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  • The Truth about Rising Health Insurance Premiums

    Congress and its allies on the left are hell bent to overhaul the health care of every American. They have focused strongly on increasing regulation of insurance companies. They get the most of the blame for increasing premiums and skyrocketing health spending.  Though certain targeted and technical reforms of the health insurance market are sorely needed, making insurers the scapegoat for out-of-control costs in our current health system misses the point.

    Recent premium increases in health plans offered by Anthem Blue Cross in California have attracted federal scrutiny of insurers, but experts attribute increases to external factors beyond the control of insurance companies.  New state mandated benefits increase the minimum level of coverage an individual can purchase.  As Americans embrace frugality in response to high unemployment and economic hardship, many choose to forego health insurance, especially among younger and healthier populations.  Removing these individuals from insurance risk pools leaves behind a greater concentration of sick and costly patients, so that insurers have little choice but to increase premiums in order to maintain solvency.

    In a recent briefing paper, Milliman lies out the internal factors which affect premium costs.  Rates are set according to actual claims and “benefit cost trend”, which reflects the future cost of benefits.  Affecting benefit cost trend are factors such as medical inflation, provider contracts, use of services, mix and intensity of services, and cost-sharing.  Of further consequence are changes in member characteristics, as mentioned above, and administrative costs and taxes.  Insurer profits account for a small fraction of the factors behind increasing costs.

    A study recently published in Health Affairs describes the evermore prevalent effect of increasing provider rates in California.  Robert A. Berenson et al. explain how demand in the insurance market for greater provider choice has given providers greater clout in negotiations with insurers, allowing them to increase their rates.   The formation of accountable care organizations, consisting of multi-specialty groups of providers collaborating to offer efficient and better quality care to their patients, largely accounts for this.

    The mission of accountable care organizations is honorable; however, the effect these provider groups have on rising premiums could negate the benefits of their creation.  According to Berenson et al., “If accountable care organizations lead to more integrated provider groups that are able to exert market power in negotiations—both by encouraging providers to join organizations and by expanding the proportion of patients for whom provider groups can negotiate rates—private insurers could wind up paying more, even if care is delivered more efficiently.”

    In order to address rising costs in health care and the subsequent rises in premiums, Berenson et al. suggest that if the market cannot be altered to discipline providers, the government should impose price controls on insurers and providers both.  This profoundly flawed tactic is reflected in the President’s recent proposal for health care reform, which would require a “Health Insurance Rate Authority” to regulate premium increases.  This approach is doomed to failure, not only due to very nature of price controls, which is the most recurrent economic policy failure in history, and a guarantor of shortages and related miseries, but also because it fails to acknowledge that other factors contribute to the problem of increasing premiums. Milliman warns that “Simplistically limiting premiums rate increases to some predetermined inflation index fails to recognize the fundamental elements involved in setting health insurance rates, and would likely have severe consequences within a short period of time.”

    According to Berenson et al. “The shift in who holds the upper hand in negotiating payments—once held by health insurance plans but now resting with health care providers—has had a major impact on California premium trends”.  To reverse this game of tug-of-war, the “upper hand” must be given to the consumer.  In order for the market to adequately respond to the laws of supply and demand, patients must own and control their own care.  Only when patients are put in charge of the flow of dollars spent on health care can a just equilibrium be achieved.  Insurance price controls that do not take into account all drivers of increasing cost cannot possibly achieve this.

    Posted in Obamacare [slideshow_deploy]

    17 Responses to The Truth about Rising Health Insurance Premiums

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    2. jim says:

      The sheep that voted for obama had no idea that the change was to give big government control of everything to create more union workers and tax revenue to bail the union's pension and benefit plans out of the red.Private sector has non-union workers and this is why they are unemployed.Actual unemployment should include all those that have switched from unemployed to welfare.The heath care scam has nothing to do with reform.It is all about paying back the unions and their benefit plans and creating more debt that needs more revenue.The auto bailout was due to pensions and benefits that were due and they did not have the money to honor their contract with the UAW.Biggest scam of all time.Propaganda being taught in universities are the reason for all the liberal votes for obama in my opinion.

