2015 cost of employer-sponsored care
The annual Milliman Medical Index is regarded as one of the most reliable sources of actuarial, analytical and financial research for employer sponsored health insurance. Here are some of their key findings for 2015. The average cost to insure a typical family of four was $24,671. This is three times the cost in 2001. The cost of care rose 6.3 percent in 2015 due largely to unrestrained/unregulated increases in drug costs, which increased almost 14 percent from 2014. Since 2001, drug prices have increased at an average annual rate of 9.4 percent — exceeding the 7.7 percent average increase for all other services. While employers still pay the lion’s share of the premium, (58 percent) an employee’s out-of-pocket cost has increased 43 percent over the last five years while employer costs increased 32 percent. Of the $24,671 cost for a family, the typical employee paid about $10,400 (42 percent). That includes about $6,400 in payroll deductions ($533 a month) and about $4,000 in out-of-pocket expenses for deductibles and copays.
2015 components of employer-sponsored care
Physicians and other professionals accounted for 31 percent of all costs, followed by hospitals also at 31 percent, outpatient services at 19 percent, drugs at 16 percent and “other” at 4 percent. Other includes mostly durable medical equipment, supplies, ambulance and home care. Again, drug costs increase almost 14 percent last year and almost all of this increase was due to price increases vs. increases in utilization. Physician costs increased only 3.6 percent. Hospital costs increased 5.4 percent. Most notable stat: over the last five years, hospital utilization has increased only 0.5 percent.
ACA exchange costs
The exchanges continue to be the most misunderstood component of the Affordable Care Act, better known as “ObamaCare.” The exchanges were established to provide individuals under 65, who don’t receive insurance through an employer or Medicare, the ability to purchase an individual commercial plan. Recently, the purported average 25 percent increase in exchange premiums has brought “ObamaCare” under more scrutiny. Here are some facts and some perspective. 20-plus million people are currently covered by “ObamaCare.” Of the 20-plus million, about 7 million are covered by expanded Medicaid. Consequently, they do not pay any premiums and are not impacted by the 25 percent premium increases. That leaves about 13 million people, not covered by expanded Medicaid, who do pay for their insurance and are the ones impacted by the 25 percent increase. The average insurance premium offered on the exchanges has increased 2 percent in 2015 and 7 percent in 2016. If you factor in the anticipated 25 percent increase for 2017, that is a three-year average of 11 percent. The federal government does not set the premiums. Commercial carriers like BCBS, Aetna, Humana, United, Cigna, etc. set their own premiums. The 25 percent increase is due to two factors: the rates were way too low to begin with and the insurers grossly underestimated the health status (sicker) of their new members. Consequently, rates had to go up in 2017 if insurers were to survive. The national average premium for a standard “silver” or basic employer type plan in 2016 on the exchange was about $400 a month or $4,800 a year compared to about $6,000 a year or a typical employer-sponsored plan. A 25 percent premium increase will result in a premium of $500 a month or $6,000 a year which is just where the average employer plan is. In 2009, eight years ago, the Congressional Budget Office predicted a 2017 silver plan premium of about $5,500. Close. Why was the CBO so much better at estimating premiums than the huge commercial carriers? Most, 83 percent, of the 13 million people who are effected by the 25 percent increase qualify, based on their income, for a subsidized discount. The subsidized amount is paid to the commercial carrier. The average premium actually paid by the 13 million people this year is $113 a month or $1,356 a year. With discounts still available in 2017, and all other things being equal, the average net premium actually paid, factoring in the 25 percent increase, will be around $141 a month. That is a net increase of $28 a month.
ACA exchange carriers
Several commercial plans are pulling out or threatening to pull out of the exchanges because of losses. (Again, they miscalculated their own rates.) Many are pulling out for other reasons. First, it is far easier to sell and administer group or employer-based insurance because of clear economies of scale. Individual policies are administratively more expensive and time consuming. Second, there are no sales commissions for their agents on insurance purchased on the exchange. Third, with hundreds of carriers (local and national) fighting over 13 million people, many may not think the effort is worth it. Many insurers came into the exchanges with artificially and unsustainable low premiums in order to attract more business. Some have gone out of business as a result. Fourth, all for-profit carriers have stock holders to please. United is a perfect example. They are pulling out of the exchanges claiming losses of $720 million, which is a lot on face value but relatively insignificant when put into perspective. United reported an overall a profit of $11 billion on revenues of $157 billion, so the exchange is a small portion of their business. CEO Stephen Hemsley earned $66 million in 2014, but that is way down from $102 million in 2010. Many states claim they will be down to one or two carriers next year. The potentially bad news is less competition. But the potentially good news is one or two healthy carriers with enough members to absorb risk. The more insured lives a carrier has, the more apt it is to survive. Finally, our president-elect has promised to repeal and replace “Obamacare.” He should first get an understanding of what that is and how it works. At a pre-election rally he called the ACA a “disaster.” adding all his employees are negatively impacted, especially by the 25 percent increase. Shortly thereafter, one of the directors of all Trump properties corrected his boss and confirmed all employees are covered by normal employer-sponsored insurance.
George W. Chapman is a healthcare consultant who works with hospitals and medical groups. He operates GW Chapman Consulting based in Syracuse. Email him at gwc@gwchapmanconsulting.com.