Yes, Obamacare Is Increasing Premium Costs

Published April 2, 2012

Consumer Power Report #321

First as a candidate and then as president, Barack Obama repeatedly promised his administration would “have a health care plan that would save the average family $2,500 on their premiums.”

Yet since the president passed his health care law, with exclusively Democratic support in Congress, health premiums have continued to rise – and every datapoint we have indicates a significant portion of that premium increase is due to Obama’s law and its impending regulations and costly mandates on what coverage must be provided.

A recent study conducted by the Kaiser Family Foundation illustrates the problem. The average employer health insurance premium rose by 9 percent this year, three times the increase of 2010, and family premiums exceeded $15,000 a year for the first time. In some states, premiums rose by even more – they have now risen by $2,213 since Obama took office.

Glenn Kessler, the Washington Post‘s fact-checker, is having none of this. He says an ad that references the Kaiser survey is an overuse of a “single data point” to suggest premiums are increasing because of Obama’s law. He writes:

“Six in 10 Americans are seeing their [health insurance] premiums rise. The average cost of a family policy is up $1,300. Another part of President Obama’s health care takeover will cost $111 billion more than promised.” –Voiceover in a Republican National Committee TV ad about the Obama health care law

Be wary of the single data point, exploited either by Democrats or Republicans.

This new RNC ad slams the Obama health care law for already causing a boost in health care premiums, even though much of the law has not been implemented. (The ad frames this as breaking President Obama’s already dubious promise that the health care overhaul will result in average family premiums declining by $2,500.) …

As we said, be wary of a single data point.

Now, the RNC makes the same mistake in focusing on the increase in health care premiums. The Kaiser survey does not suggest that the premium increase has much to do with the health care law; indeed, it notes that “many of the most significant provisions of the Patient Protection and Affordable Care Act (ACA) will take effect in 2014.”

The provisions that have taken effect, such as providing coverage for adult children up to age 26, thus far appear to have had modest impact on premiums. Kaiser says it will monitor the impact on employers but it generally places the year-to-year increase as part of an overall trend of sharply rising costs. “Since 2001, average premiums for family coverage have increased 113 percent,” the report notes.

Indeed, when Kaiser looked at just the increase in the portion of the premium that workers contribute, the report said that neither the amounts for families nor individuals represented “a statistically significant increase over the 2010 values.”

We are not a fan of Kessler’s work, particularly in the health care space, where he routinely displays an obtuse naiveté for how policy applies in the real world. Last year, he assigned Four Pinocchios (a suitably ludicrous measuring standard) to the claim Medicaid gets ripped off by rich people, because after he looked into the matter, he found rich people don’t qualify for Medicaid. Yes, really. And of course, he was wrong about that BMW thing.

Kessler makes a number of assumptions in this piece, but let’s drill down to a pretty basic one: He assumes for a Republican to claim premiums are increasing means they are assigning the entirety of those premium increases to the effects of Obama’s law, when in fact the ad makes no such claim. It merely claims premiums are going up, not down, as Obama promised.

This is simply a fact, one established not by “single data point” claims. I’m unsure what Kessler means by that line. Does he mean to suggest the Kaiser survey is inconsistent with the balance of research or reports in the field? Even the estimates from the Congressional Budget Office before the passage of the law indicated premiums would increase by a significant amount because of its requirements:

Average premiums per policy in the nongroup market in 2016 would be roughly $5,800 for single policies and $15,200 for family policies under the proposal, compared with roughly $5,500 for single policies and $13,100 for family policies under current law. The weighted average of the differences in those amounts equals the change of 10 percent to 13 percent in the average premium per person.

And this is consistent with the continued projections we’re seeing from across the country. These have since been supplemented by reports at the state level about expectations of premium increases relative to what would have happened if Obamacare didn’t exist, such as in Indiana, where “The estimated ACA-driven premium rate change for the Indiana individual insured market beginning in 2014 is 75% to 95%.” And also Ohio, where premium rates in the individual market are expected to rise between 55% and 85% thanks to the law.

We also have the estimates of Obamacare architect Jonathan Gruber, who sees increases in premiums as opposed to the decreases he anticipated just a few years ago: in Wisconsin, he anticipates a premium increases of 30 percent by 2016 in the individual markes; in Minnesota, he claims the individual market will see increases in premiums by 29 percent. And in Colorado, he expects premiums will rise by 19 percent relative to what they would’ve been without Obamacare.