    3. Tim Az says:

      If the people own and control their own health care. Just what is left for liberals to own and control? Besides auto companies and lending institutions of course.

    4. charles Morriston Fl says:

      I agree with the above in that through government intervention and health care provider groups we have seen increases in premiums. Perhaps we need to turn the clock back to pre-1950 where in the patient was responsible for the cost of medical care. I was like to see how we can get the consumer back in the drivers seat

    5. Drew Page, IL says:

      At last the truth comes out about the health insurance rate increase (39%) put out by the California Anthem Blue Cross insurance company.

      Isn't it amazing that during the Congressional hearing on this and the outrage directed toward the insurance company that no one in congress asked how the need for the rate increase was determined? I watched the hearing. I heard no one ask what the prior annual claims of this insurance were. I heard no one ask what, if any, increases in benefits to the insurance were made by California state mandates and what the corresponding costs of those benefit increases might have been. I heard no one ask what medical inflation percentages were used to project the claim costs of the anticipated renewal year. I heard no one ask what the insurance company's overhead expenses and profit margins were built into the rate increase. I heard no one ask what the annual health insurance premiums would be, if they remain unchanged, in comparison to the total projected costs of the insurance. You see, these are all the elements of a health insurance renewal rate projection. I speak from 42 years experience in this field.

      What I did hear the Congress ask was, "How can you justify such a gigantic rate increase when people are unemployed and struggling to pay their bills"? I also heard Congress demand to know the annual salary of the insurance company representative who was there to answer questions.

      The above article contains quotes from an acturaila firm called Milliman. These people are experts in the field of health insurance. There comments are exactly right. Unfortunately, the buyer's ability to pay has no bearing on the cost of insurance, or anything else for that matter. The sad reality is that if customers cannot afford to buy a product they are left with three options:

      1) Try to buy something cheaper;

      2) do without; or

      3) get someone else to buy it for you.

      It is not the insurance company's fault when a state (or the federal government) require that insurance companies raise the benefits of insurance plans they sell. It is not the insurance company's fault that doctors and hospitals raise their prices and submitt higher claims. It is not the insurance company's fault when prescription drug companies charge outrageous prices for their drugs. These are all elements of insurance costs and are outside the control of the insurance company.

      The insurance companies make an easy target for people and politicians to blame when it comes to the cost of health coverage. And it's easy for politicians to point to the salaries of the top insurance company executives as the reason for the high cost of health insurance. You can believe that nonesense if it makes you feel better, but it just ain't so.

      How many people are pointing to doctors and complaining they charge too much? How many do the same thing to hospitals or drug companies? How many people point their fingers at state and federal governments and say "stop increasing the benefits under our health plans"? Very, very few, that's how many.

      So you say what's the answer? Well, there are a few answers, all of them are unpopular. First, individuals could pay for a larger share of medical expenses through higher deductibles and out-of-pocket limits, or as an alternative to higher deductibles, reduce coverage.

      Second, call for tort reform, limiting or capping the amount of punitive (not compensatory) damage awards.

      Third, change unhealthy lifestyles. If your a smoker or recreational drug user, quit; if you are fat, go on a diet and exetcise; or get help from a doctor or treatment center. Man or women, see your doctor once a year for cancer screenings, blood and urine tests. This change alone would reduce medical costs substantially.

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    7. ann kitay fultom tx says:

      I am on Medicare and accidently received my cardiologists claim on my insurance. I smoke. There was a $40.chg for smoking coonsultation which consisted of – are you still smoking? -how many a day? – the doctor would prefer for you to stop smoking. This from a 'nurse' – what maybe 90 seconds 'consultation'. And this fee was in addition to the office and tests charges. I complained to my insurance carrier and to Medicare for what I consider inappropriate and unwarranted charges. Hang in there – be honest in all your dealings. Don't say 'yes' just bevcause you think one more test will heal you. Be responsible for yourself and remember all those who part with their money to pay for Medicare.

