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

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Guest
Feb 28, 2013

It won’t pass, AARP is already fighting against it. Too bad those youngsters don’t have the money or a lobby to fight for them.

Guest
Feb 19, 2013

I think it is important to point out that Aetna’s Medicare Supplement business is not expected to be affected by the Affordable Care Act.

Obviously they will have normal market rate increases that keep up with Medical inflation, but if you go t Medicare Insurance Finders you view their rates in 2012, 2013 and in 6 months from now you will be able to see 2014 rates to confirm they are not giving astronomical rate increases.

Guest
Dec 29, 2012

Why have so many journalists under-estimated the subsidies in ACA, and made the ACA sound like just a price-raising frenzy?

Here are some possible reasons, other than just mendacity:

a. the writers have high incomes and will not get subsidies themselves;

b. the Democrats themselves have undersold the subsidies, to carry on the pretense that the ACA will not add to federal spending.

The backers of the ACA used many rather tortured fees and assumptions to get the bill to “pay for itself” without raising taxes. Downplaying the subsidies falls into that group.

One last point about European taxes. Based on my reading, their personal and corporate income taxes are not very different than ours and in some cases are lower.

The difference is in the Value Added Taxes. They are enormous money-raisers.

If you add up all business purchases in the USA excluding health insurance, you get a total of 6 to 7 trillion a year.

Even a 5% value added tax wouild pay for national health insurance with ease. Not having foreign military bases or Star Wars weaponry would also pay for health care.

Guest
Dec 28, 2012

Bob Hertz- (and Barry)

You are right: the U.,S. is the only developed country in the world that charges older people more for health insurance.

“Ageism” is a major problem in the U.S.

Barry ” a somewhat higher rate for those older than 25″ is very, very different from charging people in their 50s and 60s 3 times as much as we charge a 25-year-old for the same policy.
In other countries, most people respect the elderly. Here, a great many younger Americans simply resent them.
Thus, all of the carping about the cost of “end of life care”.

Bob– you’re right: end of life care is Not the major cost. Care for
chronic diseases is the biggest cost (costs twice as much because, by
definition, people with chronic diseases are sick for a long time.)

We could, and I hope will, do a better job of managing chronic diseases with more preventive care, and more “patient-centered care” that involves the patient. (Not lecturing him, not bullying him, but finding out what he feels able to do to improve his health. Maybe he has found that diets don’t work–he can’t lose weight. But would he enjoy taking a long walk after dinner every night? )

Finally,Bob, you’re actually right about global budgets for hospitals. They do work. But what a country has to do is to create a global budget for all hospitals in the country, putting a cap on total spending on hospital care.

The ACA takes an important step in that direction by trimming Medicare’s
annual inflation adjustments for hospitals by 1% a year—for 10 years.
Compounded, this adds up, and it puts pressure on hosptials to
become more efficient, and reduce waste.

We spend way too much on hospital care. Private insurers over-pay hospitals and if you look at the numbers, it turns out that many private hospitals turn a profit on Medicare’s payments. (Public hospitals are underpaid, but private hosptials are, by and large, overpaid.d)
.

Guest
Dec 28, 2012

Matthew Holt & Spike:

Spike quoted Bob L.: “We’re going to see some markets go up as much as as 100 percent.”

and added:

“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!”

Matthew Holt then replied: ” 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???”

You’re right Matthew. It’s not news.

One question: If it’s not news —and not correct (see below) then why has THCB run essentially the same post, twice, back to back. I realize your mandate is to air a variety of opinions, right or wrong, but twice?

And by ignoring subsidies Bob L. greatly distorts the picture.
CBO projects that “About 57 percent of people buying individual insurance
would receive subsidies via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium, Thus, the amount that subsidized enrollees would pay for nongroup coverage (a.k.a. individual coverage) would be roughly 56 percent to 59 percent lower, on average, than the nongroup premiums charged under current law.”

The other 47% will face premiums that may be “10% to 13% higher CBO says. Though they’ll be getting richer coverage than most have now, and lower out of pocket costs. As a result, they too may find themselves spending less on health care.

Families USA has done some good work on this which shows the average family paying less for health care–not just in guaranteed issue states, but in Texas.

Guest
DeterminedMD
Dec 16, 2012

Hmm, read this article in my local paper today, so found the link and forward to all you supporters of this legislation and are awaiting with spell bound breathlessness how such observations will save the country money and resources:

http://in.mobile.reuters.com/article/businessNews/idINBRE8BA1D220121211

I love this quote in the middle of the article especially:

“”As a nation, we’ve made extraordinary gains in longevity over the past decades, but as individuals we are regressing in our health,” said Dr. Reed Tuckson, a medical adviser at the United Health Foundation and chief of medical affairs at the UnitedHealth Group.”

