Rate hikes before reform

Rate hikes before reform

September 29th, 2011 in Opinion Times

If Americans battered by a slow economy, stagnant wages and high unemployment also feel gouged by the health insurance industry, they have good reason for thinking that way. A new survey by the Kaiser Family Foundation confirms the industry's abuse. The latest study by the renowned health-care research group shows that the average annual premium for family health insurance in employer-based coverage rose by 9 percent this year. That's more than four times the average two percent wage increase, and more than triple the average rate of inflation.

Though the average of rate increases had been relatively moderate the past two years, the latest big hike returns to the decade's typical rate of increase. It means that the cost of family coverage has nearly doubled in the past decade, while wages -- not adjusted for inflation -- rose just 34 percent in the same period. Adjusted for inflation, in fact, the median family income has now fallen back to what it was in 1996, when median family income was last below $50,000 (in 2010 dollars).

Contrary to the knee-jerk critics of the Affordable Care Act passed by the Obama administration and Democrats in 2010, the increase in the average family health insurance premium, to $15,073 -- an amount largely borne by employers -- had virtually nothing to do with health care reform and the early changes made under the law before it is to be fully implemented in 2014. The reforms added this year -- some preventive care measures and a rule allowing uninsured children under the age to 26 to stay on their parents' family insurance, adding some 2.3 million young people to the rolls of the insured -- accounted for barely 2 percent of the insurance industry's higher premium costs.

Instead, it appears that greedy insurance companies have mainly jacked up the price of premiums simply because they can, and probably because they want to raise premium prices as high as they can before the reform law is fully implemented. When that occurs, the insurance industry will have to allocate at least 85 percent of their premium dollars for large groups toward the actual cost of their customers' medical care. For individual and small-group policies, at least 80 percent of their premium dollars will have to go toward the actual cost of care. But until 2014, insurers can raise rates without restraint, and continue to pour their excessive profits into the pockets of their multi-millionaire executives' salaries and stock options.

This year's increase is particularly onerous on businesses and workers in a struggling economy. It explains why the percentage of employers nationally that provide insurance has dropped to 60 percent -- and closer to 50 percent in Tennessee and some other Southern states where wages and health care benefits lag national averages. Higher insurance premiums also inhibit hiring because strapped business which do continue to offer health insurance find it increasingly unaffordable.

The amount of the average increase for family policies in large-group policies is deceptive in other ways. In most company policies in recent years, employers have also persistently reduced their cost of coverage by raising employee deductibles and co-pays and limiting coverage. Thus an average increase for same-benefit policies from the prior to the current year would have been significantly higher than 9 percent.

The increase also comes at a time when covered employees have reduced their use of medical services and brand-name prescription drugs because of tight budgets and reduced family income due to layoffs and lack of wage increases. That dynamic virtually nullifies insurers' contention that part of the increase is due to higher hospital and drug costs.

More broadly, the increases in premium prices, which in many cases run to more than 30 percent or 40 percent, continue to prove the need for flat community rates and tighter regulation on the percentage of premium dollars that go actual medical care. It also proves that Medicare, which holds its insurance contractors to less than 10 percent of revenue for administrative overhead and profit, is a better model for affordable health care than an employer-based system that must rely on greedy, unregulated, for-profit insurance companies.