest
DeterminedMD
Dec 14, 2012

I wouldn’t be amazed that people pin for government to fix their ills, after all, what is the percentage on Food Stamps, and what is the increase in disability determinations for the past 4-6 year? People are entitled and narrowminded, hence the author’s comment about denial in the post.

The issue NO ONE wants to discuss nor even entertain is Medicare and the expenses of end of life interventions. But, hey, I’m allegedly cruel and simplistic, let’s hear all these wonderful and realistic solutions that will decrease costs and still maintain full quality of care from these blind loyalists.

What’s that you hear, silence? Thought so, can’t make that bridge over the desert more sellable, eh? Disingenuous to the end, these folks!

Guest
DeterminedMD
Dec 14, 2012

Oh, and by the way, this in a Washington Post editorial yesterday:

“But the underlying fiscal problem is that federal expenditures are slated to rise faster than economic growth because of rising health-care costs and an aging population. The long-term drivers are Medicare, Medicaid, Social Security and subsidies for the health-care exchanges established by the Affordable Care Act.

That’s not a partisan statement. It is reality. The nonpartisan Congressional Budget Office estimates that, without reform, spending on Social Security and federal health-care programs will rise from 10 percent of gross domestic product today to 16 percent 25 years from now. If that sounds manageable, consider this: Over the past 40 years, the entire federal budget has averaged 18.5 percent of GDP.”

you know, it is nothing less than spectacularly dishonest for the Democrat machine to just blurt out about 20 microseconds after the republicans ask for real entitlement reform these sound bites of old(yeah, like 50 years old) that “no, that puts seniors, vets, and children at risk” and “people have a right to their entitlements”. Yeah, it puts only their voting blocks at risk? Memo to Nancy and Harry Lame at the Hill, not every person in the military, over 65, and certainly no one under 18 votes Democrat only. And where is the logic with less people having children these past 10 or so years, who the hell is going to pay for these benefits being cashed in now by the boomers!?!?

The scenes in Michigan this week show we are going to have Greece-like riots when reality finally wins out. The entitled, dependent, and narrow minded will be fodder for the mob kingpins. The only problem is, who is going to treat all those injured should the status quo stay as is? You all think every hospital will stay as is today by 2014?

Ignorance ain’t gonna be too blissful around here in another year or so!

Guest
Peter1
Dec 16, 2012

“sweeping and all knowing expansion of its powers. It’s like those Pacific Islander’s weird “cargo cult” religion.”

tcoyote, judging from the 1000s of corporate lobbyists infecting government and writing legislation business certainly thinks government is the solution. The difference is they get to realize the “truth” of their cult.

You are right in that “Medicare for all” would require less of everything in healthcare, but judging from the “solutions” from the right they also think that less healthcare is the solution – at least less for patients and more for health business and the wealthy.

Guest
Dec 14, 2012

Barry – thank you for mentioning that European nations use general revenues to subsidize hospitals. This in effect takes a lot of the pressure off insurance premiums in the first place. Even in America, if insurance companies only had to cover the first $10,000 of care, the premiums would be cut in half.

When an American tourist must use a European hospital and is stunned that his bill is only $100, this is not because their hospitals have some magic productivity cure that enables them to provide care for $100. The actual cost of care in the European hospital may be $5,000 just as is it in America.

The difference of course is that the tourist has been paying $4.00 for coffee and $7.00 for a glass of beer, and similar sales taxes, to subsidize that hospital.

America does smuggle a fair number of dollars to hospitals in Medicare subsidies, but not in a way or in a volume that is enough to make hospitals lower their rates on everyone under age 65.

So long as the hospital is seen as a financial danger to the patient, American insurance rates will be high. Only when we ‘man up’ to reality and treat hospitals as public institutions can insurance premiums come down.

Guest
Dec 14, 2012

General Revenues from Value Added Taxes I suspect… that’s the only way to generate the kind of money to finance a Social Welfare model they have. (and a method getting pretty creaky)

Guest
civisisus
Dec 20, 2012

bob,

even a cursory examination of comparative national health costs tells you that your notion that “the actual cost of care in the European hospital may be $5,000 just as it is in America” is pure fiction.

Please remove your tinfoil hat before posting

Guest
Barry Carol
Dec 14, 2012

“The difference of course is that the tourist has been paying $4.00 for coffee and $7.00 for a glass of beer, and similar sales taxes, to subsidize that hospital.”

Bob –

You put your finger on the key tradeoff implicit paying for a comprehensive social safety net. The European middle class accepts paying half of its income in a combination of payroll, income and value added taxes and probably some other taxes as well to finance their safety net that includes not only universal health insurance but heavily subsidized college education, generous unemployment and disability insurance, old age pensions and even long term care insurance. After paying the required tax burden, they accept living in tiny houses or apartments, they drive tiny cars or ride mopeds or bicycles, pay $8.00-$9.00 per gallon for gasoline, double or triple what we pay for restaurant meals, etc., etc. Unemployment is also higher in most of these countries than in the U.S., especially in Southern Europe. To duplicate the European safety net in the U.S., we would have to radically alter our way of life and pay far more in taxes.

Americans are simply not willing to accept a similar tradeoff as far as I can tell and those who think all we have to do is soak the rich to pay for all this are sadly mistaken. At the same time, it’s no accident that innovative companies like Apple, Google, Microsoft, Intel, etc. were founded and thrived in the United States.

As for insurance company executive salaries and bonuses, I’ve said numerous times before that even if the 25 highest paid executives of all these companies worked for free and the savings were used to lower health insurance costs, premiums might drop by a fraction of 1% at most. Health insurance is expensive in the U.S. because healthcare is expensive. Hospital prices are part of it but so is defensive medicine, patient expectations and yes, an entitlement mentality that’s embedded in the culture here. People want what they want when they want it and they expect someone else to pay for it.

Guest
DeterminedMD
Dec 14, 2012

” Health insurance is expensive in the U.S. because healthcare is expensive. Hospital prices are part of it but so is defensive medicine, patient expectations and yes, an entitlement mentality that’s embedded in the culture here. People want what they want when they want it and they expect someone else to pay for it.”

Perfectly said to me. But, doesn’t fit the sound bites to sell this legislative assault, does it? And your assessment of life styles in Europe also are on the money. But, once people taste independence and freedom of choice, they won’t go back, not when it hits them personally.

Funny, to me, the people behind this rhetoric of every one else has to “chip in”, “give their fair share”, et al, you really don’t see and hear the loudest proponents practicing what they preach as a whole. Biden’s charitable contributions are pathetic, and I haven’t heard what Nancy and Harry Lame have to show, but I bet equally pathetic too.

But, you get the representation you pine for. Just remember this little fact, all you unbiased and objective readers, it wasn’t even 60 years ago that the Democrat party had little to no interest in equal rights, at least in the South, but when they figured out it could mean a voting block to clinch elections, boy did they do an about face! Not that Republicans have much to offer as a defense otherwise!

Guest
Peter
Dec 14, 2012

Amen!!

Guest
steve
Dec 14, 2012

I still don’t see anything more than assertion and assumption in these arguments. Please give us details on which plans will double in costs. How many of them are there? Are we talking about the mini-med plans where employees pay $1500 to get $3000 worth of benefits?

Steve