Is the price of health insurance going to decrease?

We’ll start the discussion at 12 p.m. EDT.

I’m getting set up

Good morning

Good morning

Good morning.

Thank you for joining us today. I’m very grateful to the panelists who took time to respond to questions from readers and engage in an online chat about the price of health insurance and where it may be headed.

My first observation, having reported on health insurers’ earnings for the first few months of 2011, is that medical expenses — the amount insurers paid in claims for their customers — was lower than expected.

Is this going to bring down the price of insurance?

It hasn’t done that so far. The insurance companies are providing less care and making record profits.

It is important to keep in mind that most analysts are projecting that health care spending will rebound in 2011 with overall trend expected to go up another 8-9 percent again this year. That combined with new benefit mandates and changes in the risk pool will result in higher health care costs for everyone.

that is why the public policy discussion needs to be broadened to focus on the underlying cost of care

We’re all concerned about the underlying cost of care, and there are a number of things in the Affordable Care Act that get to the root causes of rising costs. At the same time, premiums have been going up 3 times faster than medical inflation, and excessive insurance company profits have a lot to do with that.

In a different year, it might not make much of a difference that health insurers are spending less on cliams. The excess would help the bottom line. This year, however, insurers are required by federal healthcare reform to spend a minimum percentage of revenue from premiums. If they don’t they’ll pay a rebate. Aetna already has plans to lower premiums for customers who buy individual health plans in Connecticut. That’s an indication that price will more closely reflect costs, right?

The Aetna rate reduction was good news and an indication that the health care law is already working to control rates. For long-term success, regulators will need to step up and take advantage of the rate regulation tools available to them under the new law. The Affordable Care Act will also give consumers more choices through the online marketplace, which should increase competition in an industry that sorely needs it.

Medical inflation doesn’t reflect overall health care spending. For example, the CPI for Medical Care (CPI-M) is designed to measure the inflation rate for consumer out-of-pocket health costs. Therefore, the CPI-M mainly measures prices for health care services that are not covered by insurance. The main components of the CPI-M are prices for non-covered goods and services, such as over-the-counter medications and supplies, dental services, and eyeglasses.

Ethan and Robert,

You both make claims, and I’d like to know the source of these claims.

Ethan: where are you getting this information that premiums are going up 3 times faster than medical inflation?

Robert: which analysts are saying health care spending will rebound, and how is that the case?

Glad you asked. Check out this report: http://www.ahipcoverage.com/wp-content/uploads/2011/05/2012-Medical-Cost-Trends.pdf. From the report:

“Medical cost trend is expected to increase from 8% in 2011 to 8.5% in 2012.”

Rates have increased at substantially higher levels than general inflation, medical inflation and wages for many years. You can check out the data here. http://healthcareforamericanow.org/page/-/documents%20for%20download/HCAN%20Report%20Insurance%20Industry%20Inflates%20Rates%202010%200618i%20FINAL.pdf

David, yes, health care costs are inherently unpredictable. Heading into 2010 experts were projecting health care costs would go up by around 9 percent. Spending was down slightly due to a variety of factors, including the impact of a weak economy and a milder-than-expected flue season.

It is also important to keep in mind that health plans have pioneered programs to help patients navigate a complicated delivery system to get the care they need. This is helping to improve the quality and safety of patient care while helping to control soaring medical costs. But we still have a long way to go.

Unemployment has dogged much of the U.S., and consumer spending has declined (http://online.wsj.com/article/BT-CO-20110524-706929.html )

Isn’t this an argument that people will spend less on medical expenses — putting off visits or procedures to avoid co-pays and deductibles?

People put off health care when they can’t afford it, and health plans are making care less affordable by shifting costs to patients. That, in turn, makes people less healthy and increases overall health care costs for the country. We should be making care more affordable, more integrated and more focused on prevention.

Let’s hope not. It is in everybody’s interest to ensure patients are getting the care they need now to avoid complications and higher costs down the road. That is why health plans provide incentives for patients to get preventive care, send reminders to patients to take their medications, and even offer discounts to patients who enroll in disease management and care coordination programs.

These programs work and that is why policymakers are trying to get Medicare to implement similar initiatives.

Simply focusing on health insurance premiums while ignoring the soaring cost of medical care will not make health care coverage more affordable for individuals, families, and small businesses.

It is difficult to state that all premiums will decrease since there are many factors that impact rate increases such as the experience of the block, the demographics of the insured population, etc.

It’s true that we need to address underlying costs. HCAN focuses on insurance company profits that fuel rising premiums for a simple reason: they are excessive at the exact same time as small businesses and families are being hit with crushing premium rate increases. And excessive profits can be addressed immediately by insurance companies.

David, great question. I would encourage you to check out this Boston Globe story today: http://www.boston.com/news/local/massachusetts/articles/2011/05/26/some_hospitals_were_paid_more/. It talks about the impact of provider consolidation on prices for medical services. From the article:

Disparities in payments were first documented by Attorney General Martha Coakley’s staff last year, which concluded after an investigation that the highest paid hospitals had more market clout, some because of their brand names, but that they were not necessarily providing better care. The new report, which the governor¿s office planned to release to the public today, mirrors Coakley¿s initial findings.

