Premiums are not the problem

According to the President, insurance company health insurance premium increases are the main problem with our system. Attacking premiums and profit is in his speeches and all over the White House blog, the President is attempting to stir up resentment against health insurance companies.  It is almost as if there is no connection between the cost of health care and premiums, only a connection with profit. So how does the federal government deal with rising health care costs and premiums.  Remember in these examples there is no insurance involved?

In short, it simply artificially caps the premiums and shifts the real costs someplace else. For example, if there is no increase in Social Security benefits because the COLA does not kick in the majority of Americans on Medicare see no increase on their Part B premium. The costs have gone up but not the premiums. Where did the costs go?

From the 2009 Social Security and Medicare annual report:

It is expected that about one quarter of Part B enrollees will be subject to unusually large premium increases in the next two years. This occurs because it is projected that the other three-quarters of Part B enrollees will not be subject to premium increases in those years due to low projected Social Security benefit COLAs and a “hold-harmless” provision of current law that limits premium increases to the increase in Social Security benefits.

Congressional Research Service

If there is no Social Security COLA, Medicare Part B premiums would be affected in two ways. For about three-quarters of Part B participants, the hold harmless provision would prevent their Part B premiums from increasing, and so their Social Security checks would remain flat. For the other one-quarter of beneficiaries, the hold harmless provision would not apply. These beneficiaries would shoulder the entire beneficiary share of the increase in Part B costs. In other words, their collective premium increase would be nearly four times greater than if there were no hold harmless provision.

There are three groups of beneficiaries to whom the hold-harmless provision would not apply:  

new enrollees (about 2% of beneficiaries),

high-income beneficiaries who are subject to income-related Part B premiums

low-income beneficiaries whose Part B premiums are paid by the Medicaid

The underlying cost of health care is what drives premiums and while the federal government may be able to simply pass legislation and avoid  necessary premium increases, that does not work in the real world (or for the government truth be told).  Unfortunately, that does not stop the President or the White House from aggressively making insurance companies the scape goats or deceiving the American people into believing that simply limiting premium increases solves any problem. Barack Obama’s Speech on March 3, 2010.

The President’s proposal for health care reform requires that insurance companies spend 80-85% of premiums on health care with the remaining 15% or so covering all expenses and profit. Let’s say this one shot change is enacted, then what?  The premiums still continue to escalate beyond general inflation just as Medicare does. How is that solving the problem of escalating health care costs – and premiums?  In addition if you are one of the 70 million Americans covered by your employers self-funded health benefits plan, there is no impact whatsoever on your costs, your contributions and your employers costs will continue to rise each year at a substantial rate.

Here are some recent trend rates for different types of health plans, trend rates are the anticipated increase in claims considering increasing costs for medical services and the frequency and type of services provided.  For a discussion on how trend rates are used to develop premiums click here. 

• HMO = 10.5%
• POS = 10.5 %
• PPO = 10.9%
• Indemnity = 12%
• CDH (consumer driven health) = 10.7%

With general inflation nearly nonexistent isn’t’ the real problem we need to solve the increasing cost of providing health care?  High premiums and high premium increases are the symptom not the illness, but to hear the White House tell it, insurance companies discriminate, ration care, make your health care decisions and make abusive profits.  You are being conned and your attention is being diverted from the real issues that underlie the need for health care reform.