[Senate Hearing 112-859]
[From the U.S. Government Publishing Office]
S. Hrg. 112-859
HEALTH REFORM AND HEALTH INSURANCE
PREMIUMS: EMPOWERING STATES TO SERVE CONSUMERS
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING HEALTH REFORM AND HEALTH INSURANCE PREMIUMS, FOCUSING ON
EMPOWERING STATES TO SERVE CONSUMERS
__________
AUGUST 2, 2011
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon JOHN McCAIN, Arizona
AL FRANKEN, Minnesota PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut
Daniel E. Smith, Staff Director
Pamela Smith, Deputy Staff Director
Frank Macchiarola, Republican Staff Director and Chief Counsel
(ii)
C O N T E N T S
__________
STATEMENTS
TUESDAY, AUGUST 2, 2011
Page
Committee Members
Harkin, Hon. Tom, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming,
opening statement.............................................. 3
Feinstein, Hon. Dianne, a U.S. Senator from the State of
California..................................................... 4
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 17
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska.... 19
Blumenthal, Hon. Richard, a U.S. Senator from the State of
Connecticut.................................................... 20
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 22
Prepared statement........................................... 25
Hagan, Hon. Kay R., a U.S. Senator from the State of North
Carolina....................................................... 25
Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon...... 28
Witness--Panel I
Larsen, Steve, Director, Center for Consumer Information and
Insurance Oversight, Centers for Medicare and Medicaid
Services, Baltimore, MD........................................ 9
Prepared statement........................................... 11
Witness--Panel II
Dicken, John, Director of Health Care, Government Accountability
Office, Washington, DC......................................... 29
Prepared statement........................................... 30
Miller, Teresa, Administrator, Oregon Insurance Division, Salem,
OR............................................................. 33
Prepared statement........................................... 35
Withrow, Daniel C., President, CSS Distribution Group, Inc.,
Louisville, KY................................................. 39
Prepared statement, on behalf of the U.S. Chamber of Commerce 41
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Health Affairs--At the Intersection of Health, Health Care
and Policy................................................. 56
Response to questions of Senator Harkin by Steve Larsen.......... 69
(iii)
HEALTH REFORM AND HEALTH INSURANCE PREMIUMS: EMPOWERING STATES TO
SERVE CONSUMERS
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TUESDAY, AUGUST 2, 2011
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:03 a.m. in
Room 430, Dirksen Senate Office Building, Hon. Tom Harkin,
chairman of the committee, presiding.
Present: Senators Harkin, Hagan, Merkley, Franken,
Blumenthal, Enzi, Hatch, and Murkowski.
Also Present: Senator Feinstein.
Opening Statement of Senator Harkin
The Chairman. The Committee on Health, Education, Labor,
and Pensions will come to order. This morning our hearing is on
Health Reform and Health Insurance Premiums: Empowering States
to Serve Consumers.
In the decade before the Affordable Care Act was passed,
relentlessly increasing health insurance premiums imposed a
heavy tax on families and small businesses. Over those 10
years, premiums for family, employer-sponsored coverage more
than doubled. Small businesses simply couldn't afford it
anymore and began dropping coverage. Congress had to act, and
we did. In passing the Affordable Care Act, we enacted reforms
to tame this runaway premium growth. Today's hearing will
explore how those reforms are already protecting consumers.
It's basic economics that one of the surest ways to bring
down prices is through open and tough competition. For the
first time in our history, health reform applies this basic
principle to the health insurance market. In 2014, Americans in
every State will be able to buy health insurance in a one-stop
shop called an insurance exchange. Small businesses will be
able to shop there also. Just a couple of weeks ago, the
Administration released guidance that gives States great
flexibility in designing the exchange to suit the unique needs
of their citizens.
The exchange will bring transparency and competition to
markets which in many areas of the country have become stagnant
and non-competitive, with high prices to show for it. From 1998
to 2006, just the consolidation of insurance markets alone
accounted for overall premium increases of about $34 billion
each year, equivalent to a $200 annual rate hike per person.
That's due to a lack of competition.
If insurers have to compete on price, rates will come down.
Indeed, the non-partisan Congressional Budget Office projects
that premiums in the small group market will be as much as 2
percent lower in 2016, about $350 less per family, in a market
where premiums have increased 5 percent or more annually since
2005.
Employer spending on premiums is estimated to decrease by
almost 4 percent, about $20 billion in this year's dollars. By
2019, businesses will save approximately $2,000 per family they
insure. And by 2014, families buying in the individual market
could save an estimated $2,300 a year if they buy health
insurance in a new affordable insurance exchange.
Now, health reform also gives State insurance regulators
unprecedented new resources to fight for consumers. The law
allocates $250 million in grants for this purpose, almost $50
million of which has been awarded to 45 States and the District
of Columbia.
We are releasing a report today from the Government
Accountability Office that I requested, along with Senator
Feinstein, which demonstrates the extraordinary work State
regulators have done using these grant funds. These
improvements, enabled by Federal grants, will empower States to
rigorously enforce health reform's rate review requirements. As
of September the 1st of this year, just next month, regulators
will review proposed rate increases of more than 10 percent in
the individual and small group markets. The insurer must
publicly disclose and justify the rate increase, and if the
regulator finds that the increase is unreasonable, the findings
will be publicly posted.
Finally, health reform's medical loss ratio provision is a
powerful deterrent against confiscatory premium increases,
requiring insurers to provide fair value in return for
consumers' premiums. Specifically, the law requires insurers to
return to consumers 80 cents of each premium dollar in the
individual and small group market, and 85 cents on the dollar
in the large group market.
If insurers fail to return these amounts to consumers,
either as payments for health care services or investments in
quality of care, the company has to make up the difference in
cash. It's estimated that next year, when rebates are due, 5
million Americans will receive between roughly $160 and $300
per person. Even those who don't receive rebates will benefit,
since insurers will have to control premiums to stay above the
threshold.
Some have argued that insurers can't meet these
requirements, that holding them accountable would cripple their
businesses. Insurers have been reporting their quarterly
earnings over the last few days. Let's take a look at that.
