Medical costs are flat; premiums are way up – why?

I’m not the only one befuddled by the disconnect between private health insurance premiums and costs – you’ve probably seen the headlines screaming about health insurance costs going up, but you may have missed the way-back-in-the-business-section blurb about underlying costs moderating last year.
For some reason, most of the main stream media, including the editorial writers at the New York Times, are missing the real story here.
According to today’s NYT, the main reasons costs went up, “analysts say, were increased medical care costs and higher profits for insurance companies, which charged a lot more in premiums than they paid out for medical services.”
I don’t see how an underlying medical trend of one percent, coupled with another point and a half increase due to new requirements from health reform, could possibly be considered a “main factor”, especially when together they accounted for less than a third of total overall premium increases of nine percent.
Reform’s contribution

Some are yowling about the impact of the Accountable Care Act on health insurance costs – but their noise is driven much more by ideological positions and not careful analysis.
The two parts of ACA that affected premiums in 2011 a) required insurers to maintain coverage on children up to age 26; and b) required most insurance plans cover preventive services like cancer screening and immunizations at no cost to patients. About 2.3 million ‘new’ young adults were covered by their parents’ policies and 28 million workers and dependents got the preventive care coverage.
Why aren’t medical costs increasing?
My sense is the explosion in high deductible plans is, indeed, keeping a lid on health care costs. Many of the folks with these plans don’t have enough money in their health savings accounts to cover those deductibles, which are often about $5000. Thus, while they ‘have insurance’, they don’t have access to care. They are putting off tests and routine visits, not buying their medications, holding off on elective surgery, and otherwise delaying care. Undoubtedly some of those foregone services will not affect their health status, but it is also highly likely that some people will find their delay and deferral has quite negative consequences.
So why are premiums up so much?
Simply put, because there’s nothing (except the ACA’s medical loss ratio requirements) preventing insurers from increasing premiums as they see fit. Remember for-profit health plans’ primary obligation is to create and protect wealth for their owners. That’s not a value statement or objection, but a confirmation of reality. Not for profit health plans have to generate positive cash flow as well, but most of their providers are ‘for profit’ and therefore looking to maximize their earnings.
As long as employers are going to provide coverage for employees and help pay the premiums, why wouldn’t insurers increase premiums? Sure, every year more and more employers drop coverage, but that’s going to change in 2014 when they are required to offer insurance (well, sort of).
What looks increasingly likely is more health plans will hit the maximum medical loss ratio threshold, wherein they will have to refund money to policyholders. But that’s of little comfort to employers and families facing premiums up yet another nine percent…
What does this mean for you?
Family premiums will be over $30,000 a year in eight years.
Merrill Goozner has another take on the issue, one well worth considering.