FACT CHECK: What is Driving Premium Increases
Posted by The Campaign on June 22, 2010 at 11:19 AM
Fact Check: What Is Driving Premium Increases
“Insurance is still going to be expensive because healthcare is expensive.”
-- Gary Claxton, VP, Kaiser Family Foundation
(Reuters, 06/21/2010)
Underlying Medical Costs Drive Premium Increases
· Federal government data confirms that rising health care costs are driven by increased spending on hospital care, physician services, and prescription drugs. The government data[i] show:
o “Hospital spending growth is projected to have accelerated from 4.5 percent in 2008 to 5.9 percent in 2009, as spending reached $760.6 billion.”
o “Spending growth for physician and clinical services is expected to have accelerated to 6.3 percent in 2009, up from 5.0 percent in 2008, with expenditures having reached $527.6 billion.”
o “Prescription drug spending is expected to have grown 5.2 percent in 2009, an acceleration of 2.0 percentage points from 2008, and to have reached $246.3 billion.”
· Between 2000-2008, the growth in premiums tracked directly with the growth in benefits.
|
|
2000 |
2008 |
2000-2008 Growth |
|
PHI* Premiums |
454,784 |
783,157 |
72% |
|
PHI* Benefits |
402,802 |
691,179 |
72% |
Source: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf
(see table 12)
Note: PHI = Private Health Insurance as defined by CMS
http://www.cms.hhs.gov/NationalHealthExpendData/downloads/quickref.pdf
*****
Health Plan Administrative Costs are Not the Cause of Premium Increases
· Health plan administrative costs increased at a slower rate than spending on prescription drugs, physicians and clinical services, hospitals, and total national health expenditures from 2000-2009.
· In 2009, the percentage of premiums that went towards administrative costs and profits declined for the sixth year in a row.
· The average yearly increase in health plan administrative costs from 2000-2009 was lower than the increase in spending on hospitals, physicians and clinical services, prescription drugs, and total national health expenditures.
Health Plan Profits Average Between 3-5 percent
“Insurance company profits in the large picture have very little to do with the overall rising cost of health care.”
-- Henry Aaron, Brookings Institution
(ABC News, 11/10/09)
· According to Yahoo! Finance’s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 15.48%. Using the same index, health plans have a 4.7% net profit margin.
o This ranks the health insurance plan industry 12th out of the 16 industries that make up Yahoo! Finance’s health care sector.
· Analyzing 13 health insurance plan companies on the Fortune 500 list, the profit margin for these 13 companies averaged 3.19 percent for 2009 -- for 2008 it was 2.3 percent for these same 13 companies.
o Six of the 13 companies actually saw a decline in their profit margin - averaging a decline of 48.7% in profit margin from 2008 to 2009.
· What experts say about health insurance plan profits:
o According to Kaiser Health News, “With the nation’s health care spending estimated at $2.5 trillion this year, even the elimination of insurers’ profits and executive compensation would lower health care spending by just 0.5 percent.”
o According to Ezra Klein of The Washington Post “The insurance industry is not a particularly profitable industry…That’s not to pretend that 3.3 percent is nothing, but it’s hard to see how that’s a primary driver of health-care spending, much less the growth in health-care spending.”
o Alwyn Cassil, Center for Studying Health System Change: “‘…this idea that (taking) this $12 billion that they have in profits … would fix our health-care spending problems is just a pipe dream.’”
For a printable version click here.
[i] Truffer, et al, Health Affairs, “Health Spending Projections Through 2019: The Recession’s Impact Continues”, Published online February 4, 2010.)
