Family Insurance Premiums Up 9.5% in 2011: Who Is To Blame?

September 28, 2011 - A study released by the Kaiser Family Foundation yesterday found that the average annual premium for family coverage was 9.5 percent higher in 2011 than in the previous year. The family premium exceeded $15,000 for the first time.

This rise raises questions about the effectiveness of health reform. President Obama promised the health law would decrease premiums by $2500 per family. As Congress works to decrease the federal deficit by cutting health care programs such as Medicare and by shifting patients to Medicaid, policy experts say insurers, hospitals, and doctors will have to find money elsewhere, which could force private insurance premiums higher for 150 million Americans. The National Federation of Independent Businesses (NFIB) is calling for the Supreme Court to totally repeal Obamacare because of the uncertainties and fear of even higher health premiums.

This premium increase outstrips growth in workers' wages and creates more uncertainty for the Obama administration and employers who are struggling to drive down an unrelenting rise in medical costs.

According to Kaiser Family Foundation data, this 9.5% spike reverses an eight year downward trend in premium percentage increases.

• 2003- 13.5%

• 2004- 9.7%

• 2005 – 9.3%

• 2006- 5.5%

• 2007 – 5.4%

• 2008- 4.7%

• 2009 -5.5%

• 2010- 2.9%

• 2011- 9.5%

Who to blame for this sudden increase?

• Insurers, who say they are just compensating for provisions in Obamacare that, among other things, now cover pre-existing illnesses and children up to 26 under their parents policies.

• Employers, who are shifting costs to employees through higher premiums, co-pays, and $1000 deductibles?

• The health care law, which imposes more rules and regulations and calls for switching to plans that meet expensive government standards.

• The stagnant economy, which causes more depression and sickness, among the unemployed and uninsured.

• Hospitals and doctors, who are raising rates to make up for government cuts and increased expenses required to comply with government regulations.

• Drug companies, medical device manufacturers, and other medical supply chain companies who are aising prices in anticipation of over $500 billion new taxes.

• Reduced payments to doctors for Medicare and Medicaid.

Wait just a moment? You were doing all right until the last bullet point. How can cutting payments to doctors and hospitals raise private premiums? That doesn’t make sense. It’s counter-intuitive. Cutting doctors’ pay for Medicare and Medicaid, both of which are rapidly expanding, should cut costs.

Look at it this way.

On average, physicians treat Medicare patients at 70% to 80% of private pay. For Medicaid recipients, it’s about 56% of private pay. As a result, about 20% of primary care patients do not take new Medicare patients. For Medicaid, that figure is approaching 50%.

Medicare and Medicaid patients who can’t find a doctor to treat them often go to the ER. For most common illnesses, the typical charge for seeing a primary care doctor averages $166. In the ER, that same treatment is $570, 3.4 times that charged by a primary care doctor.

Hospitals are legally obligated to treat patients entering the ER and absorbing the losses for the uninsured. Medicare and Medicaid patients often make up 50% or so of a hospital's patient load. Yet Medicare and Medicaid patients payments often do not meet the cost of care, say hospitals.

So what happens in the real world? Hospitals engage in tougher negotiations with private insurers rise rates to pay for Medicare and Medicaid losses. Concurrently, physicians are rushing into hospital employment to escape hassles of Obamacare, costs of installing EHRs , rising malpractice premiums, and the troubles of running a practices with rising expenses and lowering reimbursements.

Rampant consolidation between hospitals and physician organization is well underway. Hospital outpatient care is much more expensive than private physician outpatient care, partly because of “facility fees,” which allow hospitals and their employed doctors to charge more for hospital-related services.

Who is to blame for health care premium spikes? in the complicated world of cost shifting to make up for losses, there’s plenty of blame to go around. Blame is a convenient way to make sense of things you can’t explain or control.

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