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Premiums and Deductibles Spiked Far Ahead of Income, Report Finds

By Caitlin McGlade, CQ Staff

December 12, 2012 -- Health insurance premium increases far outpaced the average hike in wages for low- and middle-income workers, while deductibles in small and large firms more than doubled from 2003 to 2011, according to The Commonwealth Fund.

The Fund recently released a report that chronicles a 62 percent spike in family plan premiums in the United States, saying they reached an average of $15,022 in 2011.

"Workers that have jobs with benefits have been trading off wage increases to hold on to health insurance for the past eight years," Cathy Schoen, senior vice president for policy, research and evaluation at The Commonwealth Fund, said during a teleconference. "Health insurance is expensive no matter where you live."

Her research found that premiums rose three times faster than wages during those eight years, leaving residents of New Mexico, South Carolina, and West Virginia—the states with the highest imbalance—paying premiums that exceeded 25 percent of workers' median incomes.

Schoen found that the average deductible for all companies for individual plans reached $1,123 in 2011, compared to $518 in 2003.

Most states follow the trend, except for Hawaii, which has experienced little change in deductibles. Schoen attributed this to Hawaii's mandate that employers must provide health insurance coverage to employees who work at least 20 hours a week. But health insurance premiums there rose to $4,868 from $3,020 for single plans and to $13,738 from $7,887 for family plans over eight years, a percentage change that does not differ much from most other states.

The report cautions that family premium rates across the board could hit $25,000 by 2020 if the trend continues. However, Schoen and Sara Collins, vice president of affordable health insurance at The Commonwealth Fund, hailed the health care overhaul (PL 111-148, PL 111-152) as a mechanism to change such a forecast.

"The Affordable Care Act has begun to lay the groundwork to address costs and provide a platform for further action," Schoen said. The fund has been a strong supporter of the health overhaul.

The report cites a number of changes the law makes that might help lower premiums: Medical loss ratio mandates that require insurance companies to devote at least 80 percent of their expenses to medical payments; state and federal review of premium increases that reach 10 percent; Medicaid expansions; state insurance exchanges that could spark competition among insurance companies; rules prohibiting insurers from declining to cover certain patients; and payment incentives for doctors and hospitals that adopt more prudent resource use.

But the report does not cite other implications of the health care law that could drive up premiums, said Robert Zirkelbach, spokesman for America's Health Insurance Plans.

New taxes for health insurance companies will affect premiums, as will new minimum coverage packages that will encompass more services than some insured people are accustomed to, Zirkelbach said.

He added that medical loss ratio (MLR) mandates are also forcing insurers to cut back on services that are non-medical coverage-related, such as developing partnerships with providers, such as accountable care organizations, credentialing health care providers, and providing patients with online and mobile access to claims history and personal health records.

"MLR completely ignores what's driving health insurance premiums," Zirkelbach said, adding that the driver is a spike in medical costs.

While the cost increases have varied state to state, according to The Commonwealth Fund, the jurisdictions racking up the largest premium bills are Massachusetts, New Hampshire, New York and Vermont, as well as the District of Columbia.

Massachusetts—whose overhaul is seen as the model for the federal health care law—tops the list with the average family plan premium reaching $16,953 in 2011.

"It's a cautionary tale: Much like the ACA, Massachusetts reform focused more on expanding coverage than bringing down underlying medical costs," Zirkelbach said.

Schoen said Massachusetts already had the highest costs for decades, and now that most of its population is insured after the enactment of the state's insurance law, "the entire state is now solidly around the need to control costs."

Massachusetts recently passed a law pledging to keep health care spending increases equal to the state's gross domestic product rate for five years, then lowering health care spending below that in years following. Schoen pointed out that her research stops at 2011 statistics, so the law's implications are yet to be seen.

Schoen said that price changes will require action beyond the health care overhaul, citing an influx of accountable care organizations as a driver for change.

"We need to take a marketwide approach that examines and focuses on the prices that being charged for care," Schoen said. "We know we can do better."

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