    8. Barbara Huet de Guer says:

      The fundamental question is how we're going to pay for unfunded "entitlements' down the road. Warren Buffett has pointed that out – buyer's remorse, old buddy?We have to begin with reforming the way Medicare and Medicaid providers are paid. There aren't enough young, healthy bodies to be bullied into the system, which is of course, the whole point of Obamacare.

      Obama's personal psychodrama of watching his mother struggle to pay medical bills when she was dying of cancer don't have to be the raison d'etre of medical insurance. If he didn't understand the difference between collision and liability in car insurance, it's probable that he doesn't understand the purpose of major medical.

      Another myth that dies hard is that insurance companies make "obsecene" profits. Last thing I read, it was 13%. Microsoft makes, what 24%? Anyone complaining about their profit margin? Anthem, was the only Blue Cross, that donated almost 100% of its PAC funds to the Dems. Look at the donations of other insurace companies. Who was it that's against the influence of "special interests"? You wouldn't know it from looking at the insurance companies donations to Pelosi et al.

      Readers of this site know what's happening to Greece, and what is about to happen in California due to their health care and pension messes. What ever happened to the "Ask not what your country can do for you but what you can do for your country?" spirit in the Democratic Party? Country and government aren't the same thing, especially with this administration.

      For each page of legislation, on average, 15 pages of regulations gets written. Anyone trust Health and Human Services? Look at the horrid situation in West Yorkshire. Remember the thousands of hemophiliacs that died in France and why. Remember the 10,000 (that they'll admit to) elderly who died in the heat wave in France in 2006.

      We Americans should be smart enough to avoid the mistakes of other countries. There is no "right" to health care – forcing individuals to buy health care is, however, a violation of my Constitutional right to "life, liberty, and the pursuit of happiness."

    9. Bill Schnitzer, Kihe says:

      Thank you for addressing the insurance issue. The left has been villifying insurance companies to get the public behind its health industry takeover. The question I never hear is "would you rather pay the insurance premiums or the medical bills?" If you lefties think the cost of medical care is less expensive than health insurance premiums, please cancel your policies and shut up. The cost of health care is not in the hands of insurance companies – it is in the hands of the medical community.

    10. Barb Tx, Texas says:

      Health Care Reform – what Congress should be talking about:

      The health care reform debate should include exploring ways to eliminate unnecessary expenses and fraudulent charges, without creating unneeded cuts to programs (such as massive proposed cuts to Medicare) or sacrifice of quality of care, and limit the need for massive taxes proposed for mandated insurance.

      Identify and implement cost-saving steps without simply adding to the deficit and the additional burden of the current health care bills. Identify positive solutions by systematically reviewing unnecessary expenses, rather than simply adding complexity, expense, un-popular restrictions, and tax increases.

      “As many as 60% of all emergency room (ER) visits are for non-urgent problems.”

      gateway.nlm.nih.gov/MeetingAbstracts/102234075.html

      “National statistics put the cost of treating non-urgent conditions in ERs at about $21 billion.” (August 25, 2008)
      http://www.boston.com/business/technology/article
      “According to the National Center for Health Statistics, the average emergency room visit costs $1,049, while the average physician’s office visit cost around $153. Emergency room treatment for non-emergency medical conditions is a major contributor to the rising cost of health care.”
      http://www.blueridgehealth.org/in_the_news/health
      Establish more urgent care or walk-in clinics for treatment of non-emergent health problems. A triage nurse in the ER could refer non-emergent cases to a nearby clinic and reserve ER’s for the treatment of life and death situations.

      Eliminate preventable conditions with simple actions that SHOULD already be a standard.

      Consumer Reports reviewed an easily-implemented change that would save approximately $1.39 billion health care dollars for the 33000 lives lost each year (not including health care costs for survivors) from Hospital-caused MSRA blood infections introduced by central line catheters providing nutrition and hydration, etc. Treating these infections costs approximately $42000/patient. Hospitals that implemented a simple 5-step program (e.g., handwashing by health care providers) reduced the incidence of these infections to zero. (Consumer Reports Magazine, March 2010). Congress should enact legislation requiring all hospitals to publicly and clearly report this data, and follow the simple checklist. Medicare does not cover the massive expense of these hospital-introduced infections because they consider them avoidable. Instead, Medicare should list the hospitals it will not support due to this avoidable condition, rather than punishing the patient.

