If President Barack Obama gets what he wants in his health care plan — covering all Americans and barring insurers
from denying coverage — some analysts say individuals could wind up paying higher premiums.
The Obama plan would impose new costs on insurance companies, which would probably then raise the prices customers pay for coverage. Employers also would likely pass on some of their higher costs to employees.
An individual in a typical plan might have to pay up to $780 more for the same coverage in the first year of Obama's plan, estimates Erik Gordon, a health care analyst and assistant professor at the University of Michigan's Ross School of Business. Gordon said employees now typically pay 20 percent to 40 percent of the premium for a typical health care package costing about $13,000 a year for a family of four, with employers picking up the rest.
Obama's plan would raise insurers' costs 10 percent to 15 percent if reform doesn't provide other savings, Gordon estimated. He thinks employers would stick employees with perhaps 40 percent of the higher premium, or $520 to $780 more — though they might also receive better coverage because of mandatory preventive care and screenings.
The president told Congress most of health care reform can be paid for by eliminating waste and abuse in the existing system. Better screenings that prevent chronic diseases later would also save money, the administration has argued.
"The president's plan will introduce choice and competition into the health insurance market. The increased availability of affordable health insurance options will lower health costs for all Americans," said Linda Douglass, spokeswoman for the White House Office of Health Reform.
In his speech to Congress on Wednesday night, Obama said he wants to bar insurers from denying coverage to anyone because of a pre-existing health problem, canceling policies for sick people or refusing to cover preventive care. He also suggested limits on Americans' co-payments and deductibles.
"We will place a limit on how much you can be charged for out-of-pocket expenses, because in the United States of America, no one should go broke because they get sick," the president said.
Obama would also charge insurers a fee for their most expensive policies as a way of encouraging insurers to keep costs low and keep their rates low. In addition, Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, has proposed a new fee on insurers that would subsidize coverage for uninsured Americans. The fee would generate about $6 billion a year.
Covering tens of millions more Americans would heap hundreds of billions of dollars in costs on managed care companies. Yet insurers stand to benefit in other ways. Consultants estimate Obama's priorities would shower the industry with at least $1 trillion in new revenue from premiums over the next decade. Industry representatives counter that, even if insurers take in more money than they pay out, profit margins are so thin that additional taxes and fees would wind up being passed on to policyholders.
"There is no room for these taxes," said H. Edward Hanway, CEO of Cigna. "What you're ultimately going to see if those taxes hold is everybody's costs going up, not just the new people being covered. The concern I have is these taxes don't do anything but add to the cost of people already insured."
Others said Obama's plan might not raise costs as much as expected if everyone is required to have insurance and receive preventive care like regular checkups or mammograms, which can save money in the long run. Lawmakers have yet to settle on any single health care plan. But several ideas being discussed could be a boon to private health insurers, especially if the eventual reform does not include a public plan to compete with them.
Obama reiterated his support for a public plan but did not insist on it, and industry analysts think the idea will disappear eventually. That helps explain why analysts don't think the insurance industry faces any serious threat from the Obama plan. The stocks of several health insurers performed better than the broader market yesterday.
Shares of Cigna rose more than 5 percent, and Humana Inc., Indianapolis-based WellPoint Inc. and Aetna Inc. all climbed at least 2 percent.
Investors are "coming more and more to the conclusion that it's really not going to hurt," said BMO Capital Markets analyst Dave Shove. Shove noted that many insurers already operate profitably in states that have restrictions similar to those being discussed in reform proposals. These include limits on profitability and laws that guarantee coverage for individual insurance. Health care reform without a public option "would be fantastic" for insurers, said Robert Laszewski, president of Health Policy and Strategy Associates, a Virginia-based health care consulting firm.
"They're going to get millions of new customers and more than a trillion in new premiums over a 10-year period," said Laszewski, a former industry executive. "There's a reason they aren't running any negative ads."
The plan also would send new business to providers. Another analyst, David Bachman of Longbow Research in Independence, Ohio, expects spending on doctor visits would jump $8.5 billion a year under Obama's proposal. He also expects to see an initial increase in spending on supplies used during patient visits, amounting to roughly $2 billion per year, and billions of dollars more for diagnostic testing and prescription drugs.
Overall, Bachman said his "back-of-the-envelope calculation" indicates a 15-percent increase in spending at hospitals, 17 percent more for doctor visits and 10 to 12 percent more for patient supplies. Insurers will then pass those increases on to customers, he said.
"They're going to raise premiums on employers, who are going to raise costs for employees," Bachman said. "Then the fight becomes over how to best control costs."