Lowering the Cost of Health Insurance Premiums

 

Most people want to lower health insurance premiums. In fact, this heads the list of most desired improvements in our healthcare system in repeated polling. So understanding what drives up the cost of premiums is crucial to making premiums less expensive.

There is no doubt that ObamaCare caused premiums to skyrocket. Despite President Obama’s claims that his new healthcare bill would “lower premiums an average of $2500 per year” it actually caused them to increase about $3500 per year. That’s about $6000 more per year than promised.

What caused these significant premium increases?

ObamaCare made several significant changes in health insurance plans. It forced insurers to provide certain “essential health benefits” as determined by HHS Secretary Kathleen Sebelius. These included mammograms, prostate exams, and other routine procedures regardless of gender in all plans. In other words, the anticipated cost of these procedures was calculated into every plan, regardless of whether they were needed or not.

Every insurance plan was required to be “ObamaCare compliant”, meaning it complied with every requirement of the law, or insurers could be fined. As a result no non-compliant plans were offered.

Other requirements of “ObamaCare compliance” included plans that were “guaranteed issue” and “community rated”. These insurance terms represent a change from previous insurance practices and also affect pricing.

Guaranteed issue means policies must be offered to all applicants, regardless of previous medical treatment or pre-existing conditions. Community rating means insurers cannot charge anyone more regardless of their medical history. Insurers were only allowed to factor in age, tobacco usage, and geographical location. Age was only allowed to increase premiums by a 3:1 ratio rather than the usual 5:1 or 6:1 typically used by insurers before ObamaCare.

With these restrictions placed on insurers, premiums were guaranteed to rise. Imagine expecting to pay the same auto insurance rates for your eighteen-year-old son who has totaled three cars as your fifty-year-old wife who’s never had an accident. Imagine expecting to pay the same health insurance premiums for your eighty-year-old grandmother with heart disease as your eighteen-year-old son who’s never been to the doctor. Insurance premiums must be predicated on actuarial risk rather than government mandates or insurers will surely fail.

Which of these government mandates caused the most premium increases?

That has been the most important question when considering improvements in the system that will lower premiums the most. We now have the answer to that question.

Fred Barnes, writing in The Weekly Standard, says a new study by McKinsey & Co. was performed for the Department of Health and Human Services. The results of that study were revealed recently by Senator Ron Johnson of Wisconsin.

The study focused on premium hikes in Tennessee, Georgia, Pennsylvania, and Ohio. The increased risk for insurers from guaranteed issue and community rating caused between 73 percent and 76 percent of the rise in premiums in Tennessee from 2013 to 2017. They caused between 44 percent and 52 percent of the increase in Georgia, between 53 percent and 62 percent in Pennsylvania, and between 41 percent and 50 percent in Ohio.

Here are some examples:

For a 40 year-old male in Tennessee, the monthly premium increased from $104 in 2013 to $431 in 2017 (ObamaCare Silver plan). The increase was from $94 to $323 in Georgia, from $119 to $373 in Pennsylvania, and from $102 to $284 in Ohio.

Senator Johnson explained the findings: “Had we never passed ObamaCare, premiums should be somewhere in the $300 per month level versus $574. This is the damage done by ObamaCare. And this, I’m very sad to report is what we are not adequately addressing.”

But there is some good news. Johnson said the “good news” in the ‘root cause analysis’ by McKinsey is being ignored in Congress. He said, “The good news is you can actually cover people with high cost and preexisting conditions without collapsing insurance markets. They’re called high-risk pools.”

A second study was done by HHS to examine the impact of Senator Ted Cruz’s amendment to allow insurers to sell non-compliant policies without all the essential health benefits. Senators Johnson and Mike Lee (Utah) wrote in a letter to their colleagues, “The results are remarkable. If insurers were to offer ObamaCare –compliant plans and non-ObamaCare compliant plans there would be a significant decrease in premiums.”

The study revealed monthly premiums in the individual health insurance market would reach an average of $845 by 2024 under ObamaCare. Under the Cruz amendment with two risk pools included, premiums would be 30 percent lower for a 40 year-old man with an ObamaCare-compliant plan. But premiums for non-ObamaCare-compliant plans would be as much as 77 percent lower. The amendment would also expand insurance coverage by 2.2 million people.

Conclusions

The conclusions from these studies indicate the real culprits in rising premiums are guaranteed issue and community rating. Essential health benefits actually are responsible for only small increases. In Tennessee they’re responsible for less than 2 percent increases; in Georgia and Ohio it’s only 5 to 8 percent; in Pennsylvania it’s 7 to 11 percent. While no man wants to pay for maternity benefits and no woman wants to pay for prostate exams, these benefits have a smaller impact on rates.

The abolishment of government regulations that force guaranteed issue and community rating is the real answer to lowering premiums. Coverage of those with expensive pre-existing conditions can be provided through high-risk pools and other protections for those unfortunate enough to have chronic medical conditions. New legislation should address these culprits that are contributing to the skyrocketing cost of health insurance premiums.

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