The Truth About Health Care Reform and Premiums

There has been no shortage of myths and misinformation circulating about the Affordable Care Act. Here's a new myth you may have heard: that our new health law is causing our premiums to rise.

The reality is that premiums have been sharply rising for years, and the new health care law actually keeps premiums down for Americans. Without the Affordable Care Act — premiums would be rising so quickly that American families would be struggling to keep coverage.

Here's a little background on the issue:

Before Reform: A Decade of Spiraling Health Care Costs

In the past 10 years, health insurance premiums have risen 131%. Without the Affordable Care Act, insurance rates would continue to spiral out of control. Over the last decade, the average cost of family health insurance has reached $13,375 — an increase of 131%. From 2008 to 2009, the average cost of a family policy increased 5%, while wages rose only 3% over the same period of time.

Source: "Average Family Health Insurance Policy: $13,375, Up 5%," USA Today, September 16, 2009.

How the Affordable Care Act Keeps Premiums in Check

Zero tolerance for unfair premium increases. Under the new law, rate reviews will prevent insurance companies from raising premiums to unsustainable levels. This process "requires insurers to submit their proposed rate increases to State Insurance Departments for review and, in some States, approval, before they can go into effect." To help states fund this work, the federal government will supply $46 million in grants, part of an overall $250 million dollar consumer protection package that will save families money in the long run.

Source: "Reigning in Excessive Health Insurance Premium Increases," HealthCare.gov, August 16, 2010.

Insurance companies must spend money on patient care, not administrative costs and marketing. Americans will begin to receive rebate checks if their insurance provider fails to spend enough money on things like quality care improvements or patient services. The thresholds are 85% of insurance premiums must be spent on improvements or services for large employers and 80% for small businesses and individuals. Beginning in 2011, insurance providers will file a yearly report with the Department of Health and Human Services to show how premiums are being spent.

Source: "Getting Value For Your Premium Dollar With The Affordable Care Act," HealthCare.gov.

A Look at the Numbers

Health Care Reform Will Lower Premiums By $2,000 Per Family Over The Next Decade. According to an issue brief by the Center for American Progress, health care reform "will save $590 billion or more in national health spending over 2010-2019 and lower premiums by nearly $2,000 per family. The annual growth rate in national health expenditures will be slowed from 6.3 percent to 5.7 percent."

Source: " The Impact of Health Reform on Health System Spending," Center for American Progress.

CBO Agrees that Health Care Reform Will Not Raise Premiums. An analysis from the nonpartisan Congressional Budget Office shows that "for most people, premiums would stay about the same, or slightly decrease. This was especially true for people who get their insurance through work. People who have to go out and buy insurance on their own (the individual market) would see rates increase by 10 to 13 percent. But more than half of those people — 57 percent, in fact — would be eligible for subsidies to help them pay for the insurance. People who get subsidies would see their premiums drop by more than half...So most people would see their premiums stay the same or potentially drop."

Source: "Health care reform does not increase premiums and boot people out of their coverage," PolitiFact, January 27, 2010.

Another study shows that this year, the new law won't increase premiums more than 1% or 2% at most — which will be offset by other benefits. A recent study by Hewitt Associates, an independent consulting firm, confirmed what official projections have been claiming for months: that the average premium increase to pay for the new benefits, known as the Patient's Bill of Rights, will be no more than 1 to 2 percent. Moreover, much of that increase will be offset by tax credits, the reduction of waste and fraud, and other measures in the bill that save consumers money.

Source: "Reducing Health Care Costs for Employers and Employees," The White House Blog, September 27, 2010.

The Alternative: No Health Care Reform, Higher Premiums

Without the Affordable Care Act, America would have seen more of the same: higher insurance premiums.

The Urban Institute released a comprehensive study on the cost of not enacting health care reform in March 2010. The worst-case scenario findings were clear:

  • Without health care reform, premiums would have become unmanageably expensive for employers and their workers. Premiums for both single and family policies would have more than doubled by 2020, increasing from $4,800 to $10,300 for single policies and from $12,100 to $25,600 for family policies.

  • Without reform, employers would have also suffered. Employer premium spending would have increased from $430 billion in 2010 to $851 billion in 2020. Even in the best-case scenario, employer premium spending would have increased by 67 percent in ten years.

Source: "The Cost of Failure to Enact Health Reform: 2010 - 2020," The Urban Institute.