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Report Reveals Large Firms Will Avoid Premium Spike Under Health Care Reform Plan

December 1, 2009
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Related Topics: Medical Benefits Law, Benefit Design and Communication, Change Management, Latest News
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The cost of health care premiums provided by large employers is unlikely to change if the Senate passes its health reform legislation, according to a report published by the Congressional Budget Office and the Joint Committee on Taxation.

The finding is significant because employment-based insurance accounts for about five-sixths of the total health insurance market.

The key reason why premiums for large employers would go unchanged is that the health insurance offered by almost all large employers already meets the minimum coverage requirements in the legislation. The legislation would require all health plans to have an actuarial value above 60 percent.

“Essentially all large group plans have an actuarial value above 60 percent,” the report states, “so the effect on premiums in that market would be negligible.”

Specifically, premiums for large employers either would not change or be 3 percent less than what they are expected to be if no health reform legislation is passed.

Small employers may face slightly larger premiums if health reform passes. Changes in premiums for small employers with 50 or fewer employees could range from a 1 percent increase to a 2 percent decrease in 2016 compared with what the expected increase would be under current law.

The 29-page report published Monday, November 30, said the costs of premiums would be affected in three ways: minimum coverage requirements that would require insurers and employers to provide more generous benefits; streamlined administrative costs due to new insurance regulations that forbid rating individuals and small groups based on people’s health; and a tax on high-cost insurance plans that would lead people to choose less expensive options.

In general, the average cost of premiums would increase 27 to 30 percent because people would be required to obtain a greater amount of coverage. A policy would cover “a substantially larger share of enrollees’ costs for health care [on average] and a slightly wider range of benefits.”

Those cost increases would be offset by reduced costs to insurers of providing insurance to individuals because of changes in law to the individual market. For instance, insurers would no longer be allowed to vary premiums or coverage terms to reflect an individual’s state of health.

Further reductions are expected to come from a mandate requiring all residents to purchase insurance. Many of the new enrollees are expected to be healthy and to spend less on health care than the current average.

A proposal to tax high-cost “Cadillac” health plans would likely entice most policy holders to buy less expensive plans. About 19 percent of workers have plans that are considered high-cost, and most would switch to lower plans, yielding a savings of about 9 to 12 percent on their premiums.

The report noted that its analysis relied on assumptions of savings that could turn out to be false.

For instance, an increase in the number of insured workers could increase overall consumption of medical services, which would cause health insurance premiums to rise faster than expected.

—Jeremy Smerd

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