And this isn’t just about mandates on insurers – it’s also about the acceleration of health care spending. When you subsidize something, you’re going to get more of it. According to Health Affairs‘ comprehensive look at national health spending projections through 2020, we’re due to see a 10.7 percent increase in prescription drug spending in 2014, an 8.9 percent increase in physician and clinical services in 2014, and a 7.2 percent increase in hospital spending in 2014 – all higher than the spending anticipated without Obama’s law. And guess who’s paying for this new spending? The insurers. What do you expect to happen to premiums, exactly?

This recent AON Hewitt survey on what is driving these premium increases finds the individual market is feeling disproportionate impact from Obama’s law. Note the range of impact on individual policies in this chart, which shows how the expenses of just the few provisions that have taken hold already. As the report notes:

[I]t is important to consider the additional factors that contribute to overall premium increases – including changes in the covered population, deductible leveraging, and benefit changes driven by PPACA. These items are usually smaller than core trend, but can still have a significant impact on premium increases. On average, reported impacts for covered population changes and deductible leveraging show that these items increased estimated 2010 health care costs by an additional 1.8% to 5.2% over core health care trend, depending on line of business. Many PPACA impacts will first be largely reflected in 2011, with average projected impacts by line of business ranging from 0.8% to 4.7%.

How much of these increases are due solely to Obamacare is a matter of debate. But the ad didn’t claim they were solely due to Obamacare. And there is no debate about these simple facts: that every measure and datapoint we have indicates Obamacare is making premiums more expensive, not less; that they are exceeding expectations in terms of cost increases, not slowing their rate of growth relative to estimates; and that the impending mandates and regulations will continue to increase those premiums and do nothing to stop their rise. That will be up to price controls and bureaucratic regulators to do, after all.

One last point: Kessler needs to update his fact sheet on the operability of Obama’s claims. He writes:

We offer no defense of Obama’s claim that his health care law will reduce premiums by $2,500. (There was an asterisk to that claim – he was talking about what premiums would have been in 2016 absent the law, not an actual dollar decline from current rates.) He will have to answer to Americans if his law fails to live up to that pledge, or if people feel misled by his careful wording.

The White House has long ago backed off that $2,500 savings figure and extended the timeline for its applicability from 2016 to 2019. Deputy Chief of Staff Nancy DeParle, one of the president’s leading health care policy advisors, told ABC News that families won’t see those savings for another eight years, until 2019 – well after Obama’s second term would conclude. She also scaled the figure back to “around $2,000” in savings. In other words, it would be well after the point where Obama would “have to answer to Americans” as Kessler claims. And that’s a fact.

— Benjamin Domenech



I knew the SCOTUS fact checks would come soon, and here’s a first one from David Hogberg:

The basis for the $43 billion in uncompensated care and the supposed cost-shifting it causes that results in family health insurance premiums being $1,000 higher annually comes from a 2009 report by the liberal FamiliesUSA called “The Hidden Health Tax: Americans Pay a Premium.”

Thomas Miller of the conservative American Enterprise Institute points to some very serious flaws in the study, such as undercounting “other sources of payment for care received by the uninsured, in some cases arbitrarily dismissing better estimates by others,” and crudely assuming “that the costs of care for the part-year uninsured would be proportionate to the portion of the year that they were uninsured (unlike [other researchers], who adjust for the clustering of more health spending into periods of insurance coverage.)” For the other flaws in the study, go here and scroll about two-thirds of the way down the page.

Jack Hadley at the Urban Institute has been examining the concept of uncompensated care for years, and in 2008 he and other researchers examined in exhausting detail all of the various sources of revenue, from government to private, that was available to help pay for uncompensated care and would, thus, avoid cost-shifting. In the end, the amount of uncompensated care that resulted in cost-shifting on to private insurance was “most likely about $8 billion. Given that total private health insurance expenditures in 2008 are estimated to be $829.9 billion (from NHEA projections), the amount potentially associated with cost-shifting represents less than one percent of private health insurance costs.”

In other words, if your family policy costs $12,000, then less than $120 of that is due to uncompensated care. $120 – really makes all this hassle over ObamaCare seem worth it, no?



Michael Cannon with a useful corrective:

Feldman’s limiting principle would even allow Congress to force Americans to purchase types of insurance that currently don’t exist. What if adverse selection so bedevils the markets for BAC-level insurance, positive-drug-test insurance, short-term-suicide insurance, overgrown-grass insurance, and oversleeping insurance that no carriers even offer such policies? Under Feldman’s rule, Congress could fix that by forcing carriers to offer such insurance and forcing you to buy it.