For the second quarter of this year, United Health Group's
net earnings, net earnings, before taxes, were $1.9 billion.
That's for the quarter. That's not a year. That's for one
quarter. And its net profit for that quarter was more than $1.2
billion just for that quarter.
Executives issued this announcement, and I want to quote
from it.
``In the first half of 2011, the number of people
United Health Care serves with medical benefits grew by
1.2 million, on top of nearly 1 million people added
over the course of 2010. This six-quarter addition of
2.2 million more people, almost entirely through
organic means, places this among the strongest growth
periods for our company.''
I think that United Health Care can muddle through a rate
review.
I'll just close with a letter I received from an Iowa
constituent who just received notification of a 19 percent rate
increase by United Health Care. She writes,
``I am a self-employed professional with no pre-
existing conditions. I now will pay $276 per month with
a $5,000 deductible. I changed from a $2,500 deductible
last year when the premiums were just getting too
costly. At least this hasn't been a repeat of 2008,
when my premium was increased twice that year. That was
a 48 percent premium increase in 1 year.''
So I believe these reforms are long overdue. I'm glad our
witnesses have agreed to discuss them. I'll thank them for
coming to Washington today, looking forward to their testimony.
With that, I'll yield to Senator Enzi.
Statement of Senator Enzi
Senator Enzi. Thank you. Thank you, Mr. Chairman.
Today's hearing is to examine how the government can better
regulate health insurance premiums. This is an unfortunate but
entirely predictable response to the passage of the new health
care law. As many of my colleagues and I predicted, the new
health law is already driving up health insurance premiums. So
now the authors of the law are attempting to shift the blame.
The authors of the new health care law do not want to
acknowledge the reason premiums are going up is because of the
law they enacted. They would much rather point their fingers at
the insurance companies and lay all the blame for these
increased premiums on them.
Unfortunately, this story line ignores the basic facts.
Insurance premiums are going up because health care costs are
going up, and health care costs are going up, at least in part,
because of the new health care law. Don't take my word for it.
The Administration's chief actuary at the Centers for Medicare
and Medicaid Services released a report last week that said
that insurance premiums are estimated to increase by 9.4
percent in 2014. According to the actuary, this increase was
4.4 percent higher than would have otherwise been as a result
of the new health care law.
This result should come as no surprise to anyone. More than
2 years ago, the Congressional Budget Office told us that the
new health care law was going to increase premiums for
individuals and families by 10 to 13 percent. This equals a
$2,100 increase for families. These results were confirmed by
several private studies which all projected even higher premium
increases.
We're also seeing the validation of those statements in the
insurance market. The Wall Street Journal reported last
September that several insurers had already requested premium
increases between 1 and 9 percent specifically to pay for the
cost of the new benefits required under the new law. Rather
than confronting the reality they created by enacting the new
health care law, it appears that its authors now want to find a
scapegoat that can take the blame for these increasing
insurance premiums. Unfortunately, blaming the insurance
companies for these premium increases will do nothing to
address the problems that are driving up the costs of health
insurance.
Giving States or the Federal Government the authority to
deny premium increases will do nothing to address the expensive
new benefit mandates, billions of dollars in taxes on drugs and
medical devices, and unsustainable cuts to Medicare payments,
which are all part of the new health care law and which all
drive up the private sector health care costs. Anyone who
thinks that insurers will not pass these costs along to
individuals and small businesses in the form of higher premiums
is deluding themselves. As a former business owner myself, I
can assure you no business can sell their product below their
cost for very long. To think they can simply because the
government mandates it is a recipe for disaster.
Rather than wasting our time on another hearing that tries
to shift the blame for the entirely predictable results of the
new health care law, we should instead be focusing on how to
address the causes of these premium increases. We need to
examine how the specific provisions in the new law are
increasing premiums and determine how to replace those
provisions with measures that could actually lower costs for
individuals and small business. We also need to enact several
provisions that will actually lower health care costs, help
employers, and allow Americans to keep the plans they want
rather than being forced to buy the plan that a government
bureaucrat thinks best meets their needs or apply for waivers.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Enzi.
First we'd like to welcome our colleague, Senator Feinstein
from California, chair of the Intelligence Committee, who does
such a superb job there of keeping us advised as to terrorist
threats and what's going on. We thank you very much for your
service as chair of that committee.
Senator Feinstein. Thank you.
The Chairman. Senator Feinstein also was very active in the
passage of the Affordable Care Act. She did a lot of work on
that, and one area in which Senator Feinstein had done a lot of
work was in this whole area of rate reviews and making sure
that consumers have information, good information. Senator
Feinstein and I together asked the GAO to do a report on State
Rate Review Activity. We're releasing that today. Senator
Feinstein has long championed consumer protections and insurer
accountability.
[Note: The report referred to may be found at
www.docstoc.com/docs/152435280/GAO-Private-Health-Insurance-
State-Oversight-of-Premium.]
.So I thank Senator Feinstein for coming here today and for
her great work in this area. I see you do have a prepared
statement. It will be made a part of the record in its
entirety, and you can proceed as you so desire.
Statement of Senator Feinstein
Senator Feinstein. Thank you very much, Mr. Chairman, and
Senator Enzi, Senator Franken, Senator Murkowski.
I have, for a number of years now, been concerned about the
affordability of health insurance. And, of course, as you look
at health insurance around the world, you see that no country
has the size of large, for-profit medical insurance companies
that the United States of America does.
If you go further, you see that since 1999 the average
premium for family coverage has risen 131 percent, while
medical inflation, which should guide this, rose just 31
percent. Two years ago, in 2009, 57 percent of people
attempting to purchase insurance in the individual market found
it difficult or impossible to afford coverage. Now, that's
before the health care plan.
While the cost of health insurance continues to rise for
individuals, insurance companies, particularly the 10 large
for-profit companies, enjoy unprecedented profits. In the first
quarter of this year, 2011, the five largest for-profit health
insurance companies recorded a net profit, in a quarter, of
$3.9 billion. That's an average 16 percent increase from the
same quarter the year before.
