The Burden of Health Insurance Premium Increases on American Families

EXECUTIVE OFFICE OF THE PRESIDENT




The Burden of Health Insurance Premium Increases on
American Families



SEPTEMBER 22, 2009

---

Health insurance premiums for American families continue to skyrocket. A report released by
the Kaiser Family Foundation (KFF) on September 15th, reported that the average annual family
premium for employer-sponsored health insurance rose to $13,375 in 2009.1 This represents an
increase of 5.5 percent increase in premiums for families in the past year when inflation actually
fell by 0.7 percent.

The unrelenting upward trend in health care premiums is evident at the state level as well. Health
insurance premiums are highly variable across the country, with states experiencing premium
growth of between 90% to nearly 150% over the past decade. These differences lead to inequities
for families and businesses as well as underlying differences in the uninsured across states.
However, across all states, the rise in health insurance premiums is burdening families and
threatening our economy. In every state, premiums have increased faster than wages and in every
state, family budgets are consumed by an increasing share of healthcare premiums.

This report looks at trends in premiums for American families over the last decade at the state
and national level. Additionally, it reviews some recent actions by State Insurance
Commissioners to rein in unwarranted premium increases.

NATIONAL TRENDS
According to the Kaiser/HRET survey, the average cost of a family health insurance policy
increased from to $13,375 in 2009; up from $12,680 in 2008 (Exhibit 1). This 5.5% increase
came at a time when, amidst the worst recession since the Great Depression, inflation was
actually negative.

Exhibit 1
Average Annual Premiums for Single and Family Coverage,
1999-2009
$2,196
1999
$5,791
Single Coverage
$2,471*
2000
$6,438*
Family Coverage
$2,689*
2001
$7,061*
$3,083*
2002
$8,003*
$3,383*
2003
$9,068*
$3,695*
2004
$9,950*
$4,024*
2005
$10,880*
$4,242*
2006
$11,480*
$4,479*
2007
$12,106*
$4,704*
2008
$12,680*
$4,824
2009
$13,375*
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
* Estimate is statistically different from estimate for the previous year shown (p<.05).
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009.


1 Kaiser/HRET Employer Health Benefits 2009 Annual Survey available at www.kff.org/insurance/7936/index.cfm

---

Over the last decade, premiums have outpaced wages and inflation by a large amount. Over this
same period, wages have risen by 38 percent and inflation by 28 percent. As a result, health
insurance premiums are consuming ever-increasing portions of family budgets. Health insurance
premium increases are also driving up the prices of products as employers pass along their
portions of premium increases and reducing the competitiveness of U.S. companies. Consumers
ultimately bear the brunt of costs as increases in hospital, physician, drug, and health plan
spending are all passed down the value chain to American families, employers, and the
government who pay the bills (Exhibit 2).

Exhibit 2
Health care cost inflation is passed along the value chain
Hospital expenses
Annual percentage change in prices/costs
%
Hospital revenue
Private payer premiums
Total US health care costs
14
12
10
8
6
4
2
0
1990
1995
2000
2005
Source: National Health Expenditures; Avalere Health analysis of American Hospital Association Annual Survey 2005 data for
community hospitals; The Henry J. Kaiser Family Foundation and Health Research and Educational Trust Survey of
Employer-Sponsored Health Benefits, 1999–2007


REGIONAL TRENDS

Health premium increases have been rising across all regions of the country. Over the past year,
increases across the country have been uneven (Exhibit 3). Premiums have risen by 8% in the
South compared to 3% in the Northeast. According to the Kaiser/HRET report, total premiums
are more than $1,000 lower in the West compared to the highest cost Northeast region. Finally,
families endured higher premium increases than single workers.