      Provide for appropriate health insurance for the un-insured through inexpensive catastrophic policies for young people at low risk, higher income people unwilling to pay for comprehensive health insurance, or those unable to afford health insurance. Rather than imposing a fine, enable them to either get the health care they are eligible for, or purchase inexpensive catastrophic insurance, with subsidies as needed.

      Medicare is under-funded. Place an income cap on Medicare (and Social Security) benefits such that people in the high income bracket are not eligible, to preserve the benefits for those who need these programs. Legislatively prevent Congress from raiding Social Security and Medicare to help offset the solvency issues.

      Many individuals and self-employed Americans do not purchase health care since individual insurance is disproportionately expensive compared to group insurance (which averages risk). A path for the individuals and self-employed (sole-proprietors) to have access to group plans would lower their cost-basis and encourage them to purchase health insurance.

      Health care costs escalated when patients began to expect to only be responsible for a co-pay (with a majority of health care expenses covered by insurance). Provide incentives for insurance companies to provide traditional coverage policies for those who prefer to pay for office visits out of pocket, with insurance covering the remaining expenses.

      Add guarantees that health care reform would include effective regulations, fair options and quality care by requiring the House and Senate to have the same health care system that they pass for the American people.

      Health care represents a substantial sector of our economy. Address the needs without adding to the problems. Legislators should to listen to the people, health care providers, insurance companies, and insurance brokers so health care reform responds to the concerns and problems identified. The majority of people do not want this rushed through without their concerns being heard. We do not want our taxes to increase from the legislators not taking reasonable steps to eliminate unnecessary expenses without sacrificing the quality of care in this country.

      Obama’s proposal adds to the tax burden of people earning under $200k: "raise the floor on the itemized deduction for major medical expenses to 10 percent of AGI for the non-elderly and non-disabled; " (It is currently 7.5%)…this will increase taxes on many regardless of income…
      http://www.whitehouse.gov/health-care-meeting/pro

      It also uses modified adjusted gross income instead of adjusted gross income for many calculations…meaning it adds back in many deductions, such as any deduction for student loan interest or qualified tuition and any contributions to a traditional IRA…so the net result is that it uses a larger amount when computing taxes than the IRS does in federal income taxes.

      The primary justification provided for health care reform is skyrocketing health care expenses. These bills should provide savings, not an enormous expansion of the deficit.

    11. richard giordano seb says:

      There is an element of the health care debate that is seldom heard or discussed. Advertising prescription drugs; (along with lawyers and doctors increased marketing efforts), has increased demand for their products and services. I would love to see a graph on spending by the drug companies, doctors and lawyers for advertising, merchandising and marketing run parallel with the spiraling cost of health care and health insurance premiums. If there is not a correlation, than they should fire the Madison Ave. experts hired to increase demand for doctors visits and pharmacy products.

      One argument for advertising the above is of course the first amendment; another is the need to inform. That's all they are doing..just informing. Are the beer, auto, cosmetic, clothing, and furniture industries (just to name a few,) " informing", or are they spending money to increase demand for their products or services? Isn't it uncontrolled insanity to increase demand for health care and then demand government to pay for that increase?

    12. Jeanne Stotler,Woodb says:

      COL has increased a great deal over the last 40 yrs. this is one cause in higher Insurance rates. then we have NEW technology, MRI's, PET and CAT scans, the fact that Nurses salaries are over 200% more,(they were too low prior) Dr's have to pay their staff, an answering service, rent on the office and then there are the utitlities. Medical equiptment is expensive, hospitals and Doctors have to PAy for this, then M.D.'s have families to provide for, they MUST have a reliable car to get to their office, then to hospital for rounds. Home means a mortgage utilities and food for the table. Then there are those pesky student loans that enabled him/her to become a doctor, these are in the thousands. All this figures in to the fees they are allowed to charge. For a payment made to a nurse practioner asking a smoking question, I find this rediculus, I will not go to a M.D. who pawns me off on a Nurse practioner, why would I go to a DR. if I know the answer myself, sometimes, I call my M.D. and tell him what is going on and ask if I can come in for a short visit and poick up a scrip, I cannot write a scrip, a NP can, besides it's unethical for a professional to prescribe for themselves or their families . If BHO continues we won't have to worry about it,as all med. proffessionals will quit working and maybe he can get his actor doctors to take care of those left.