CEO pay for the 10 largest for-profit health insurance
companies was $228.1 million in 2009, up from $85.5 million the
year before, 2008. This is a 167 percent raise in just 1 year,
and this doesn't include the tens of millions of more dollars
in exercised stock options, and means that these CEOs received
nearly a billion dollars in total compensation, dollars--and
here's the key--that could have been used to provide health
benefits. I mean, this raises the question to me as to whether
America's health insurance should be controlled by for-profit
companies rather than by non-profit companies.
And here's the rub: At the same time these insurance
companies were reducing the amount they spend on actual medical
care, the GAO report shows State insurance practices now vary
widely, even within different markets in the same State. To me,
the GAO report shows just how fractured the health insurance
market continues to be and how consumers are not uniformly
protected from egregious rate increases.
I believe that what should be standardized is the authority
to block or modify unjustified, unreasonable premium rate
increases. I strongly believe that each State insurance
commissioner or regulator should not only be able to look at
insurance rate filings and evaluate them thoroughly prior to
implementation, which this GAO report dealt with, but that he
or she should also possess the authority to block or modify
those rates that are egregious.
To evaluate the rates and have no authority to reduce or
stop those found to be unjustified makes the State insurance
commissioner simply a paper tiger. The Department of Health and
Human Services reports that as of December 2010, less than half
of States and territories had the legal authority to reject
excessive rates. The Kaiser Family Foundation reports in at
least 17 States, including my own, California, State regulators
do not possess the authority to block or modify premium rates
prior to implementation.
The health reform law actually takes critical first steps
to help control premium increases and ensures that companies
spend more on medical care, not profits. The grants provided to
States to improve rate review processes have helped ensure more
information is available about all rate increases.
However, the health reform law does not grant explicit
authority to modify or block egregious rate increases. This is
a loophole, which is why during health reform I introduced
legislation to authorize the Secretary of Health and Human
Services to block or modify unjustified premium increases in
States where the regulator does not have that authority.
The Health Insurance Rate Review Act of 2011 is pending in
this house, and a like bill is also pending in the House of
Representatives. These bills create a Federal fallback rate
review process that grants the Secretary of Health and Human
Services authority to block or modify rate increases that are
excessive, unjustified, or unfairly discriminatory in those
States where there is not appropriate authority. This
legislation is a simple, commonsense solution, and we almost
got it included in the bill, but we did not.
And so since then, what's happening is these big for-profit
companies are raising rates wherever they can, sometimes once a
year, sometimes twice a year, and sometimes three times a year.
In 2010, I received over 1,700 letters from constituents
pleading with me to help them with their skyrocketing insurance
rates. Now, in California, the State insurance commissioner has
reviewed some filings. They disapproved 14. They were withdrawn
or negotiated to lower rates. So 6 percent were modified. I
suspect that if California regulators had an appropriate legal
authority, many more than 14 rate filings would have been
modified or withdrawn in 2010.
Let me give you an example of why the review of rate
filings is not sufficient, and why I believe authority to block
or modify is necessary. Just about everyone I think is familiar
with the increases that Anthem Blue Cross was set to impose in
February 2010, as much as 39 percent for 800,000 policyholders
in California. And in California, I should say, a couple of
these companies essentially control the major medical insurance
markets. So that as you spoke, Mr. Chairman, there isn't the
competitive competition that there might be otherwise.
And Anthem was not an aberration. Insurance companies in
California have continued to propose 30, 40, and even 80
percent cumulative premium increases. We have a very strong
insurance commissioner. We have a bill pending. His name is
David Jones. He's been successful in getting some of these big
companies to reduce or cancel their premium increases.
Recently, a number of insurance companies were set to impose
premium increases in my State, some as much as 80 percent
cumulatively. Commissioner Jones requested a delay of these
increases until he had a chance to review them, and the
insurance companies complied.
After review and pressure from him, Anthem Blue Cross
agreed to scale back planned rate hikes from 16.4 percent to
9.1 percent for 600,000 individual policies in the Department
of Insurance, and to delay implementation of these hikes. But
here's the catch. Anthem Blue Cross also serves individual
policyholders through the Department of Managed Health Care in
California. For over 120,000 Californians that receive their
Blue Cross insurance through this department, rates rose an
average of 16 percent on May 1 of this year. The Department of
Managed Health Care deemed these increases unreasonable, but
they don't have the authority to block them. This means that
the same companies scaled back rates for some individual
policyholders but not others, and I don't think that makes
sense.
Now, on page 43 of the GAO report, in the appendix are
general comments of the Department of Health and Human Services
on the Government Accountability Office's draft report, which
is this report. What they say is,
``For too long, insurance companies in many States
have increased health insurance premiums with little
oversight, transparency, or public accountability.
Health insurance premiums have doubled, on average,
over the last 10 years, much faster than wages and
inflation, putting coverage out of reach for millions
of Americans.
``As recently as December 2010, fewer than half of
the States and territories had the legal authority to
reject a proposed increase if the increase was
excessive, lacked justification, or failed to meet
other State standards. Additionally, many States that
had authority lacked the resources needed to exercise
it meaningfully. This lack of authority and resources
for States has contributed to unjustified premium
increases.''
And then it announces,
``Starting in September of this year, 2011, HHS is
requiring that all non-grandfathered insurers seeking
rate increases of 10 percent or more in the individual
and small group markets publicly disclose the proposed
increases and their justification for them. Disclosing
proposed increases along with the insurer's
justification sheds light on industry pricing practices
that some experts believe have led to unnecessarily
high rates.
``This transparency in the health insurance market
will help promote competition, encourage insurers to
work toward controlling health care costs, and
discourage insurers from charging unjustified
premiums.''
Then it goes on to talk about the Affordable Care Act.
I think this is a major step forward, Mr. Chairman. We
worked with the health department to try to get them rate
review authority as part of the bill. We failed. The lobbying
by the big insurance companies obviously was intense, but I
think suffice it to say we have a problem that's out of
control, and we have a lot of people suffering for it, and we
have a reduction in the number of people covered by this
insurance because people can no longer afford the premiums.