---

Exhibit 3




Average Annual Premiums for Covered Workers by Region,
2008-2009





2009
Percent increase in

Premiums

premiums
Single
Family
Single
Family

Coverage
Coverage
Coverage
Coverage
ALL PLANS




Northeast
$4,989
$14,084
-1%
3%
Midwest
4,834
13,498
2%
5%
South
4,740
13,193
5%
8%
West
4,808
12,915
3%
5%
ALL REGIONS
$4,824
$13,375
3%
5%


STATE TRENDS

As indicated by the regional trends, healthcare premiums are highly variable across the country
(Exhibit 4). Over the past decade, premium growth has ranged from 88% in Michigan to 145%
in Alaska.2 These differences lead to significant inequity for families and businesses and
contribute to underlying differences in the uninsured across states. In every state, premiums
have increased faster than wages.3 In every state, family budgets are consumed by an increasing
share of healthcare premiums.

Exhibit 4


Comparison of Employer-Sponsored Insurance
Family Premium Growth to Wage Growth
1999-2009



Premium Growth
Wage growth
State
(%)
(%)
Alaska
145
35
Oregon
139
39
Indiana
136
42
Connecticut
135
55
District of Columbia
133
46
Delaware
132
42
Arizona
132
45
Wyoming
130
55
Washington
129
46

2 Premium data obtained from the Center for Financing, Access and Cost Trends, AHRQ, Medical Expenditure
Panel Survey - Insurance Component, 1999, Table II.D.1 and the Center for Financing, Access and Cost Trends,
AHRQ, Medical Expenditure Panel Survey - Insurance Component, 2008, Table X.D. Premiums for 2009 were
projected from 2008 based on Centers for Medicare and Medicaid Services, “National Health Expenditure Data.”
3 Wage data is from NBER extracts of MORG and available at http://www.nber.org/more/annual.

---

Minnesota
128
48
Tennessee
126
49
West Virginia
123
39
Rhode Island
122
38
Florida
121
43
Maine
120
35
Alabama
119
40
Iowa
119
45
Massachusetts
119
35
New Hampshire
119
45
Nebraska
118
53
California
118
44
New Mexico
118
50
Arkansas
117
32
North Carolina
117
36
South Carolina
116
39
Vermont
114
38
Colorado
114
46
Georgia
113
39
Utah
113
44
Mississippi
112
46
Missouri
112
46
Kentucky
111
42
Pennsylvania
110
50
Montana
110
44
Virginia
109
41
Wisconsin
108
30
Ohio
108
40
Hawaii
107
37
Kansas
105
39
New York
105
44
South Dakota
104
33
Illinois
103
45
North Dakota
101
37
Texas
100
41
Nevada
97
43
Maryland
96
44
Oklahoma
96
47
Idaho
96
43
New Jersey
95
38
Louisiana
89
44
Michigan
88
52


ACTIONS BY STATE INSURANCE COMMISSIONERS TO REDUCE PREMIUM
GROWTH

Large and uneven premium cost growth across states underscore the need for national health
insurance reform. Effective reforms and insurance regulation will help curb excessive premium
cost growth for the millions of Americans. If the status quo persists, we will continue to

---

experience unsustainable increases in family premiums and large disparities across states and
declines in the number of employers who offer coverage to their workers. According to a recent
report by the U.S. Department of Treasury, nearly 50% of Americans will go without coverage at
some point over the next decade without comprehensive health insurance reform.4

According to Census data, more than 1 in 5 non-elderly adults were uninsured in 2008 and there
have been massive reductions in the percent with private health insurance. The fraction of U.S.
residents with private health insurance fell by 6 percentage points from 2000 to 2008 (Exhibit 5).
This imposes costs on those with coverage by increasing their premiums by a hidden tax of about
$1,000.

Exhibit 5
Distribution of Types of Health Insurance Coverage among U.S. Residents
In 2000, 2007, and 2008 (percentage)

Type of Health
Change
Change
Insurance
2000
2007
2008
2000-08
2007-08
Any Private Plan
72.6
67.5
66.7
-5.9
-0.8
Employment-Based
64.2
59.3
58.5
-5.7
-0.8
Direct-Purchase
9.6
8.9
8.9
-0.7
0.0
Any Government Plan
24.7
27.8
29.0
+4.3
+1.2
Medicare
13.5
13.8
14.3
+0.8
+0.5
Medicaid/CHIP
10.6
13.2
14.1
+3.5
+0.9
Military Health Care
3.3
3.7
3.8
+0.5
+0.1
Uninsured
13.7
15.3
15.4
+1.7
+0.1
Note: Numbers represent percentages of U.S. residents in each year. Some
individuals report coverage from multiple sources.


