Rising Premiums Do Not Square with Costs

The press releases flew from various House committees yesterday afternoon (which double as Republican Party campaign offices). The charge: rising health care premiums are due to “Obamacare.” The latest Kaiser Family Foundation employer survey of health care insurance costs, which was reported on the front page of all this morning’s newspapers, showed premiums rose 9 percent this year, substantially more than the 3 percent they went up last year.

The press releases flew from various House committees yesterday afternoon (which double as Republican Party campaign offices). The charge: rising health care premiums are due to “Obamacare.” The latest Kaiser Family Foundation employer survey of health care insurance costs, which was reported on the front page of all this morning’s newspapers, showed premiums rose 9 percent this year, substantially more than the 3 percent they went up last year.

Yet the surveyors reported only 1.5 percentage points or 17 percent of the increase could be tied to health care reform (for covering kids up to age 26, for instance, which is one of the few provisions of the reform law that have gone into effect). The Wall Street Journal quoted a stock analyst, who got to the heart of the story:

Insurers “have been conservative in their pricing, so they have overshot to some degree,” said Matthew Borsch, an analyst at Goldman Sachs. “You’ve seen that reflected in strong earnings they’ve been reporting.”

Drew Altman, head of KFF, suggested lower than expected utilization (by individuals trying to protect recession-ravaged household budgets — individual payments rose only 3.3 percent) and higher health care prices may also have accounted for some of the higher premiums. While both of those phenomena are happening, they would tend to offset each other. And that’s reflected in the overall expenditure numbers.

The total number of people insured last year actually went up from the year before, according to the Census Bureau, by one million persons to 256 million. But there was a shift. More were on Medicare and Medicaid, and fewer on private health insurance. The number of employers offering health insurance has dropped from nearly 70 percent two years ago to barely above 60 percent this year.

That shift is reflected in the composition of total health care expenditures by the public and private sectors, according to the Centers for Medicare and Medicaid Services, where the public sector is now well over 50 percent. Total private insurance payments will rise just 3.4 percent in 2011, according to CMS’s projections, down from the 4.6 percent increase in 2010. Medicare’s increases were no different: projected to rise 3.4 percent this year after a 4.6 percent increase in 2010. The biggest increases have come in Medicaid expenditures, which are projected to rise 5.9 percent this year on top of a 7.2 percent increase in 2010. It’s not hard to figure out why that is happening. People without jobs and in need of health care have to turn to Medicaid.

All of those increases combined cover total health care costs that rose just 4 percent in both years.

So what do we have? The private insurance industry is covering fewer people and facing just a 4 percent increase in costs. Yet  it is raising premiums 9 percent. No wonder profits are rising smartly.