Now, whether they're doing this just because they know in
2014 the health insurance law goes into play, and therefore
they want to recover as much as they can before that, or simply
because they're going to raise rates as best they can to flush
up that bottom line, I think it's just as simple as that.
Let me conclude with this. A man by the name of T.S. Reid
wrote a book about health care all over the Nation. Probably
members of this committee have read it. And he concludes that
no nation on earth has really been able to reform health
insurance with a large for-profit insurance industry. That may
continue to be a problem. But I just want to thank you for
watching this carefully, because our people have to be able to
afford to be covered.
I wish we could get this rate review through. I thank you
for your support of it, and I wish the other side of the
aisle--and Ranking Member Enzi has always been fair. We've
worked together on other matters. But this one really cries out
for watching and for taking action to see that premium rates
are truly justified.
I thank you for the opportunity to testify.
The Chairman. Senator Feinstein, thank you very much for a
very eloquent presentation. I'd just say that I quoted a
constituent of mine who had written in about her increases. One
might just ask, well, why doesn't she just shop around and buy
something else? Two companies have over 80 percent of all of
the market in Iowa, and in some places in Iowa only one
company, United Health Care. There are no other options. It's
called monopoly.
Senator Feinstein. In the Los Angeles metropolitan area,
too, one company dominates, and it's a 16-million person
market, huge.
The Chairman. Yes. Thank you very much.
Senator Enzi. That's why I was pushing for the small
business health plans so the associations could group together
and possibly form their own insurance company to increase it.
But by having those groups we would have had some people who
would have been on a par with the insurance companies for doing
any of the negotiating, and I think that would have brought
down prices.
And, yes, I read that book, but I think the author missed
Switzerland.
Senator Feinstein. No, he was in Switzerland.
The Chairman. He did Switzerland.
Senator Feinstein. I'll send you the chapter.
Senator Enzi. OK.
Senator Feinstein. He was in Switzerland, and he found the
care pretty good there.
Senator Franken. I read the book. In Switzerland, he
interviewed--they had a battle there several years ago to
regulate the insurance companies, and the conservatives fought
it, but now they're very happy with it. He interviewed a
conservative and said, ``since this reform, has any Swiss
citizen gone bankrupt because of a health care issue,'' and as
you know, in this country, about 50 percent of bankruptcies, or
more, are in some part caused by health care challenges. And he
asked, ``has anyone in Switzerland since these reforms gone
bankrupt,'' and he said, ``no, that would be a shame, that
would be a disgrace.'' And, you know, they've made these
reforms in Switzerland.
The Chairman. Senator Feinstein, thank you very much. I
know you have other obligations. Thank you very much for being
here, appreciate it.
Now we'll welcome our panel, Steve Larsen, just Steve
Larsen on the first panel. Mr. Larsen is director of the Center
for Consumer Information and Insurance Oversight within the
Centers for Medicare and Medicaid Services. He comes with a
distinguished insurance background, has held a number of senior
positions with Amerigroup, a managed health care company, spent
6 years as a Maryland insurance commissioner. We last saw Mr.
Larsen here in March, when he shared his expertise on the
implementation of health insurance exchanges.
Mr. Larsen, we welcome you back to the committee. Your
statement will be made a part of the record in its entirety,
and if you could sum it up in--the clock says 5, but if it goes
to 7, that would be fine--5 to 7 minutes, we'd sure appreciate
it.
STATEMENT OF STEVE LARSEN, DIRECTOR, CENTER FOR CONSUMER
INFORMATION AND INSURANCE OVERSIGHT, CENTERS FOR MEDICARE AND
MEDICAID SERVICES, BALTIMORE, MD
Mr. Larsen. Thank you very much, Chairman Harkin and
Ranking Member Enzi, and members of the committee. Thank you
for the opportunity today to discuss the positive impact of the
Affordable Care Act on the affordability of health insurance
premiums for American families and businesses, including small
businesses.
The Affordable Care Act reforms the health insurance market
for the benefit of health care consumers, both individuals and
businesses. One important goal of the reforms in the Affordable
Care Act is to make sure that people and businesses receive
value for their health insurance premium dollars. The need for
this focus is clear. Over the last 10 years, health insurance
premiums have risen dramatically, and these increases in health
care costs outpace the rise in medical costs and the rise in
wages during the same period.
We know that this is not only a burden on individuals, who
often have seen their rates increase 20 percent a year or more,
but on small businesses as well. The rate at which small
businesses are offering coverage to their employees has dropped
in the last decade.
The Affordable Care Act helps to make health insurance
coverage more affordable in three key ways. First, it provides
States with unprecedented resources to strengthen the existing
processes that they have in place today to review proposed rate
increases by insurance companies. I know from my experience as
an insurance commissioner for 6 years how important the process
of bringing an independent review of proposed rate increases
can be for consumers.
But although the rate review process is important, we also
know that the resources and expertise for rate reviews varies
significantly across the States. The Affordable Care Act
provides $250 million in grants to assist the States and
territories in enhancing their health insurance rate review
processes. Since enactment of the bill, $48 million has been
awarded to 42 States, the District of Columbia, and the
territories. In February, the availability of approximately
$200 million more in additional grant funding was announced to
support the continuation of these efforts.
The grants are already having a major impact on State rate
review processes. As of June 2011, 18 States had proposed
legislation to increase their ability to review rates, 25
States had hired additional staff to review rates, 37 were
engaged in rate review contract activity, 33 States were
enhancing their IT capabilities, and 35 States were working to
enhance their consumer transparency and provide education to
consumers on the rate review process.
The second important tool that the ACA provides to ensure
that consumers receive value for their premium dollars are the
rate review provisions, which we've heard about. As Senator
Feinstein indicated, and you did, Mr. Chairman, beginning in
September, insurers seeking rate increases of 10 percent or
more for most plans in the individual and small group market
are required to publicly disclose the proposed increases and
provide basic information to consumers about the reasons for
the increase. These increases will then be reviewed by States
that have an effective rate review process, or by CMS as a
backstop to determine whether these rates are unreasonable.
