IBJNews

Policyholders could pay more under Obama health plan

Back to TopCommentsE-mailPrintBookmark and Share

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."

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I think the poster was being sarcastic and only posting or making fun of what is usually posted on here about anything being built in BR or d'town for that matter.

  2. Great news IRL fans: TURBO the IMS sanctioned movie about slugs running the Indy 500 has caught the Securities and Exchange Commission because Dreamworks had to take a $132MILLION write down...because the movie was such a flop. See, the Indy/IMS magic soiled another pair of drawers. Bwahahahahahaha! How's CARTOWN doing? HAHAHAHA...Indy is for losers.

  3. So disappointed in WIBC. This is the last straw to lose a good local morning program. I used to be able to rely on WIBC to give me good local information, news, weather and traffic on my 45 minute commute.Two incidents when I needed local, accurate information regarding severe weather were the first signs I could not now rely on WIBC. I work weekend 12 hour nights for a downtown hospital. This past winter when we had the worst snowfall in my 50 years of life, I came home on a Sunday morning, went to sleep (because I was to go back in Sunday night for another 12 hour shift), and woke up around 1 p.m. to a house with no electricity. I keep an old battery powered radio around and turned on WIBC to see what was going on with the winter storm and the roads and the power outage. Sigh. Only policital stuff. Not even a break in to update on the winter storm warning. The second weather incident occurred when I was driving home during a severe thunderstorm a few months ago. I had already gotten a call from my husband that a tornado warning was just southwest of where I had been. I turned to WIBC to find out what direction the storm was headed so I could figure out a route home, only to find Rush on the air, and again, no breaking away from this stupidity to give me information. Thank God for my phone, which gave me the warning that I was driving in an area where a tornado was seen. Thanks for nothing WIBC. Good luck to you, Steve! We need more of you and not the politics of hatred that WIBC wants to shove at us. Good thing I have Satellite radio.

  4. I read the retail roundup article and tried Burritos and Beers tonight. I'm glad I did, for the food was great. Fresh authentic Mexican food. Great seasoning on the carne asada. A must try!!! Thanks for sharing.

  5. John, unfortunately CTRWD wants to put the tank(s) right next to a nature preserve and at the southern entrance to Carmel off of Keystone. Not exactly the kind of message you want to send to residents and visitors (come see our tanks as you enter our city and we build stuff in nature preserves...

ADVERTISEMENT