And offered this example:

Cambridge Health Alliance was paid less than $5,000 each for 55 caesarean sections performed in 2009, while Massachusetts General Hospital was paid more than $10,000 each for 483 caesarean deliveries that year, state officials found.

I’ve talked about the consumer side of this, but the other side is the amount that insurers pay medical providers.

We’ve seen a lot of coverage given to the ongoing negotiations that insurers have with hospitals over reimbursement rates. Doctors say they aren’t paid enough — and some will be driven to alternative methods of providing care, such as medical homes, direct primary care, hybrid concierge that accepts Medicare patients, etc. Others are simply retiring and getting out of the business.

The decline in supply of doctors and other medical providers would suggest that they could command a higher price in the future. This also creates a serious problem for access, but I’m interested in how the reduced supply will affect price.

The data show that health insurance is an efficient, low-margin industry. Out of every dollar spent on health care in America, less than one penny goes towards health plan profits.

According to the latest quarterly financial data, the health care plan industry¿s average profit margin is 4.40%. This ranks the health care plan industry 143 out of 215 different industries. Within the health care sector, the health care plan industry ranks 12th out of 16.

Experts agree that health plan profits are not driving up the cost of coverage: http://www.americanhealthsolution.org/assets/Health-Care-Costs/III.-WTAS-Health-Plan-Profits.pdf

The entire payment incentives need to change. We need to move away from the current outdated fee-for-service system that rewards doctors and hospitals for the volume of care they provide. Instead, we need to reward quality, value, and better health outcomes.

The good news is that there are a lot of innovative partnerships going on between health plans and providers to change payment models. And these initiatives are yielding very positive results.

In response to AHIP’s point about profits, they are driving up the cost of insurance. AHIP¿s focus on profit margins is misleading and designed to protect their massive income by shifting attention away from their return on equity ¿ a key measure of profits as a percentage of the amount invested. That return is a phenomenal 16.1%. By that measure, health insurers are ranked fourth highest of the 16 industries in the health care sector. The health insurance industry has a higher return for investors than cellphone companies, beer companies, mortgage companies, life insurance companies, TV broadcasters, drug store companies, or grocery stores.

There is a reason ROE is never used in the public policy discussion. Analysts use ROE to compare companies within a given industry. That measure does not tell you anything about the impact health plan profits have on premiums or overall health care spending.

No matter what measure is used, the data show that health insurance is an efficient, low-margin industry.

It’s true that new innovations and partnerships are producing positive results. This is supported by provisions of the Affordable Care Act.

AHIP likes to talk about how insurance profits are a small share of national health spending, but that is deceptive. Health insurance profits has more than tripled over the past decade.

AHIP refers to one penny. Here’s the fact: One penny of the health care dollar is worth $347 billion over 10 years ending in 2019. That one penny would pay for more than one-third of the entire cost of the health reform program.

That is why we need to move to a system that rewards value, quality, and better health outcomes

In Connecticut, the Insurance Department recently declined a request by a health insurer to raise rates by an average 35 percent. The company had been paying more in claims in 2010 than it was receiving in premiums. But for many years, its costs were less than 60 percent of premium revenue.

The regulators looked at the insurer’s profits in the health plan since the health plan’s inception.

How many years should a health insurer operate at a loss and be declined rate increases?

Let’s look at what others have said about health plan profits:

Alwyn Cassil, Center for Studying Health System Change: ¿¿…this idea that (taking) this $12 billion that they have in profits ¿ would fix our health-care spending problems is just a pipe dream.¿¿ (Louisville Courier-Journal, ¿Health insurers defend profits¿)

Henry Aaron, Senior Fellow, Brookings Institution: ¿¿Insurance company profits in the large picture have very little to do with the overall rising cost of health care,¿ said health care expert Henry Aaron, a senior fellow at the Brookings Institution.¿ (ABC News, ¿Health Insurance Profits: Not So Outrageous After All?¿)

Ezra Klein: ¿…it¿s hard to see how [health plan profit margins of 3.3%] are a primary driver of health-care spending, much less the growth in health-care spending.¿ (The Washington Post, Ezra Klein, ¿Profits and the Insurance Industry¿)

And many more here: http://www.americanhealthsolution.org/assets/Health-Care-Costs/III.-WTAS-Health-Plan-Profits.pdf

There are many factors that contribute to premium increases, including soaring prices for medical services, the impact of younger and people dropping their coverage in a weak economy, and new benefit mandates. Capping premiums while ignoring all of these other factors could put at risk the coverage that families and employers rely on today.

The Insurance Department looks at experience since inception as well as by duration. It is important to understand that actual experience can vary each year. The filing in question is a very small closed block, so the current experience may not reflect a general trend.

On the profits issue, everybody knows that insurance company profits are excessive and that CEOs are paid bloated salaries.

As for the one year of losses in the company you describe — in all the other years, the company was spending less than 60 percent of premiums on health care. The rest went to administration and profit.