We recently concluded an evaluation of State review
processes and found that almost all States will have an
effective rate review process and will be reviewing rate
increases beginning on September 1st. Many States, as I said,
enhanced their existing processes in order to meet the
standards for an effective rate review and drew on grant funds
as part of that process.
We know effective rate review works. Rhode Island's
insurance commissioner was able to use its rate review
authority to reduce a proposed increase by a major insurer in
that State by 6 percent, and I think actually today there was a
blurb that he had reduced a proposed increase by United Health
Care. Nearly 30,000 consumers in North Dakota faced a proposed
increase of 23 percent on their premiums that were reduced to
14 percent, and I think we'll hear about some of the great
review activity that the State of Oregon has done.
Finally, to ensure consumers receive value for their
premium dollars, the ACA established minimum standards for
spending by health insurance issuers on clinical services,
medical costs, and quality improvement activities for their
members, known as the medical loss ratio or MLR provisions. The
new MLR protections effective this year require that insurers
spend at least 80 percent or 85 percent, depending on the
market, of premium dollars on actual health care services and
quality improvement efforts rather than on administrative
expenses. Insurance companies that don't meet the standards
will be required to provide rebates to their customers.
Recognizing State flexibility, the law allows for a
temporary adjustment in the individual market MLR standard if a
State requests it and demonstrates to HHS that the 80 percent
MLR standard may destabilize its individual health insurance
market. We're already seeing indications that the MLR and rate
review provisions are benefitting consumers. We know from the
States that insurance companies are pricing to the 80 percent
standard for the benefit of consumers and have announced that
they will moderate future increases in order to meet the 80
percent standard.
States play a critical role in the implementation of the
Affordable Care Act, and we've worked actively with governors,
with insurance commissioners, Medicaid directors, and State
stakeholders to implement these programs. It's been our
priority to work collaboratively with our State partners as the
provisions of the Affordable Care Act go into effect.
So in conclusion, the Affordable Care Act includes a
variety of provisions designed to promote accountability,
affordability, quality, and accessibility in the health care
system for all Americans, and to make sure the health insurance
market is more consumer friendly, transparent, and responsive.
Thank you for the opportunity to testify today, and I look
forward to answering questions that you might have.
[The prepared statement of Mr. Larsen follows:]
Prepared Statement of Steve Larsen
Chairman Harkin, Ranking Member Enzi, and members of the committee,
thank you for the opportunity to discuss steps the Affordable Care Act
takes to help make health insurance premiums more affordable for
American families and businesses.
The Affordable Care Act reforms the health insurance market in a
way that puts American consumers back in charge of their health
coverage and care, ensuring they receive value for their premium
dollars. Further, by focusing greater attention on justifications for
insurance rate increases at the State and Federal level, we are already
seeing positive results.
The need for these actions is clear. Over the past 10 years, health
insurance premiums have risen dramatically. According to a 2010 survey
of employee benefits, premiums for average family coverage are up 114
percent and worker contributions are up 147 percent when compared to
2000.\1\ Further, these increases in premiums outpace the rise in
medical costs and wages during the same period. As a result, families
and businesses saw many of their gains in earnings wiped away by the
increased cost of insurance.
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\1\ http://ehbs.kff.org/pdf/2010/8085.pdf.
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making coverage affordable
The Affordable Care Act helps make coverage more affordable by
providing States with unprecedented resources to improve how States
review proposed health insurance premium increases and hold insurance
companies accountable for unjustified premiums increases. These
resources for States to strengthen their insurance premium review
procedures work in tandem with other policies in the Affordable Care
Act to create a powerful tool to help keep health insurance premiums
more affordable. These policies include:
Review of Insurance Rates brings an unprecedented level of
scrutiny and transparency to health insurance rate increases. The
Affordable Care Act ensures that, in any State, large proposed
increases will be evaluated by experts to make sure they are based on
reasonable cost assumptions and solid evidence. Additionally, insurance
companies must provide easy to understand information to their
customers about their reasons for significant rate increases, as well
as publicly justify and post on their Web site any unreasonable rate
increases. These steps will allow consumers to know why they are paying
the rates that they are.
Affordable Insurance Exchanges can, beginning in 2014
exclude health plans that show a pattern of unjustified premium
increases.
These new provisions will help moderate premium hikes and provide
those who buy insurance with greater value for their premium dollar.
For example, consumers in North Carolina are already feeling the
benefits of the Affordable Care Act, as Blue Cross and Blue Shield of
North Carolina refunded $155.8 million to 215,000 customers, in
response to provisions in the law.
partnering with states on rate review policies
States play a critical role in the implementation of the Affordable
Care Act. Since enactment, we have worked actively with Governors,
insurance commissioners, Medicaid directors, and other stakeholders to
implement programs to help consumers and businesses. It has been our
priority to work collaboratively with our State partners as the
provisions of the Affordable Care Act go into effect.
In recognition that States are the principal regulators of the
private insurance market, the Affordable Care Act empowers and supports
States to review unreasonable rate increases within their State, while
CMS serves as a back-up to review rates only if a State lacks the
authority or resources to do so. The Affordable Care Act provides $250
million in grants to assist States and Territories enhance their health
insurance rate review process. Since enactment, $48 million has been
awarded to 42 States, the District of Columbia, and the 5 Territories.
In February, the availability of approximately $202 million in
additional grant funding was announced to support the continuation of
such efforts. The applications for the additional grant funding are due
on August 15, 2011, with awards planned for the end of fiscal year
2011.
The Government Accountability Office (GAO) report Private Health
Insurance: State Oversight of Premium Rates shows that State insurance
departments are already making good use of the rate review grants. In
response to a survey conducted by GAO, 41 respondents from States that
have been awarded rate review grants reported that they are making
changes to enhance their health insurance premium oversight activities.
States are using these grant funds to support rate review by hiring new
actuarial staff, engaging in consumer transparency initiatives and
developing improved information technology infrastructure to collect
and analyze more robust rate filing data.