Hey, but Obama the savior will pass his hands over each and every one who is suffering and lay waste to disease and dysfunction.

Again, the disingenuous and dishonest intent with the Democrats is beyond repair. Your party is even more disgusting than the Republicans. At least they tell you they don’t care about society in general if you don’t contribute. It’s easy to not trust nor vote for them!!!

Guest
Dec 16, 2012

I am not an expert on the European countries, but my understanding is that France, Germany, and the Scandinavian nations do not have large waiting lists and also do not have stratospheric insurance premiums.

As noted earlier in this blog, they accomplish this by:

a. higher taxes on everyone, at least 15% for health care………..

and

b. health care regulators who are not bought and paid for by the industry.

The issue of how to pay hospitals is not without conflict in any country….but in these nations, the health care budget comes first and the hospitals agree to it. There are no Rick Scotts making millions off hospitals.

Guest
civisisus
Dec 20, 2012

Many may somehow conclude from your remarks that europeans’ total per capita outlays for health care exceed our own here. That may be due to your reference to that reviled word, “taxes”.

Here in the US we are ALL taxed by our “system” of health care, just not at all systematically. We’ve tried (endured) this asystematic approach for decades; why so much resistance from otherwise intelligent adults for trying a systematic approach, however initially marginally crappy it may be?

Guest
Dec 15, 2012

Interesting choices there, Bob. How come all of developed countries in Europe don’t have to face such choices? Let’s leave out Canada and the UK, because they are different…. What about the others?

What exactly are those “values and culture” that we must deffer to?

Guest
Dec 15, 2012

I appear to stand out voted on the efficiency of global budgets for hospitals.
That is all right, live and learn.

We appear to have an ugly choice between user fees that drive patients broke, although there are almost no waiting lists………….

, versus government budgets that drive governments broke due to turf wars plus generous pay for civil servant nurses, plus the waiting lists.

I would rather have my heart attack stopped and later declare bankruptcy, versus dying from delays in care. I have been through bankruptcy and it is much lless onerous than dying.

We may be best advised to muddle through with our user fees.

Guest
DeterminedMD
Dec 15, 2012

What about those who have another infarction when they see the bill, only to be denied care then?

Guest
DeterminedMD
Dec 15, 2012

Great, first mandated purchase of insurance, next capitation of expenses by providers and hospitals.

I think it would be easier just to have a weekly lottery and the winners get health care coverage for some period of time. In the end, isn’t that sort of what goes on now? By the way, as things stand now, the premise of the movie “Logan’s Run” looks more viable every time new revelations about PPACA come to be known.

I’ll keep saying it until the consequences finally affect most PPACA supporters as painfully possible: mandates never work in the end, at least when it comes to money.

Guest
Barry Carol
Dec 15, 2012

Bob –

One of the key cost control strategies in Canada is to restrict supply. People wait for lots of things besides elective surgery. If it’s not immediately life threatening, expect to wait. If you need a hip replacement and you’re in pain, too bad. It could be six to twelve months before your procedure can be scheduled. If your doctor suspects you may have a brain tumor and wants you to get an MRI, you may wait several months for an image that could be had with little or no wait in the U.S. A friend told me her late father-in-law who lived in one of the large Canadian cities had a tumor on his groin. He was placed on a waiting list for surgery but emergency cases kept jumping ahead of him. He ultimately died two years later and never did have the tumor removed.

We’ve talked before about how much Germans pay in payroll taxes for health insurance, unemployment insurance, long term care insurance and pensions. If Americans thought high taxes for a more comprehensive social safety net were worth the money, they would vote for politicians who would make that happen. They’re not willing to make the tradeoff no matter how desirable you personally think it would be. Roughly 10 million people without health insurance today are illegal immigrants. There are young people who make over $75K but don’t think they need insurance and are unwilling to pay for it. Most of the rest are low income folks who make too much to qualify for Medicaid but can’t afford insurance. The ACA will address much of this problem with subsidies and no longer allowing insurers to exclude people with pre-existing conditions. We’ll see how it works out starting in 2014.

In the meantime, to reduce utilization and get better value for our healthcare dollars, we should pass safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence guidelines where they exist. Even some liberals support this idea. We should make contract rates transparent so both patients and referring doctors can know what services, tests and procedures cost before patients receive them. We should charge Medicare beneficiaries an extra $5 or $10 per month for their Part B coverage if they fail to execute a living will, advance directive or POLST. We should make full use of modern technology and analytics to combat fraud.

