At the behest of America’s Health Insurance Plans, PriceWaterhouseCoopers has examined the impact of provisions in the Baucus bill on health insurance premiums. Not surprisingly, the firm found significant increases would result, and also not surprising, health reform’s proponents attacked the report simply because it was sponsored by insurers. (PWC Report) While it may be appropriate to closely assess the credibility of a report paid for by any interested group, PWC is a reputable firm which is probably not interested in putting out a completely biased assessment. PWC did earlier assessments for AHIP on savings related to wellness, health IT, comparative effectiveness research and other proposals and no one went after the credibility of that work.
The report looks at four primary aspects of the Baucus bill: a requirement that insurers accept basically anyone who applies for coverage with very limited premium differences coupled with a relatively weak requirement that individuals buy coverage or be penalized; the tax on high-value health plans; potential cost-shifting from Medicare reimbursement cuts and the proposed new taxes on several health care sectors, for example, medical device manufacturers.
PWC estimates that insurance premiums will rise by about 14% more than they otherwise would between 2009 and 2013 because of these provisions, and by 32% more between 2009 and 2019. PWC does note that the actual impact on individuals and families will depend on subsidy levels and that if other parts of reform actually lowered costs, the increase in premiums may be less. In estimating the impact of the insurance market reforms, PWC relied on actuarial work by the Hay Group, a reputable firm. There are a number of factors leading to the estimated increases, not the least of which is that the market reforms kick in before the coverage mandate. This will jump-start the type of cost spiral typical in health insurance, where the sickest people, who cost the most, will be the first to get coverage. Their high costs drive premiums higher, which makes more people less likely to buy, which leaves an even-smaller pool of high-cost people, etc., etc. Without a universal mandate, backed by strong penalities, this is almost inevitable. Massachusetts has seen significant gaming of its system, where individuals calculate the trade-off value of insurance premiums when they are sick versus the penalty.
One factor that lends some credibility to the PWC work is the experience of similar state health reforms, which universally have led to higher insurance premiums than predicted, Massachusetts being the most recent example. Given the significance of higher health insurance premiums for employers, individuals and the economy; Congress might want to be a little surer about the impact of the current reform provisions before it hastily marches forward.