Specific examples of how States are improving their rate review
processes with grant funds include:
Tennessee is expanding the scope of rate review to small
and large group policies and granting the Department of Commerce and
Insurance prior approval authority and the authority to disapprove
rates.
New York is standardizing rate filing applications and
expanding the information collected across all product types when
reviewing rates.
Kentucky created a new consumer-friendly Web site with
Frequently Asked Questions (FAQs) on the rate review process and an
email box to collect consumer comments. Kentucky also hired six new
full-time employees to assist with reviewing rates.
Utah surpassed their goal of reviewing 50 percent of
individual and small group rate filings by reviewing 100 percent of all
submitted rate filings with the assistance of grant resources.
The Affordable Care Act establishes additional protections from
unreasonable insurance rate increases. Starting September 1, 2011,
insurers seeking rate increases of 10 percent or more for non-
grandfathered plans in the individual and small group markets are
required to publicly disclose the proposed increases and the
justification for them. Such increases will be reviewed by either State
or Federal experts to determine whether they are unreasonable. States
with effective rate review systems will conduct the reviews, but if a
State lacks the resources or authority to conduct actuarial reviews,
HHS will serve as a backup. Starting September 1, 2012, the 10 percent
threshold will be replaced with a State-specific threshold, using data
that reflect insurance and health care cost trends particular to that
State. For those States in which a State-specific threshold is not
established by that time, the 10 percent threshold will continue to
apply. If an issuer wishes to implement an unreasonable rate, it will
have to publish a justification for that increase on its Web site and
on www.Healthcare.gov.
After reviewing and considering more than 60 stakeholder comments,
CMS issued a final rate review regulation (CMS-9999-FC) on May 19,
2011. The final rule makes certain that potentially unreasonable health
insurance premium increases will be thoroughly reviewed, and ensures
that consumers will have access to clear information about those
increases. This analysis is expected to help moderate premium hikes and
provide those who buy insurance with greater value for their premium
dollar. Additionally, insurance companies must provide easy to
understand information to their customers about their reasons for
significant rate increases, as well as publicly justify and post on
their Web site any unreasonable rate increases. These steps will allow
consumers to better understand why their premiums are increasing.
The regulation (CMS-9999--FC) finalizes the proposed rule (OCIIO-
9999-P) that was issued on December 23, 2010. The final rule includes
several additions to the proposed rule that reflect feedback received
through the comment process. For example, the final rule includes a
requirement that States and CMS provide an opportunity for public input
in the evaluation of rate increases subject to review. This will
strengthen the consumer transparency aspects of the new rule. The
change from a 10 percent threshold in 2011 to a State-specific
threshold in 2012 was also based on public input. CMS will work with
States to develop State-specific thresholds that reflect the insurance
and health care cost trends in each State. In the final rule, due to
comments received from State regulators and other stakeholders on the
proposed rule, we requested further comment from the public on applying
the rate review rule to individual and small group coverage sold
through associations.
impact of rate review
CMS is committed to supporting the States as the primary regulator
of the private health insurance market. This new system has already
begun to help States strengthen or create rate review processes. As of
May 2011, 18 States had proposed legislation to increase their ability
to review premium rates, 25 States had hired additional staff to review
rates, and 34 were engaged in rate review contract activity. In
addition, 33 States were enhancing their IT capacity for rate review
and 34 States were working to enhance consumer transparency and provide
consumer education on the rate review process.
The rate review regulation establishes the criteria for determining
whether or not a State has an effective rate review program. HHS worked
closely with State regulators to determine if a State has an effective
program based on the criteria set forth in the regulation and has
notified the States of the Department's initial determinations. I am
pleased that 40 States and the District of Columbia will be reviewing
rates in all markets. This result serves to preserve the historic role
of the States in regulating health insurance markets.
Experience shows that rate review helps to lower the cost of
coverage for people and employers. Recent examples include:
Rhode Island's Insurance Commissioner was able to use its
rate review authority to reduce a proposed increase by a major insurer
in that State by 6 percentage points--lowering a proposed increase of
7.9 percent to 1.9 percent.\2\
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\2\ http://wrnihealthcareblog.wordpress.com/2011/03/09/koller-
slashes-bcbs-proposed-rate-increase/.
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Californians were saved from a third rate increase in less
than a year when a California carrier withdrew its proposed increase
after it drew scrutiny from the State Insurance Commissioner. The three
rate increases would have totaled as much as 87 percent for some
policyholders.\3\
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\3\ http://www.insurance.ca.gov/0400-news/0100-press-releases/2011/
release040-11.cfm.
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Nearly 30,000 North Dakotans saw a proposed increase of
23.7 percent cut to 14 percent after public outcry drew attention to
it.\4\
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\4\ http://www.inforum.com/event/article/id/314397/.
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In Connecticut, one insurer requested an increase of 20
percent. The Insurance Department rejected this increase as excessive,
and because of the law in Connecticut, it cannot go into effect.\5\
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\5\ http://www.hartfordbusiness.com/news15875.html.
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About 59,000 individual insurance customers were protected
from significantly higher premiums when the Oregon Insurance Division
rejected a 22.1 percent premium increase in favor of a lower, 12.8
percent increase.\6\
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\6\ http://www.oregonhealthrates.org/?pg=public_hearing.html.
These examples demonstrate the impact that transparency and
scrutiny can have to make health insurance premiums affordable for all
Americans.
transparency and accountability
As we have implemented these new programs and processes, we have
pursued them in an open and transparent manner. CMS has published
extensive information on our rulemaking and other decisions on the Web
site www.CCIIO.CMS.gov and on the consumer-oriented www.HealthCare.gov
to ensure that information is widely available for public input and
understanding.
For example, the Affordable Care Act requires the Secretary, in
conjunction with the States, to develop a process for the review and
disclosure of unreasonable rates. The implementation process began with
a Request for Comment published on April 14, 2010, and continued with a
proposed rule, published on December 23, 2010. HHS reviewed all public
comments and issued a final rule on May 19, 2011, with a 60-day comment
period related to association coverage.