And that’s only what Congress could do in the presence of whatever scant adverse selection exists in unregulated insurance markets. But regulation typically encourages adverse selection – a point that Feldman elides, as if the catastrophic adverse selection that ObamaCare’s “community rating” price controls will cause were the market’s fault rather than Congress’. So what Feldman is actually saying is that Congress can force you to purchase insurance even if Congress itself caused the adverse selection. Which brings us back to broccoli.

Remember broccoli? Feldman writes, “If I choose not to buy broccoli, others can still buy it at a market price.” Perhaps that is true today. But let’s assume Feldman subscribes to the Obama administration’s argument that the Commerce Power enables Congress to regulate the timing and method of payment for a good that moves in interstate commerce. That would mean that Feldman believes Congress could pass a law stating that all broccoli purchasers must henceforth purchase it through a new method of payment called “broccoli insurance,” where all purchasers pay broccoli insurers a flat fee based on average broccoli consumption within the insurer’s pool of customers, regardless of how much broccoli an individual customer may consume. What would happen if Congress did that?

Well, those who consume the most broccoli would be thrilled. They could eat as much broccoli as they want – they could even stucco or decorate their houses with it – while paying much less than they did before. Those who rarely buy broccoli, on the other hand, would see their broccoli bills skyrocket. They may decide not to buy broccoli at all. When they leave the broccoli market, average consumption by those in the market will rise, as will broccoli premiums. That will cause more low-end broccoli consumers to leave the market, and the cycle will repeat itself.

SOURCE: Cato at Liberty


Christie Herrera and Sean Riley task states with halting implementation until SCOTUS rules.

Earlier this month, the Congressional Budget Office found that the federal health law’s price tag nearly doubles to $1.76 trillion when fully implemented. One of the reasons for the jump is the law’s Medicaid expansion, which collectively forces states to add 25 million Americans onto an already-unsustainable program by 2020 – and pay $64 billion for the privilege.

While proponents argue that Medicaid is voluntary, many states believe there is little choice involved when the federal government has the power to tax citizens in the states, returning that money only if states comply with ever-increasing Medicaid mandates.

States have already been making difficult cuts to education, transportation and public safety. Even though Medicaid spending currently represents the biggest budget item for states – over 20%, more than education – the law seeks to further expand Medicaid rolls at the expense of other priorities.

Unfortunately, the news for people on Medicaid isn’t getting better. Increasing numbers of doctors aren’t accepting new Medicaid patients. People on Medicaid now are twice as likely as the uninsured to use the emergency room, because they can’t access primary care. The federal health law will only make a big problem even bigger.

Finally, the states are faced with health insurance exchanges, new bureaucracies designed to facilitate the federal takeover of health insurance. Governors in Georgia, Virginia, New Jersey and elsewhere are waiting on the Court’s ruling to decide whether to implement a state-based exchange or let the federal government set one up instead.

There’s no need to wait. These exchanges are a bad deal for states both now and in the future – and the Court’s decision won’t change that reality. Federal bureaucrats must approve every detail of state exchanges. Meanwhile, states will be on the hook for the cost of operating the exchange after 2015, when the federal money runs out.

Besides, only two states saw fit to establish an exchange prior to the federal law: Massachusetts and Utah. Most of the states were wise to reject exchanges then, and they should continue to reject them today.

SOURCE: The Daily Caller


Devon Herrick on the coming rationing.

IPAB is a 15 member board of unelected bureaucrats with the mandate to control Medicare spending through legislative proposals if spending grows faster than a set rate. However, the recommendations of the board aren’t merely proposals – they can automatically become law.

On the subject, Mr. Orszag said: “the proposals take effect automatically, unless Congress not only specifically votes them down but the President signs that bill. So the default is now switched in a very important way.”

So, how will the board actually control Medicare costs?

While the law expressly prohibits the board from rationing care, it allows changes to provider fees that will have the same effect. Cost control will likely take the form of cutting payments to doctors and hospitals, which will in turn limit the supply of doctors willing to treat Medicare enrollees. The American Medical Association said these cuts would harm seniors’ access to care.

Unfortunately for Medicare patients, doctors are already moving away from accepting Medicare due to low payment rates. As 78 million Baby Boomers begin to enroll in Medicare, even more pressure will be placed on the board to make cuts.

