Higher Premiums — And the Reasons for Them

The Wall Street Journal has a front-page article this morning outlining insurers’ plans to raise premiums as a specific consequence of the health law’s passage.  While Democrats have trumpeted the various consumer benefits taking effect on September 23, the article notes that insurance companies have informed state regulators “it is those very provisions that are forcing them to increase rates.”  For instance, Aetna attributed increases of 5-7% in California and Nevada to the extra benefits, and “in Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates.”

A detailed look at last week’s Kaiser Family Foundation study of employer-provided health insurance offered in 2010 gives some indication as to why the law would raise premiums.  Compiled data on employer plans shows that many firms will not meet all of the health law’s new requirements, and could be forced to offer richer benefits at a higher cost:

  • Eight percent of covered workers face a waiting period of four or more months (Exhibit 3.8, p. 53), but employers must shorten waiting periods to no more than 90 days (i.e. three months);
  • More than four in five firms (88%) do not cover all dependents through age 26, but all firms will be required to do so under the new law (Exhibit 3.11, p. 56);
  • One in ten (10%) covered workers – and one in five (20%) covered workers in small firms – have single deductibles of $2,000 or more, which will be prohibited under the law (Exhibit 7.6, p. 109; while family plan deductibles are capped at $4,000 in the law, there were no comparable data in the Kaiser study indicating how many family policies currently exceed the new cap);
  • Depending on plan type, between 4-13% of covered workers must first meet a deductible before their preventive services are covered, while under the health law, all cost-sharing for preventive services will be prohibited (Exhibit 7.16, p. 119); and
  • More than one in ten (12%) covered workers are subject to an annual limit on benefits, which will be prohibited under the law (Exhibit 13.11, p. 222).

The above data from the Kaiser study are just some of the examples of the new benefit mandates included in the law, and their impact on insurance coverage.  There are more mandates in the law for which the Kaiser study didn’t have data, and the Kaiser study refers only to employer-provided insurance.  The impact on individual insurance will likely be even greater, as individuals generally select less comprehensive coverage when they aren’t getting a significant subsidy from their employers – and a tax break from the federal government – to purchase their plan.

To be sure, the benefits above, and the other mandates included in the law, may be helpful or desirable to some individuals.  But the idea that employers and insurers can offer more than a dozen new mandated benefits at the same or lower premium prices is inconsistent with basic economic principles.  And unsurprisingly, some insurers are concluding that the many new mandates included in the health care law will raise premiums by more than the 1-2% the Administration alleges the mandated benefits will cost.

During his presidential campaign, candidate Obama promised to reduce family premiums by up to $2,500 “by the end of my first term as President.”  But, as millions of Americans may soon find out, you can’t promise lower premiums at the same time you’re raising benefits – because, in health care as in life, there’s no such thing as a free lunch.