The process for seeking public input continues after the issuance
of regulations. Based on comments and questions HHS, Labor, and the
Treasury have received on regulations issued to date, we have provided
additional interpretive guidance to affected parties on regulations
relating to grandfathering, medical loss ratio, PCIP, ERRP, internal
and external appeals, and provisions relating to annual limits on
health plan coverage. We continue to work with stakeholders to
implement the Affordable Care Act and to provide additional clarity.
conclusion
The Affordable Care Act includes a wide variety of provisions
designed to promote accountability, affordability, quality and
accessibility in the health care system for all Americans, and to make
the health insurance market more consumer-friendly and transparent. The
law is working to make coverage more affordable by holding insurers
accountable for the premiums they charge consumers.
The Chairman. Mr. Larsen, thank you very much for summing
that up. And as I said, your statement will be made a part of
the record in its entirety.
We'll start a round of 5-minute questions.
Mr. Larsen, I mentioned in my opening statement that
several insurance companies have reported their second-quarter
earnings over the past week. All indications are that the
industry is doing very well. After their first-quarter earnings
report this spring, when the medical loss ratio requirement was
first in effect, United Health Group's share price shot up 10
percent to a 3-year high; Humana's share similarly jumped 7
percent after the first quarter.
The chart I have up there basically illustrates the growth
trend across the insurance industry. Humana made almost $1.8
billion in profits last year, up about $700 million from the
year before; so from about $1.1, $1.2 to $1.8 billion in 1
year. Aetna continued to grow steadily, up to almost $1.8
billion also in profits. As I mentioned, United Health Care is
growing at a gargantuan rate. Their net profits last year were
$4.6 billion. Just last week, United Health Care announced
quarterly profits of $1.27 billion for one quarter, up 13
percent from the same period last year. Its shares have risen
44 percent this year, 44 percent. And the Standard & Poor's
index for large health insurance overall has climbed at a 40
percent rate in 1 year.
So it's no mystery, I think, what's feeding this. If you
look at the growth and the profits, that's on the left side, on
the right side is the premiums, family premiums. Those two
lines just about parallel each other. As the premiums go up,
profits go up.
So given these numbers, Mr. Larsen, what is your
perspective on the ability of insurance companies to remain
viable in the health reform area?
Now, we've heard that a lot of these numbers have gone up.
Certainly premiums have gone up. Some people may say, well, if
we hadn't passed the Affordable Care Act, that wouldn't be
going up. I don't know whether or not that is because, as
Senator Feinstein has alluded to, are they trying to get in
before the exchanges go into effect in 2014, get their prices
up as high as possible, or is this just simply market forces
saying, ``hey, if we can make more profit, make more profit,''
without anybody regulating or guiding it?
How does the Affordable Care Act, through provisions like
the medical loss ratio and the review of insurance rates, begin
to change the insurance market so that more premium dollars are
returned to consumers rather than just to company profits? Can
you elaborate on that, please?
Mr. Larsen. Thank you. I think both provisions will help
between now and 2014, certainly. I know with respect to some of
the major companies that have reported in some cases record
profits, in some cases their stock is trading at an all-time
high, I know some of the Wall Street analysts have indicated
that medical trends have been moderating somewhat, but the
premiums haven't lowered at the same rate of the trends. So
essentially some of the companies are benefitting from the
spread between their premiums and moderating medical trends.
The MLR standard particularly helps that because it forces
the companies to look down the road, and if they don't want to
pay rebates to consumers, they're going to have to moderate
their rate increases. In fact, we've seen and heard, both from
the States and I think from public reports, that companies are
now going to be pricing to 80 percent, and that means they're
going to have to moderate the rate at which their premiums are
increasing and track more closely to what actual medical cost
trends are.
The Chairman. I think, if I'm not mistaken, is your office
preparing for a second round of rate review grants? And if so,
how do you see these building on the first ones? Can you just
tell us maybe what some of the criteria for that would be?
Mr. Larsen. We are. There was a first round of grants that
we issued that was about $1 million per State that really just
laid the foundation for the States. I think, as was mentioned
earlier in Senator Feinstein's testimony, I think it's in the
GAO report, a huge variation among the States, and particularly
on the resources that the States have to perform this review.
So the second round of grants will enhance the work that's
been done so far. Again, the first round is the building
blocks. It helped get a lot of States to a basic level, but I
think the next round is really going to improve the capability
of the States between now and 2014.
The Chairman. I have one more question I'd like to ask, but
I see my time is basically up. So I'll ask it maybe in the next
round, Mr. Larsen.
Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
Some folks in the Administration are still having a problem
understanding the CBO scoring that the new health care law
would increase insurance premiums. CBO said the average premium
would be 27 to 30 percent higher because Americans would be
forced to obtain a greater amount of coverage mainly because of
more mandated benefits. But they also said that the average
premiums would be 7 to 10 percent lower because of greater
administrative efficiencies, and the average premiums would be
7 to 10 percent lower because of healthier people getting
coverage.
If I subtract 27 minus 7 minus 7, I come up with 13 percent
increase. So would you agree that CBO said the new health care
law will increase premiums by about 13 percent?
Mr. Larsen. As you point out, there were a number of moving
parts in the CBO analysis, and they did analysis for both the
individual small group and large group markets. So with respect
to the small group market, there were factors that could lead
to increases and factors that they thought would lead to
decreases. So, for example, in the small group market I think
it was a wash or to the good for the small group market,
particularly because of the efficiencies that small businesses
are going to get. And again, I think it was similar for the
large group market as well.
And I think with respect to the individual market, I don't
recall exactly. Again, as you point out, there were moving
parts. Certain aspects of it, by improving the risk pool and
getting more healthy people into the risk pool, that was going
to improve the overall experience of the individual market, and
then there were some additional benefits that would move in the
other direction.
So I don't recall the exact pluses and minuses that were in
the CBO report, but I think we certainly took the view when we
put out some of our regulations that the impact was going to be
in potentially small numbers, but when you add in the
preventive care and other benefits that you get, that it was
going to be a benefit for health care consumers.
