Premiums Keep Rising: Why?

Premiums Keep Rising: Why?

Premiums on the Rise

Since its passage in 2010, the Affordable Care Act (ACA) has been a contentious piece of legislation. While the legislation did many things, politicians often focus on just one aspect of the policy: the price of insurance premiums.

Premiums are an easy measuring stick for politicians because the public generally understands what it is and it has a direct cost on people’s pockets. Health care premiums are rising faster than almost anything else in the economy. There are unsurprisingly conflicting theories from Republicans and Democrats as to why premiums are rising so fast.

Is it all because of the Affordable Care Act? Is it all because of President Trump and his actions? Both? Neither? The blame game gets complex but there is one thing that remains simple, health insurance premiums are quickly becoming unaffordable, and we need a solution soon.

Northern Virginia

In Northern Virginia, premiums in the individual market have risen consistently each year from 2014 to 2018.

On the graphs below, you can see that premiums for Kaiser Permanente and CareFirst for a 27 year old and a 50 year old purchasing insurance in the individual market have risen dramatically since 2014.

Currently, there are three insurance carriers on the exchange in Northern Virginia for 2018: Kaiser Permanente, Care First BlueCross BlueShield, and Cigna Health and Life insurance. 

In 2014, a silver Kaiser plan for a 27 year old had a monthly premium of $225.54 and in 2018 similar silver plans has a premium of $394.04 representing a 75 percent increase in just four years and a 34 percent jump from 2017 to 2018 alone.

Likewise, the silver CareFirst BlueCross BlueShield plan for a 27 year old had a premium of $224.91 in 2014 and $590.70 in 2017. That is a 163 percent increase in premium prices from 2014 to 2018, and a 66 percent increase in the past year.

Another insurer, Aetna used to sell plans in the Northern Virginia individual marketplace and the cost of a silver plan premium in 2014 was $225.54 for a 27 year old and $383.55 for a 50 year old. Aetna has withdrawn from the market, citing financial losses as their motivation.

For a 50 year old, the premiums are even more expensive but have had similar year over year increases. In 2014, a silver Kaiser plan cost $383.55 and in 2018 it will cost $671.52, a 75 percent increase over four years and a 34 percent increase in the past year.

A CareFirst silver plan cost $383.29 in 2014 and $1,006.68 in 2018, which is a 163 percent increase in four years and a 66 percent increase in the past year. 

This phenomenon is not unique to Northern Virginia, it is happening all over the country. A Northern Virginia household with a 50 year-old couple that qualifies for no federal subsidies is going to have to pay at least $16,000 a year if they purchase the (cheaper) Kaiser silver plan, up from approximately $9,000 just four years ago! What justifies a $7,000 a year increase?

Unfortunately, there is no simple answer.

Republican Argument

Republicans argue that these rising premiums are attributable to flaws in the ACA. They argue that the various rules and regulations within the ACA such as the requirement to cover ten “Essential Health Benefits” fundamentally made health insurance too expensive. Consequentially, the individual market never achieved the necessary risk pool of beneficiaries because younger healthier people opted to pay the tax penalty instead of buying health insurance. Republicans argue that these burdensome mandates kicked off a phenomenon known as the death spiral.

For instance, one of the rules in the ACA that conservative policy analysts say contributed to the expensive price of health insurance was the “age-based community rating” provision. This provision forces insurance carriers to charge their oldest enrollees no more than three times what they would charge their youngest enrollees. While elderly enrollees benefit, younger enrollees suffer higher premiums. As a result, some of those younger enrollees avoided buying health insurance altogether.

Republicans point out that young and healthy individuals enrolled at a lower rate in the market than anticipated because the ACA mandates made the insurance products too expensive. As a result, the only people who still wanted to purchase health insurance were those that really needed it ~ the sick and elderly. Insurance companies were unable to cover the costs of these expensive beneficiaries without the healthier, younger enrollees and were forced to raise premiums or drop out of the exchanges altogether. When insurers drop out of the market place it decreases competition and raises premiums only exacerbating the actuarial problems going forward. This cycle is what health policy experts call the “death spiral.”

