More, Please

By Kim Bellard, October 2, 2011

Private health plans – everyone’s favorite scapegoat – are getting rolled.  They might as well get used to it.

Kaiser Family Foundation released its annual Kaiser/HRET Health Benefits Survey, which showed that health insurance costs increased 9% for family coverage – over $15,000 per family annually.  This compares to last year’s more promising 3%.  Single coverage was up by an equally daunting 8%.

What struck me was Kaiser’s estimate that health care reform accounted for 1-2 percentage points of the increase.  It’s a good thing for the Administration, then, that the overall increase was as large as it was, so that the effects of health reform couldn’t be blamed for a larger share of the private sector health spending increases.  Whether that proportion is one-ninth or one-third of the total, though, it’s still a lot of money.  Private health insurance expenditures are on the order of $850 billion, so that 1-2% increase is a cool $8.5 - $17 billion hidden tax increase annually.  And it’s only starting. 

Just a few days ago, there were various news reports trumpeting the success of Affordable Care Act (ACA) in getting more young adults coverage, via the requirement to cover dependent children up to age 26.  Both the CDC and Gallop released findings validating the increase in coverage, estimated at some 900,000 more young people with health insurance.  But insuring these young adults has a cost.  The Kaiser study reported 20% of firms have covered young adults due to the law, an estimated 2.3 million adult children.  The difference between the 900,000 and the 2.3 million suggests a majority of those adult children might have obtained coverage on their own rather than through their parent’s insurance.  If I were an employer trying to cover my health insurance costs, I might be kind of mad about that.

Kaiser also reports that the ACA impacts are just starting to be felt.  Seventy-two percent of employers still had “grandfathered” plans, which have not yet been fully subject to ACA requirements.  Among those requirements are coverage for specified preventive care services without deductibles or cost-sharing.  Last month we saw one shoe drop in this regard, when HHS announced the list of services considered preventive for women’s health.  The services include not just birth control, but also, among others, HIV screening and counseling, breastfeeding support and supplies, and domestic violence screening and counseling – all very worthwhile services, but not all ones traditionally seen as either preventive in nature or covered by health insurance.  Then again, the federal government is requiring the private sector to pick up the costs, so serving political or social justice goals becomes part of the equation.  The Wall Street Journal reports that Catholic organizations are, not surprisingly, already upset with the requirements about contraception, and it will be interesting to see how special interests play out against other special interests in achieving ACA’s goals.

It’s going to be very tempting – too tempting – as ACA moves forward, for more special interest groups to lobby to get their services covered at no cost-sharing to the consumers.  No cost-sharing to consumers, of course, doesn’t mean no cost; it all has to get paid for somehow, and it all adds up.  We’ve been down that road with state mandates for health insurance, except that under ACA there are no jurisdictional escape routes for employers or health plans. 

Critics of health insurers, of whom there is no shortage, blame the 9% increase on health insurers trying to make their money before they are required to hit the loss ratio and disclosure requirements of AAPCA.  Those critics might want to note that Kaiser also reports that 60% of covered workers are in self-insured plans, so their argument loses much of its force, as these firms have no incentive to raise their costs any higher than necessary.  Self-insured or not, employers provide the vast majority of private health insurance, and they are struggling to afford it.  They are not an endless piggybank to be used for political purposes. 

The only “good” news about ACA I’ve seen lately is that the Administration is finally being forced to be more honest about the CLASS long term care program.  Skeptics of this program, including me, argued that the program was not structured to be sustainable. It was included as a tribute to Senator Ted Kennedy and as a way to count the program’s initial years’ premiums as revenue in the bill’s cost – rather than reserving them to pay for promised benefits.  Now it appears that HHS may try to not implement the program, having gotten rid of the actuary assigned to work on it and reportedly planning to close down the CLASS Office.   I feel bad for the people who might have benefited from CLASS, but as a taxpayer I’m relieved that we might not have jumped off this particular cliff yet.  

It remains to be seen if the 9% increase in costs is an aberration or the start of an ominous trend.  As the various ACA changes more fully impose direct costs on private health plans, and as providers continue to cost-shift to private payors due to worsening Medicare and Medicaid payment shortfalls, the prospects for holding costs down are grim.

Bad as they are, the cost increases could be worse.  Consumer Reports found that 48% of consumers are skimping on prescription drugs or other forms of medical care, up from 39% last year.  Presumably costs might be higher if patients didn’t “skimp” on health care, which included delaying a doctor’s visit or declining a test.  Of course, this concern about “skimping” on health care should be counterbalanced by questioning whether all of the recommended care was needed.  A recent study found that 42% of primary care physicians think their patients get too much medical care, driven in part by malpractice concerns and ordering tests rather than spending more time with patients (see my previous blog on addressing this).  They thought sub-specialists were even worse in this regard; 61% thought sub-specialists provided too much care.

The fact of the matter is that we still don’t know how to tell what care is needed and what isn’t, and ACA hasn’t helped accomplish that.  Yet.

Perhaps HHS will get the ACO regs right, and ACOs will flourish.  Perhaps EMRs and meaningful use will quickly yield the desired paybacks.  Perhaps the exchanges will be a boon for consumers and health plans alike.  Perhaps, perhaps, perhaps; the big problem with ACA was that it focused primarily on how health insurance is financed, not on making structural changes to how we deliver and pay for health care.  Until we do the latter – health plans, better open your wallets (and by “your wallets,” I mean “spend our money…”)!