potential Impact of Health Reform on the Cost of private Health Insurance Coverage
by PricewaterhouseCoopers for the Heartland Institute, October 2009
Private healthcare costs are anticipated to grow over the next decade by approximately 6 percent per year under current law, which is more than double the expected growth in the Consumer Price Index of approximately 2.5 percent per year.1 Controlling the growth in these costs will require restructuring and realigning the incentives in the system.2 While the healthcare reform packages take steps in this direction, a major focus of the current legislation is on expanding insurance coverage. These reforms propose to make insurance more widespread by providing new subsidies for the uninsured and those with lower incomes by reforming the health insurance market.
America’s Health Insurance Plans engaged PricewaterhouseCoopers (PwC) to examine the impact of four components of the health reform bill being proposed by the Senate Finance Committee as introduced. These include:
• Insurance market reforms and consumer protections that would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement.
• An excise tax on employer-sponsored high value health plans (or “Cadillac plans”) that in a few years could also raise premiums for some moderate value plans.
• Cuts in payment rates in public programs that could increase cost shifting to private sector businesses and consumers. These changes are expected to more than offset the potential reduction in cost shifting resulting from providing coverage to the uninsured.
• News taxes on health sector entities that are likely to be passed through to consumers.
The increases in private health insurance coverage described above would be on top of the underlying growth in medical costs over the coming period.
This analysis shows that the cost of the average family coverage is approximately $12,300 today and could be expected to increase to approximately:
• $5,800 in 2013 under current law and to $6,400 if these provisions are implemented.
• $6,900 in 2016 under current law and to $7,900 if these provisions are implemented.
• $8,200 in 2019 under current law and to $9,700 if these provisions are implemented.
By 2019 the cost of single coverage is expected to increase by $1,500 more than it would under the current system and the cost of family coverage is expected to increase by $4,000 more than it would under the current system. This amounts to an additional 18 percent increase in premiums by 2019. The overall 18 percent increase is a composite of increases by market segment as follows:
• 49% increase for the non-group (individual) market;
• 28% increase for small employers (those firms with fewer than 50 employees);
• 11% increase for large employers with insured coverage; and,
• 9% increase for self-insured employers.
The overall impact of these provisions will be to increase the cost of private health insurance coverage for individuals, families, and businesses. The net impact of these increases on households would include the impact of these increases and the new subsidies provided under the bill.
1 The 6% increase is consistent with the per capita growth rate in total health expenditures as detailed in the National Health Expenditure Accounts, Projected total health expenditures 2010 to 2018. The Blue Chip Consensus expects inflation to average 2.5 percent over the same period.
2 PwC has previously estimated that structural reforms, such as improved wellness and prevention, disease management, value based payment reform, improvements in health information technology, comparative effectiveness and malpractice reform, could mitigate growth in healthcare costs by between 0.5 and 1.0 percent per year after an initial investment period. See PricewaterhouseCoopers “A Review of AHIP Savings Estimates” in Appendix to AHIP, “A Shared Responsibility,” 2008.
Key Findings
• Health reform could have a significant impact on the cost of private health insurance coverage.
• There are four provisions included in the Senate Finance Committee proposal that could increase private health insurance premiums above the
levels projected under current law:
• Insurance market reforms coupled with a weak coverage requirement,
• A new tax on high-cost health care plans,
• Cost-shifting as a result of cuts to Medicare, and
• New taxes on several health care sectors.
• The overall impact of these provisions will be to increase the cost of private insurance coverage for individuals, families, and businesses above
what these costs would be in the absence of reform.
• On average, the cost of private health insurance coverage will increase:
• 26 percent between 2009 and 2013 under the current system and by 40 percent during this same period if these four provisions are
implemented.
• 50 percent between 2009 and 2016 under the current system and by 73 percent during this same period if these four provisions are
implemented.
• 79 percent between 2009 and 2019 under the current system and by 111 percent during this same period if these four provisions are
implemented.