Free market competition, regulatory control, and the average American

by Lisa Kersey

While many may think of 911 when they think of health care, GOP nominee hopeful Herman Cain could be onto something. There is a 9-9-9 currently characterizing our healthcare economy, and it is simply untenable. Something has to give.

Nine. The average annual rate increase for family coverage through an employer in 2011.

Nine. The current unemployment rate in the United States as of Q4 2011.

Nine (percent). The average profit margin of the top five large insurance carriers in the U.S.

If you Google “health insurance premiums,” you’ll find the following headlines:

• Health insurance premiums climb faster in 2011 – Reuters
• Health Insurance Costs Rising Sharply This Year, Study Shows – New York Times
• Employers’ Health-Care Premiums Jump 9% – Wall Street Journal

These headlines were largely tied to one leading study conducted annually by the Kaiser Family Foundation. According to the 2011 study released in September, premiums tripled from the previous year for employer-sponsored family coverage, an increase completely out of step with wage increases. The survey also found the average employee contributes 28 percent annually toward employer-sponsored family plans. This represents a staggering 131 percent increase over the previous decade.

Many would argue insurers have raised rates in anticipation of new health reform rules and expanded coverage. Others argue that underwriters set premiums based on anticipated utilization, but the demand for health services is lagging predictions due to a depressed economy, resulting in profit margins temporarily skewed in favor of insurance companies.

As is often the case, the truth lies somewhere in the middle. According to Drew Altman, President & CEO of the Kaiser Family Foundation, “regardless of how you feel about the Affordable Care Act, its effect on premiums this year is modest. Most of the law’s provisions don’t go into effect until 2014. The two biggest changes this year allow young adults up to age 26 to stay on their parents’ insurance policies and require some insurance plans to cover preventive services at no cost to patients. These are popular provisions that provide real benefits, and combined they account for about one to two percentage points of this year’s premium increase.”

Redefining the 9-9-9

To echo the words of Mr. Altman, regardless of how you feel about the Affordable Care Act, it will up the ante for insurance companies, resulting in more balance between those on Main Street and those on Wall Street. Under the new medical-loss ratio rule, there will be greater scrutiny, greater transparency and greater consumer protection.

Nine. The “maximum” premium increase an insurance company can impose, effective September 2011.

Nine. The number of customers (in millions) estimated to receive insurance rebates in 2012.

Nine. The month of the year in which these provisions will be implemented over the next two years.

As of September 2011, health insurance companies can no longer raise rates without raising eyebrows and revealing their rationale. While many states have historically reviewed proposed rate increases to determine reasonableness, many still lack the legal authority or resources to do so. And while some states have the authority to deny or reduce proposed rate increases, most do not. The Affordable Care Act ensures that rate increases in all states will be thoroughly analyzed and disclosed to the public. This information will allow employers and individuals to make more informed choices with regard to which health plan they choose.

Additionally, the new medical-loss ratio rule sets a premium floor, requiring that insurers spend 80 to 85 percent of premium dollars on actual medical care as opposed to excessive administrative costs and profit margins. Companies that miss the mark must rebate the difference back to their health plan members.

While there’s plenty yet to be worked out along the journey to fixing our complex and broken health care system, these changes are one step in the right direction to balance free market competition with regulatory control in a way that supports the average American. So, before we throw out the proverbial baby with the bathwater, let’s accept some of the good that has emerged from our heated debates over health reform. At the end of the day, it’s not about repealing or rejecting anything in whole. It’s not about siding with the left or the right. It’s about being an American, making shared sacrifices and courageous choices and taking one step at a time in the right direction.