    13. Foster, OR says:

      You mention that insurer profit is a small margin, however, how do you shore up the fact that they continue to have record profits? They may have increased risk and adjust costs accordingly, but they give nothing back to the consumer and take even more money to have record profits. I see this as an integrity issue with these companies. Rather than increase profit over last year, maintain a consistent profit level and use what little is there to reduce rates. The saying we use in the industry is that there are only three types of companies that make money in healthcare: insurers, hospitals and drug companies.

      We Americans fail to do some very simple things with respect to reform. We don't benchmark. Benchmarking is common practice in business and with many industrialized nations providing better, and more importantly, outcome focused healthcare, why don't we look over the pond to see how they do it?

    14. Mike, NV says:

      Obamacare demonizes health insurers as greedy profiteers. This is fallacy. Many insurance companies are actually in the RED. When a company loses hundreds of millions like Kaiser did in 2008 it doesn't make the news. When a company shows a profit they are demonized.

      The reality is Obamacare is doing nothing but raising costs and is full of hidden taxes.. like the tax on homesales and the tax on small business.

    15. Richard Fitzpatrick says:

      At present our amorphous blob of a health care system ranks 37th among the world's industrialized nations according the World Health Organization. Under this wonderful system, 50,000,000 are uninsured — many of whom are employed! One of my colleagues at the University of Tennessee had health insurance in her native Russia, but cannot afford it in the United States.

      Once 32,000,000 additional people are insured, insurance companies will be able to offset expenses accrued from having to insure those who might rate as a liability to their "bottom line" or appeasement of shareholders.

      It is interesting to note that the most vocal opponents of heath care reform do themselves, i.e. John Boehner and Mitch McConnell, enjoy the security of a reliable government-provided insurance plan. Let them forgo health insurance if they view it as so unimportant for our 50,000,000 uninsured citizens.

      Your position is an extreme one that does not serve the legitimate needs of a huge portion of our population. Before you denounce "government interference" take a look at the amorphous blob health care system that we have had until now.

    16. Chuck, Phoenix, AZ says:

      Every business, including health insurance companies, establish their prices the same way: they add up their expected costs to deliver their product or service, including their overhead, and add in their profit. (They also look at that their competitors charge for the same good or service to make sure they are not priced out of the market.) Why no one talks about the exact specifics of why medical insurance premiums are going up is inexplicible. Talking about amorphous concepts like our 'customers are sicker' doesn't help much because that only explains part of the issue at best..

      Until someone starts talking specifics, any problems will never be solved.

      The major inputs for medical insurance costs include:

      (1) hospital fees;

      (2) physician fees;

      (3) pharmaceutical fees;

      (4) and, usage trends.

      So can anyone please tell us how much of any premium increase is composed of these individual items, so we can understand where the problem lies? Are doctors charging 40% more this year? Are hospitals charging 40% more this year? Are the pharmaceutical companies charging 40% more? Or is usage going up 40%? And if usage is going up, where is it happening?

      Talking generalities is meaningless.

      • Rich says:

        How about American Companies stop taking advantage of the consumers. Americans can buy drugs in Canada and all over the world for much less than our own american companies charge in the USA. Asia, India, Europe and So. America buy US Company Medical Devices for half of what we pay. Why not hold public hearings at Congress and have these CEO's explain. In Public.
        How about limiting lawyers fees on medical cases. 15% on the first $200,000 ( inc. expenses) and then 20% on any remaining case settlement/judgement. Regulate the industry–we can not afford the crazy premiums. Poverty level is $23,000 and a premium for a family of 4 runs $15,000 net income. See anything wrong? Where is AARP and others? Just charging fees and taking their cut?

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