April 16, 2014:
Statisticians working with insurers to project next year’s insurance premium rates say they expect to see an average increase of about 7%, well below the feared double-digit increases making recent headlines.
“The double-rate increases we’ve been hearing are probably exaggerated,” says Dave Axene, a fellow with the Society of Actuaries, adding that there would be wide variation across the country. “That’s not what we’re seeing from the actuarial organizations — I guess we’re being a little bit more optimistic.”
Axene says that as insurers dig through the new health exchange enrollees to figure out their ages and health conditions to determine next year’s premiums, he expects an overall increase of 6% to 8.5%. He bases that on work he and others within the society have done with insurance clients. Before the Affordable Care Act, premiums rose an average of 7-10% a year.
Axene warns there could be wide variations in actual costs.
“In some states, there’s a very wide spread between the high rate and the low rate — in Manhattan, it was 2-to-1 — but these are averages,” he says.
He’s also been able to get an early read on some of the people who have been enrolling, though the March and early-April exchange enrollees’ data aren’t yet available. The early enrollees tended to be people with “higher morbidity,” he says — about 6-8% had higher-than-average health care needs. But that had been expected, and probably won’t play a large part in next year’s premiums.
However, insurance costs are likely to rise more in coming years as reinsurance and risk corridors disappear in 2017.
“When the risk corridors go away, which provide financial protection if you’re bad at estimating numbers, there may be a rate increase,” he says. To make that transition smooth, insurers may bump up 2016 premiums so the increase can be spread out over two years, he says.
Part of the reduced growth rate could be due to improvements in the health care system that will continue to rein in costs over time.
“If the cost curve is really bending as a result of what we’re doing, that should favorably affect rates,” he says.
Several new reports also hint at a bend in the health cost curve — even as health spending picks up with the improving economy.
The change after years of large increases in how much health care costs seems to be coming for several reasons, the reports find: Americans are using their prescribed medications more often, which may be keeping them out of the hospital; payment systems have begun to reward quality over quantity, which has encouraged a team-based, data-driven approach; and record numbers of medications have been developed to address chronic disease, while older medications have come off their expensive patents.
The week’s findings include a report from the IMS Institute for Healthcare Informatics that found that even as health care spending has rebounded with the economy, the growth rate remains lower than usual. In addition, the Congressional Budget Office (CBO) projected lower health insurance premiums than originally expected.
“Growth in medicine spending remains at historically low levels despite a significant uptick last year, and continues to contribute to the bending of the health care cost curve,” says Murray Aitken, executive director of IMS, which provides reports to health companies and creates market forecasts. “We think (the uptick in spending is) a reflection of a stronger economy, more patients with insurance and some relief of pent-up demand for services because of the economic downturn.”
IMS found that Americans spent $329.2 billion on health care last year — up 3.2% from 2012 and a rebound after spending went down 1% in 2012.
The report listed several reasons for the change, including expired medication patents, price increases, higher prices on new medicines and more consumers using the health care system.
The study found that even before the rollout of the Affordable Care Act, consumers shifted to high-deductible plans and paid higher out-of-pocket expenses.
Aitkin says people spent more on drugs and less on follow-up visits and hospitalizations, which could be key to keeping the growth rate low. Health experts have long held that if people can afford — and take — prescribed medications, it may keep them safe from heart attacks or low blood sugar levels, and ultimately keep their overall health costs lower.
Aitkin says 23% of prescription drugs had no co-pays in 2013, mostly because of provisions within the Affordable Care Act, including the one for coverage of contraceptives as preventive medications. Women saved $483 million in out-of-pocket costs in 2013 for contraceptives alone.
And hospitalizations from emergency room visits decreased 14.6%, possibly because consumers were encouraged to try other options first. Prescribing pain medications, probably in response to narcotic addiction, has also gone down.
This week, the CBO downgraded its original premium projections by about 15% lower than projected in the fall of 2009, in part due to “lower projected health care costs for the federal government and the private health sector.”