If we can reduce unnecessary care, especially in hospitals, hospital bed capacity will shrink over time and so will the nation’s healthcare bills or at least they will grow at a more sustainable pace in line with GDP growth. We need an American solution that fits our values and culture. There is no reason to assume that just because something seems to work in Canada or Western Europe that it will work here. It probably won’t.

Guest
civisisus
Dec 20, 2012

” A friend told me her late father-in-law who lived in one of the large Canadian cities had a tumor on his groin. He was placed on a waiting list for surgery but emergency cases kept jumping ahead of him. He ultimately died two years later and never did have the tumor removed.”

Amazing how many people have Canadian friends who’ve had significant care experiences with the Canadian health care system – and almost all of them unfortunate. Positively defies the statistical odds….

Bob, just so we all don’t misunderstand, you and your friend are sure the deceased actually died as the result of the abovementioned tumor?

Guest
Dec 15, 2012

Good points, Barry.

As for increased utilization- if a hospital is fully supported by taxes, who cares if doctors use it more for minor issues? The nurses are paid for, the building is paid for, the pharmacy is stocked anyways.

I used to manage a public library. Once we got our tax revenues, we did not care if we were circulating hot rod magazines or the plays of Shakespeare.

I realize that hospitals are complex entities and I know that I tend to glide over their internal problems. Still, I think that Americans are so fixated on a user-fee approach to hospital funding that we ignore simpler solutions.

Here is another way to phrase my thoughts:

No one walks out of a Canadian hospital with a bill that bankrupts them. No one walks out of a VA hospital will such a bill either.

No one in Canada faces a health insurance premium that they cannot afford to pay.

This is worth a lot! Is it worth the occasional bad care and frequent waiting lists for discretionary surgeries? Is it worth the higher taxes?

I sense that the higher taxes are worth it. I welcome any suggestions you or others might make of writers who have explored this systematically. My guides are Uwe Reinhardt, Joseph White, and Dr Robert Evans incidentally.

Guest
Dec 15, 2012

Who cares? Good question… I had lunch a few years back with MDs from the UK’s NHS and they told me budgets for Acute, sub Acute, Long Term, etc units were set by different bureaus and it was hard to get funds re allocated for different levels of care because these different groups of Government Officals cared plenty about their little pots of money. So they had all of these bottle necks, overages, and underages, because they had so many units mismatched to their severity. Any time money is involved, somebody cares plenty! Nobody reprograms their budgets just because the projections of how many patients presented at different treatment levels. Government funds according to a jealously protected budget, not reality.

Guest
Barry Carol
Dec 15, 2012

Bob –

I don’t think the fire department analogy holds up for several reasons. First, we’ve seen a long term secular decline in the number of fires (utilization) and very few fires are deliberately set. Moreover, in most of the suburbs, at least where I live, fire and first aid responders are mainly unpaid volunteers because it would be way too expensive to pay for a full time staff. At the same time, an event like the recent Hurricane Sandy or Hurricane Katrina which stressed first responders beyond their limits could never be paid for through a global budget. Federal financial help is needed to help cover those costs and to rebuild.

Hospitals resist capitation or global budgets because they can’t accurately estimate their costs a year in advance. Estimating such costs is no easy task even for insurers who cover millions of people. Under your proposal, hospitals would either need to carry large reserves to cover costs in years when budgets were exceeded or the government would have to step in with supplemental appropriations like the defense department gets when it needs to fight wars.

If hospitals were financed with dedicated taxes as you suggest, utilization could increase significantly as doctors would be more inclined to send patients to the hospital for imaging or to get checked out or diagnose even minor complaints rather than wait for them to resolve themselves or visit an outside physician who will bill for services rendered.

While Medicare uses the DRG or case rate approach to pay for much of the hospital care used by beneficiaries, there are significant outlier payments for complicated cases and providers have become increasingly sophisticated at upcoding and finding other ways to maximize payments. Medicare is, at its core, unmanaged indemnity insurance with relatively low dictated reimbursement rates that often don’t fully cover hospital costs, especially for outpatient care. Whatever it costs, it costs. There is no budget per se. The best way to reduce healthcare spending is to find ways to reduce utilization, including wasteful end of life care. There is lots of unnecessary care in the U.S. due to a combination of defensive medicine and patient expectations. Much expensive end of life care patients don’t even want but they can no longer communicate and don’t have a living will, advance directive or POLST.

That all said, I fully support using general revenues to cover the fully allocated costs academic medical centers incur to educate the next generation of doctors rather than build at least some of those costs into medical bills. I also think academic medical research should be funded largely by NIH grants, partnerships with drug companies, and philanthropy.