The need to reform Medicare to make the program sustainable is very important. But, instead of letting voters decide the best path forward, the law has taken power away from the people and their representatives, and placed in the hands of unelected, bureaucrats.

The role of Congress has been upended, and now rather than approve legislation, Congress will have to disapprove of the unilateral actions of a new bureaucracy.

Such an enormous delegation of power sets the precedent for a slow, but steady, erosion in the quality of care Medicare enrollees can expect.



Something more states are likely to experience soon:

Rebuffed by a federal judge in their lawsuit against the state, Arizona hospitals now want to talk.

Laurie Liles, president of the Arizona Hospital and Healthcare Association, said Thursday it is dropping the lawsuit it had filed against the state contesting the 5 percent cut imposed last year on what it pays for services to patients in the Arizona Health Care Cost Containment System.

Instead, she has opened negotiations with state senators to see if lawmakers can provide its members with needed financial relief. Liles said that covers not just that 5 percent cut but other changes in how the state’s Medicaid program works which has reduced the hospitals’ income.

Liles acknowledged her announcement comes less than a week after a federal judge refused the association’s request to immediately order the state to restore payments to their prior levels. Judge David Campbell said the hospitals were unlikely to win when the case goes to trial.

And Campbell totally dismissed several of the hospitals’ complaints of irregularities in how the state made the cuts and how they were approved by the U.S. Department of Health and Human Services.

But Senate President Steve Pierce, R-Prescott, who has set up a committee to negotiate with the hospitals, said the fact they were suing the state up until last week is irrelevant.

“That’s behind us,” he said, calling the offer to talk “an olive branch.”

“We all have to work together,” Pierce continued. “Whatever happened in the past, it’s time to move on, put things in scope, and do what’s right for Arizona.”

At the heart of the issue are cutbacks the Legislature ordered Gov. Jan Brewer to make in the AHCCCS program last year to help balance the budget.

One element of that was the 5 percent cut in payments for direct services. That was on top of an identical cut several months earlier, which came after a three-year freeze in rates.

The hospitals sued, contending the cuts were unjustified.

But the bigger problem financially for hospitals has been that the AHCCCS program overall was scaled back and is now covering fewer people. The result is people showing up at the hospitals without insurance and without the finances to pay their bills.



An interesting new white paper:

“Academic detailing” describes a government policy of sending academics or others to physicians’ offices and conferences to present objective information about drugs. The concept is that disinterested medical professionals rather than representatives from drug companies, perhaps from universities and governmental institutions, will provide information on best practices in the use of various drugs. The emphasis would be on prescribing proven drug therapies that have histories of being safe and that are often available in generic forms, with an eye toward minimizing costs and maximizing patient welfare.

A paper published in 1986, when drug companies’ detailing expenditures were much lower than today, indicated that significant savings could be achieved in Medicaid when physicians were visited for less than half an hour and counseled on what the paper termed “optimal” prescribing. The paper claimed such activity could see as much as a 3-to-1 benefit/cost ratio.

Academic detailing has now become a major emphasis of the federal government as part of its comparative effectiveness research and treatment emphasis mandated by the new health care law. States such as Maine, Idaho, and Pennsylvania have enacted laws and policies to implement academic detailing at the state level as well. Maine imposes a fee on pharmaceutical companies in order to fund its academic detailing efforts.

Academic detailing, which has occurred to some degree for 30 years, is viewed by some as a necessary corrective to pharmaceutical companies’ influence on physicians. Taxpayer resources appear to be poised to fund “truth tellers” armed with the latest objective scientific evidence to push back against the overwhelming resources of unscrupulous pharmaceutical companies. This does not, however, tell the full story.

While academic detailing is sold as objective and evidence-based, it is important to understand that pharmaceutical companies can make the same claim. Prescription drugs are subjected to extensive trials that last for years. Each new drug must pass the rigors of the FDA’s approval process, which is long and scientific.

Still, every prescription requires judgment. Two drugs made for the same purpose may exhibit different levels of effectiveness in an individual even if the clinical evidence, based on sampling and statistics, say they are of equivalent effectiveness. Nobody really knows why such differences exist, but this is part of the art of medicine that physicians practice. Academic detailing attempts to substitute the judgment of a few physicians who are active in government for that of actively practicing physicians working directly with patients.

SOURCE: Goldwater Institute