How Much Will You Pay for Health Care in 2015? What You Need to Know About Healthcare Inflation-Part 1

 

Probably you have seen headlines like this one: “O-Care premiums to skyrocket.”

The warning, which was posted on The Hill, seemed designed to cheer conservatives distraught by Obamcare’s enrollment numbers. It began by announcing that next year, “premiums will double in some parts of the country. The sticker shock will likely bolster the GOP’s prospects in November and hamper ObamaCare insurance enrollment efforts in 2015.”

Where did the reporter get her information?  The story is based on interviews with “health insurance officials.”

Why would they issue such dire predictions? Perhaps they are trying to soften us up so that when insurance rates rise by “only” 7% to 10%, we’ll be surprised and grateful? (This is just a thought.)

The truth is that there is absolutely no reason to believe the same old, same old, fear-mongers who claim that in 2015, rates will spiral “by 200% to 300%.”

But what about those who predict double-digit hikes?  Wellpoint, the biggest commercial insurer in the Exchanges, recently told Bloomberg that it may ask for “double-digit plus” increases when it proposes 2015 rates sometime next month.

Wellpoint can propose whatever it wishes, but I very much doubt that state regulators would accept such stiff increases. A combination of regulation and competition will keep a lid on premiums both in the Exchanges, and off-Exchange, just as it did this year.

My guess is that, in most states, rates will rise by no more than 2% to 4%. Meanwhile, government subsidies will climb to cover those increases for most who buy policies inside the Exchanges. (This year 80% of shoppers who purchased insurance in the state marketplaces received tax credits to help with premiums.) Folks who purchase coverage off-Exchange won’t receive subsidies, but carriers selling policies to individuals outside the government’s online marketplaces will have to compete with prices inside the Exchanges.

Why am I so optimistic?

The Underlying Cost of Medical Care Is Slowing

Americans have become so accustomed to hearing about “runaway health care inflation” that most do not realize that we have finally “broken the curve” of rising health care costs.

Granted, for most of this century, rates soared: “From 2000 to 2009, health insurance  premiums climbed 84%,” Zeke Emanuel, a former White House healthcare adviser and author of Reinventing American Healthcare: How the Affordable Care Act Will Improve Our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System., recently told NBC’s “Meet the Press.”

By contrast, “for the past three years, health care cost growth has dramatically slowed and is just about even with growth in the economy. Some of this is due to lingering effects of the recession in 2008,” he added. “But a part of it is undoubtedly due to the ACA.”

Drew Altman, president of the Kaiser Family Foundation, points out that, despite the aging of the population, ”the Congressional Budget Office projects that Medicare will cost significantly less in the future than previously thought,in part because of the ACA’s changes to Medicare’s payments. “  (As I have explained, those cuts do not reduce benefits, but they do force hospitals to cut waste and provide better value for our Medicare dollars.

Both in the public sector and in the private sector, “Overall health spending is growing at the slowest rate in 50 years,” Altman observes,  (dating back to when the government first started tabulating health expenditures.)”

“The key for the future is not to eradicate premium increases entirely,” Emanuel adds. The goal “is to make sure [that these increases] aren’t Excessive.”

He stresses that there is still much to be done to rein in healthcare spending. But for the moment “the exchanges are stable,” says Emanuel. “Premiums are likely to rise a little but not excessively.”

If you don’t believe Emanuel and Altman, take a look at the graph below, comparing outlays for all medical services (the orange line) to the PCE (personal consumption expenditures–the blue line) from 2009 to 2014. As you can see annual spending on healthcare services is now growing by well under 1% a year. (For a larger version of the graph, click on the link above.)

ifi0rzbQK9cU   bloomberg chart

Bloomberg News used the graph earlier this week, to illustrate a story that lays out some critical and little-known facts:

Prices “for medical services, which make up the biggest share of health care costs, have eased in the past two years. From February 2013 to February 2014 physician fees edged up just “0.2 percent–down from a 1.6 percent rise 2012,” Bloomberg reported, and “the cost of nursing home care rose by only 0.3 percent,” compared with “1.8 percent two years earlier.”

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Obama’s Proposals For Medicare — Do They Go Far Enough? Will They Become Law?

Not long ago, I wrote about the Center for American Progress’ (CAP’s) “Senior Protection Plan” —a report that aims to rein in Medicare “by $385 billion over ten years without harming beneficiaries.” In that post, I suggested that CAP’s proposals might well give us a preview of the “modest adjustments” that President Obama had said he would be willing to make to Medicare.  At the time, I highlighted three of CAP’s recommendations:

– increase premiums for the wealthiest 10% of Medicare beneficiaries (raising $25 billion);

– insist that drug-makers extend Medicaid rebates to low-income Medicare beneficiaries (saving $137.4 billion);

– prohibit “pay for delay” agreements that let “brand-name drug manufacturers pay generic drug manufacturers to keep generics off the market” (saving $5 billion).

Last week, in his State of the Union address, President Obama embraced the first two:  “Already, the Affordable Care Act is helping to slow the growth of health care costs,” he noted. “The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors.”  (In time, I suspect that the administration also will call for a ban on those decidedly seamy “pay for delay” deals.)

“On Medicare,” he added, “I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission.” The commission called for reducing Medicare spending by roughly $350 billion over 10 years–  a sum that is not far from CAP’s $385 billion target.

Are These “Adjustments” Too Modest ?

These may seem like small numbers. But keep in mind that this is on top of the $950 billion that the Affordable Care Act (ACA) saves by squeezing waste out of health care spending, while simultaneously raising new revenues. Of that $950 billion, some $350 billion comes in the form of Medicare savings achieved by:

–  Pruning over-payments to private sector Medicare Advantage insurers– $132 billion  

–  Containing Medicare inflation by shaving annual “updates” in  payments to hospitals and other large facilities by 1% a year for ten years, beginning in 2014– $196 billion

– Cutting disproportionate share hospital payments to hospitals that care for a disproportionate share of poor and uninsured patients over 10 years beginning in 2014 – $22 billion.

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If the Individual Mandate is Struck Down, What’s Next?

The following post originally appeared on the healthinsurance.org blog.

In Sunday’s edition of the New York Times, blogger Maggie Mahar responded briefly to the question, “What would the future hold if the Supreme Court strikes down the most controversial part of the health care law, the individual mandate?” We asked Mahar to elaborate on the question in this post.

Betting the individual mandate will be upheld

Ezekiel Emanuel says he has been betting on how the Supreme Court will decide the case challenging the constitutionality of the Patient Protection and Affordable Care Act (PPACA).

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