Effective health insurance regulation by State Insurance Commissioners has helped to reduce
unjustified premium growth in many states; particularly in the individual and small group
markets. In determining premium rates, insurers take into account prior claims experience, rising
health care costs, new technologies, administrative costs, and profit margin. In some markets,
ineffective competition, particularly for individuals and small groups, has led to premium
increases that are unfair and unwarranted. For example, some insurers choose to under price

4 Treasury report, “The Risk of Losing Health Insurance Over a Decade: New Findings from Longitudinal Data”
available at: http://www.treas.gov/press/releases/docs/final-hc-report092009.pdf

---

their products to gain market share only to demand high rate increases later. Others exercise
market power to increase premiums and profits.

These concerns have led several states to impose rate review regulatory measures in order to
make sure that insurance companies are not unfairly or excessively increasing their premiums.
The following are examples of recent requests for insurance company rate hikes that were not
approved by state commissioners:

Maine: Anthem Blue Cross Blue Shield asked for an 18.5% premium increase in 2008,
which was rejected by the State Insurance Commissioner as being “excessive and
unfairly discriminatory.” The rate increase would have increased profit margins by 3%,
citing recent losses on its individual products as the reason, when in fact they had gains
of 5% in 2007 and 3% in 2008. Ultimately, rates were increased by 10.9%.5

Washington: Washington had a prior approval process in place from the early 1990s
until 2000. It was repealed in 2000 and premiums rose steeply after that. In 2007,
Regence Blue Shield hit policyholders in the individual market with as much as a 40%
rate increases, even though this plan was one of 3 major insurance carriers that together
netted surpluses of more than $2 billion that year. After this experience, Washington
State has recently returned oversight of the individual insurance market to the Insurance
Commissioner.6

Rhode Island: In 2009, Blue Cross Blue Shield of Rhode Island, Tufts Health Plan, and
UnitedHealthcare requested a rate increase of 13-16%. The Commissioner told the
insurers to withdraw its rate increase, stating that the increase was unaffordable for the
state and would be burdensome on employers.7

CONCLUSION

Health insurance premiums continue to rise for American families. Premiums are rising in all
states and far in excess of wage growth or inflation. If we do nothing, the soaring rise of health
insurance premiums will mean that millions of families and businesses will be unable to afford
these increases and will lose their coverage over the coming years. For families that manage to
keep their health insurance, health costs will consume an increasingly large portion of their
budgets.

To control the rising costs of health insurance premiums, health insurance reform is essential this
year. Health insurance reform will increase stability and security for all Americans by holding
insurance companies accountable. Stability and security will be accomplished by the
establishing the following rights for all Americans:

5 Story available at: http://www.state.me.us/pfr/insurance/hearing_decisions/09-1000.htm
6 Story available at: http://www.seattlepi.com/local/349344_insurance31.html
7 Information available at:
http://www.ohic.ri.gov/documents/Insurers/rate%20filing%20withdrawal%20letters/4_Press%20release%20rate%20
factor%20withdrawal.pdf

---

1. No Discrimination for Pre-Existing Conditions
2. No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays
3. No Cost-Sharing for Preventive Care
4. No Dropping of Coverage for Seriously Ill
5. No Gender Discrimination
6. No Annual or Lifetime Caps on Coverage
7. Extended Coverage for Young Adults
8. Guaranteed Insurance Renewal

Fair access to affordable insurance will be ensured by the elimination of individual underwriting
rules. Insurance companies will not be allowed to discriminate based upon health status or
gender. Additionally, insurance companies will not be allowed to charge prohibitively high
prices to high-risk individuals or drop coverage if a person gets sick. Health insurance reform
significantly improves the current system, in which a person who is diagnosed with a new illness
can see their insurance premiums go up by as much as 50% or cancelled the following year.
Insurance market reforms will further improve stability by eliminating yearly and life-time limits
on how much insurance companies cover if you get sick.

Together, these reforms create peace of mind and the stability and security that Americans need
and deserve, especially in our current tough economic times.

---