The New York Times took a long look Sunday at the double-digit premium increases that have persisted under the Affordable Care Act. It’s a good story and good moment to look back at how health insurance premiums have changed, what role the Affordable Care Act has played and what happens moving forward.
1. The average American family pays $15,022 a year in health insurance premiums. There is a fair amount of variation by state though, which you can see in this chart from the Commonwealth Fund.
That same Commonwealth Fund report finds that 80 percent of Americans now live in states where health insurance premiums equaled 20 percent or more of average income. All states’ average premiums now work out to at least 14 percent of average household income.
2. Insurance premium growth has wiped out the last decade of wage growth. Overall, that middle-income family saw its income go up by $23,000, from $76,000 in 1999 to $99,000 in 2009 — not too bad. But rising health-care costs in the form of increased insurance premiums and co-pays, ate up nearly all of that. Factor in that spending, as a recent Health Affairs article did, and the average family only had $95 a month more in available income than it did a decade ago.
3. The Affordable Care Act has contributed to the rise in premiums, especially in the individual market. One thing the Affordable Care Act did right away was make health insurance benefit packages more robust. It required insurance companies to cover preventive care at no cost, for example, and allowed parents to keep their kids on their plans up to age 26.
Those changes are not, however, free for insurance companies. Insurers have to factor in those young adults and the provision of preventive services into the overall premium cost for their policies. Consulting firm Aon Hewitt says that, in the large employer market, where benefit packages were pretty robust, this was a really small change. But in the individual market, where coverage tended to be skimpier, adding in those additional benefits caused insurance premiums to increase by just under 5 percent.
4. The Affordable Care Act has returned more than $1 billion in premiums to consumers in the form of insurance rebates. The health care law requires insurance companies to spend at least 80 percent of subscriber dollars on medical care. If they spend less than that, the difference must be made up in a rebate to insurance subscribers.
In 2011, the year that provision went into effect, health insurers sent out $1.1 billion in rebates to 12.8 million American households. They averaged $151 per household, with Vermont seeing the highest rebates (their average check was $807 in the individual market). Using the numbers from the Commonwealth Fund above, that would work out to a 1 percent decrease in premiums for the average family.
5. Regulators rejected or lowered at least 924 insurer rate hikes in 2010. While the federal government cannot reject rate hikes, regulators in 37 states do have that authority. The Government Accountability Office looked at how frequently regulators exercised that authority. It found that in 36 states, regulators had turned back over 900 rate increases. Colorado and Ohio overturned more than 100 each.
It’s worth noting that California is on this list, as it is one of the 13 states that does not have the authority to turn back insurance rates. This fact plays heavily in the New York Times story, with California insurance commissioner Dave Jones calling his inability to turn down rate hikes a “huge loophole” in the health reform law.
So, how’d they get 14 insurance companies to lower or withdraw their rates? They sat down and negotiated with the insurers. And it worked. “Officials from the California Department of Insurance told us that they negotiated with carriers to reduce proposed rates by 2 percentage points to 25 percentage points in 2010,” the GAO report says. “These officials also told us that they negotiated with one carrier not to raise rates in 2010 although the carrier had originally proposed a 10-percent average increase in rates.”
