Reform Impact on Premiums

Last week, as we reported in a commentary, the Congressional Budget Office found that the Senate reform bill, in its current form, would increase individual premiums by about 10% over what they otherwise would be by 2016, but have only very modest effects on group premiums.  As might be expected, industry-related groups beg to differ.  In one report, an actuarial firm hired by the Blue Cross Blue Shield Association found much greater upward effects.  (BCBSA Report) This report, by the Oliver Wyman division of Marsh, involves use of a detailed model based on over 6 million current participants in the individual and small group markets.

Oliver Wyman’s primary point is that the proposal is not likely strong enough to ensure broad participation in the insurance pool and that CBO is underestimating the medical costs of the currently uninsured compared to the medical costs of those who presently have individual insurance.  The report finds that medical claims would be 54% higher than today and premiums typically follow medical claims.  Interestingly, Oliver Wyman modeled a reform that would result in 97% participation in the insurance pool and found only an 18% average medical claims increase, which is still much higher than CBO projects for the Senate bill.

A second group, the Council for Affordable Health Insurance, also issued a statement regarding the CBO analysis.  CAHI estimates that individual premiums will double by 2016, primarily due to adverse selection from ineffective incentives/penalties to get all young healthy Americans into the insurance pool, and also from pent-up demand from those who do newly acquire insurance. (CAHI Statement) CAHI points to the Massachusetts experience as an example of how rapidly premiums can rise.  CAHI also reminds us that President Obama promised that premiums would actually be about $2500 lower by the end of his first term.  That clearly is not going to happen, according to everyone involved in the reform debate.

It might be useful for the CBO analysts and Oliver Wyman actuaries to sit down and review their respective models and for CBO to give a detailed explanation of why it disagrees with the perspective of very experienced industry participants.  If reform passes and premiums do increase at the rate these industry-related groups estimate, which past experience with similar reforms suggest is more likely than the CBO scenario, we will all regret that this issue wasn’t considered more thoroughly.