This “death spiral” effect is one of the reasons the original projections regarding the Affordable Care Act were off. In 2010 the Congressional Budget Office Report (CBO) projected that 21 million people would be covered by the exchange by the year 2016. However, only about 12 million people actually enrolled in a healthcare exchange plan in 2016, with more than 6 million Americans opting to pay the tax penalty for not having health insurance instead.  

Essentially, Republicans argue that government regulations and mandates are the main force driving the rising health insurance premiums.

Democratic Argument

On the other hand, Democrats argue that premiums would have risen even faster if it were not for the ACA. They acknowledge a lack of market stability but believe that the government can incorporate certain fixes such as premium subsidies, cost-sharing-reduction payments, and tax credits to stabilize the price of health insurance.

Market stabilization through a “public option” is a solution that some Democrats have rallied behind. A public option would mean that a government sponsored health insurance plan would become a competitor to private insurers in the healthcare exchange. Because the prices of the premiums could be controlled by the government and the government has a lot of purchasing power, it would theoretically drive all health insurance premiums down because private insurers would be forced to offer a comparable product.

Some Democrats acknowledge the penalty for people choosing to forgo insurance is too small, and wish that they had created a more aggressive penalty when they wrote the ACA. They believe young healthy people are opting out of insurance because they are willing to pay the tax.

Democrats also say that Donald Trump’s actions since assuming office have undermined the market causing health insurance companies to spike their premiums higher than they would have otherwise. For instance, President Trump abruptly ended the “Cost-Sharing Reduction” (CSR) payments to insurance companies in October.

These CSR payments of $7 billion a year are paid to insurance carriers to subsidize lower copays and deductibles to individuals with income below 250 percent of the Federal Poverty Limit. Democrats argue that these payments ensure that both health insurance premiums are affordable but also that poorer individuals can actually take advantage of their insurance coverage. By ending these CSR payments, President Trump forced insurers to raise their premiums to make up for the lost revenue.

Democrats acknowledge that fixes could be made to specific parts of the ACA, but do not want to repeal the law overall, because it has helped millions of Americans get healthcare coverage. They have argued that the Congress should take a bipartisan approach towards fixing, not repealing, the ACA.

Bipartisan Solutions?

A bipartisan fix may actually be passed this year. Senators Patty Murray and Lamar Alexander struck a deal on a bipartisan package that many suggest should be added to the FY 2018 appropriations bill. The package has four substantial provisions that aim to stabilize the individual market: funding CSR payments, increasing advertising for, offering catastrophic (copper) plans to people of all ages, and creating a reinsurance program.

This package will be a small step to stabilize the independent market. Expanding catastrophic plan eligibility encourages more people to enroll because they have more affordable options. Likewise, a reinsurance program could lower health care costs because high-risk beneficiaries would be removed from the individual market. The Alexander/Murray agreement would allow states to apply for 1332 waivers, which would provide federal funding for states to set up reinsurance programs.  

These are short-term but bipartisan efforts that should help stabilize the individual market. If they are included in the upcoming FY 2018 appropriations package, they may reduce the premium increases for 2019.

Looking Forward

There is no one explanation for the rising cost of health insurance. Likewise, there is no one solution to provide affordable health coverage. Republicans are at a crossroads because they control Washington right now and premiums are rising under their watch. Do they want the current system to fail so they can completely replace the ACA and implement a true conservative alternative? Or, do they want to reform healthcare around the edges, avoid a collapse, but be stuck with a less than ideal system in the long run?

If Republicans and Democrats put party before policy, and focus more on who gets the blame and who gets the credit than actual policy solutions, the American people will suffer. Both sides will have to set aside partisan politics if we are serious about helping Americans struggling to pay for their healthcare.