Jim, as to your question about what the insurance companies spend on lobbying and political activities to defeat pro-consumer legislation, it’s an outrage.

Health insurers have nearly 2,000 lobbyists in Washington DC. They laundered $86 million through the U.S. Chamber of Commerce to undermine the pro-consumer protections in the Affordable Care Act. The premium dollars of consumers and small businesses simply shouldn’t be spent this way.

According to government data, the percent of premiums going towards health plan profits and administrative costs have declined for six straight years: http://www.americanhealthsolution.org/assets/Health-Care-Costs/II.-Administrative-Cost-Slides.pdf

At the same time, health plans have implemented innovative disease management and care coordination programs, prevention and wellness incentives, and pay-for-performance initiatives. These programs are helping to improve the quality and safety of patient care.

Ethan, the question remains: how long should an insurer have to operate at a loss, and is there any incentive for them to remain?

At some point, the companies won’t offer coverage and the competition declines. That’s seems disadvantageous for consumers.

This is an isolated incident. The plan involved only 117 customers and surely is not representative of the overall performance the company or health insurers nationwide.

Per David’s question on incentivizing quality, here are some examples of current health plan programs to improve patient safety and lower hospital readmissions: http://www.ahipcoverage.com/wp-content/uploads/2011/04/Fact-Sheet-Health-Plans-Patient-Safety-Programs.pdf

We have been open about all of our funding sources, which include foundations, unions, community and religious organizations, civil rights groups and individuals.

I’m curious to know how much AHIP and its member organizations are going to spend between now and the 2012 election to undermine the health care law and the elected officials who support it.

Speaking of trial attorneys, we had a record award yesterday by a jury in Connecticut that said a doctor should have to pay $58.6 million for a single-incident of medical malpractice.

Should there be a limit on malpractice suits to help control costs?

Med mal reform is critical. Some estimates suggest that medical liability costs and the practice of defensive medicine adds a ten percent tax on every health insurance premium. Doctors and hospitals need to be protected if they follow evidence-based guidelines

Moving on to the question Matt asked about medical malpractice – I’m not familiar with this case. We do believe we should not be limiting the rights of consumers to collect legitimate damages.

The first focus of controlling health costs shouldn’t be on reducing the rights of consumers or their care and increasing their out-of-pocket costs.

So let’s focus on the real drivers of rising medical costs: the soaring prices for medical services

I still want to get back to this issue of consumer spending. Money is tight. Consumer spending is down. I have to believe people will not pay for procedures they can’t afford — and I’m talking about deductibles and copays here.

People are choosing plans with higher copays and deductibles in order to afford premiums. Then, if they can’t afford those out-of-pocket expenses, they put off medical care.

Do you think we will see that reflected in second-quarter earnings of health insurers?

And if we see that medical spending is down, is it fair to conclude that premiums will decrease as health insurers try to meet federal medical-loss requirements?

By the way, the earlier statement that return on equity is not a good measurement of profitability is wrong, and Wall Street financial analysts look closely at it.

To peg your profits as a percentage of overall health spending allows the for profit industry to use all public health spending, non-profit insurers, and money spent outside the insurance market to make excessive earnings at for-profit companies look smaller. It also hides the additional costs insurers force us to pay in excessive paperwork, lobbying costs, and political giving.

A former industry insider, Wendell Potter, pointed this out in a recent article that can be seen here: http://www.huffingtonpost.com/wendell-potter/insurance-industry-flack_b_864126.html

Premiums ought to go down.

Nobody is saying that medical spending is going down. The question is how much is it going up. There have been several recent reports showing that medical costs continue to go up at an unsustainable rate – far faster than inflation, GDP, and incomes.

And it is also important to keep in mind, as discussed earlier, that medical spending is only one factor of rising premiums. During the economic slowdown, there was a trend of younger and healthier people dropping their coverage due to the weak economy. That meant the risk pool was made up of people who are older and have higher health care costs.

Premiums are also impacted by benefit mandates that require people to purchase more coverage then they have today.

The provisions in the Affordable Care Act combined with aggressive rate regulation should control rates. If companies dont meet the medical loss ratio requirement, they will have to pay consumers huge rebates.

We will conclude this discussion in four minutes if readers have any final questions.

The insurance industry has a huge responsibility to control costs that it has consistently abdicated. It is quick to blame external factors without taking any responsibility for their ability to control costs as huge players in the health care marketplace.

Ethan, that is all fine and good, but will tough rate regulation force insurers to operate on profit margins that aren’t worthwhile, which will result in reduced competition and therefore higher prices?

They are making record profits! They will continue to operate in the market by selling good products at more reasonable rates to millions of new customers, thanks to the Affordable Care Act.

Robert, there are just as many sources to show record profits by insurers and reduced consumer spending.

Let’s be clear: The average profit margin for the insurance industry right now is 4.4 percent – similar to where it has been for years.

Regulation is happening now, and pay for performance and other innovations are long-term strategy.

Thank you very much to the panelists for participating and the readers for asking questions. We will have more on this issue in future chats. Thanks again!

Thank you