Senator Enzi. The Congressional Research Service confirms
that all new plans will be forced to have essential health
benefit packages that are dictated by the Secretary. It's also
interesting to me that Secretary Sebelius used to be an
insurance commissioner, and she didn't use her authority to
change the rates. She kept a merger from happening once but
never changed the rates.
Now, on a different question, apparently HHS prohibited the
Institute of Medicine from considering cost implications when
they drafted the recommendations that will mandate women's
clinical preventive services that insurers must provide for
free. To the extent that the Federal Government will now be
subsidizing many insurance plans, if these mandates increase
costs, won't that increase the Federal deficit? And why did HHS
prohibit the Institute of Medicine from considering the cost of
these new mandates?
Mr. Larsen. The IOM recommendations with respect to women's
preventive services, those apply only in the private insurance
market. So I'm not sure what you mean by the Federal Government
subsidizing it.
But with respect to your second question, the statute with
respect to all of the preventive services that non-
grandfathered plans are required to provide are not applied
with respect to cost/benefit analysis. So we didn't, I don't
think, prohibit IOM. It wasn't part of the legislative charge
or the charge. They had a panel of medical experts that looked
at the efficacy of these various preventive services and found
that they were effective, and that's why IOM presumably
recommended them to HRSA and the Secretary.
Senator Enzi. I have several questions, too, about the way
that children-only policies are, but I have somebody that's
really worked on this. Senator Murkowski has done a lot of work
on that, and I'll let her handle those questions and any others
she's interested in.
The Department of Health and Human Services will write a
$250 million check for the grants for these rate reviews that
you were mentioning. Forty-six States have already gotten
funding. How many of these State recipients claimed more
stringent rate review policies would lead to decreased overall
health care spending in their State? Does merely reviewing a
rate increase result in lower health care costs?
Mr. Larsen. We absolutely think that there is huge value in
reviewing rates, in bringing transparency and sunshine to the
rate review process, and I think some of these examples that
we've cited earlier--you know, not every State, as was pointed
out, has prior approval authority. But simply reviewing and
bringing to light the underlying issues associated with a rate
increase can have the effect of having insurance companies go
back and sharpen their pencils and revisit the proposed rate
increases.
So we think review alone is a very powerful tool.
Obviously, many States have a prior approval authority, which
provides even more protection to consumers. But we think the
baseline of review is a good place to start.
Senator Enzi. Thank you. My time has expired.
The Chairman. Thank you, Senator Enzi.
I have in order of arrival Senator Franken, Senator
Murkowski, and Senator Blumenthal.
Senator Franken.
Statement of Senator Franken
Senator Franken. Thank you, Mr. Chairman.
Thank you, Mr. Larsen, for your testimony. Mr. Larsen,
experts agree that rising health care costs in our country are
unsustainable for the Federal Government, for States, and for
consumers. During the health reform debate, I looked to
Minnesota for ideas to bend the health care cost curve, and it
struck me that our insurers were offering high-value products
in Minnesota, where most of the dollars they took in premiums
were going directly to health care services, but it wasn't that
way everywhere.
In some States, the so-called medical loss ratio for
individual and small group policies was as low as 60 percent,
50 percent, or even 40 percent, meaning that insurers were
spending only 40 percent of their dollars from premiums on
health care services.
Based on Minnesota's experience, I introduced a bill that
was ultimately included in the health reform requiring insurers
to spend at least 80 in the small group and individual markets
and 85 percent of insurance premiums on actual health care
services in the large group market.
During a hearing before this committee in March, you
testified that you had already seen premiums go down due to
MLR. Can you walk us through some of the examples of how you've
seen the MLR provision help to moderate premium increases?
Mr. Larsen. The couple of ones that I can cite off the top
of my head. First, in the process of reviewing requests from
the States to adjust the MLR standard between now and 2014,
there's a process. You know, if some States are starting at 50
and it's a heavy lift to get there, to 80 percent in a year, so
States can submit a request to adjust those. And we have quite
a bit of back and forth with the States in that process, and
what we've learned is that many States who were at much lower
than 80 percent are now pricing to 80.
What that means is, when I say pricing to 80 percent, is
that they have to make sure that they are not charging so much
to their consumers that they're continuing to generate that
lower loss ratio. So what that results in practically speaking
is a moderation of the rate increases that they otherwise would
have gotten. So that's one thing we've seen.
And then also a number of the publicly traded companies
have announced that rather than paying rebates, they will
moderate their pricing, and then I think Coventry indicated
they would do that. I think we heard Wellpoint was going to be
looking at shaving some of their administrative expenses and
trying to be more efficient. So across the markets, we are
seeing that happen.
Senator Franken. Aetna in Connecticut, I understand, is--
--
Mr. Larsen. Yes. That was a perfect example.
Senator Franken [continuing]. Lowering their premium, on
average, 10 percent.
Mr. Larsen. Right.
Senator Franken. OK. Mr. Larsen, CCIIO----
Mr. Larsen. CCIIO?
Senator Franken. Yes. CCIIO has already granted MLR
waivers to five States to phase in the requirements on insurers
in the individual market. I'm extremely concerned that these
waivers are being granted without sufficient evidence that
these States would truly see a disruption of their insurance
market without such a waiver. In a recent waiver that CCIIO
granted in Nevada, it was clear that the State did not make its
case. In fact, it appeared that CCIIO relied on information
that wasn't even included in the application to make its
decision, and out of the six waiver applications that have been
decided, only one has been rejected.
I wrote a letter to Secretary Sebelius 2 months ago
expressing my concern about the number of waivers being
approved. Since then I have not received a response, and two
more waivers have been approved.
First of all, can I expect a response to that letter, and
when? And second, can you address the concern that CCIIO is
willing to give waivers to nearly any State that applies, even
if they do not provide necessary data? Approximately how much
money will consumers lose in the States where insurers are
granted waivers that don't have to spend even just 80 percent
of insurance premiums on actual health care services?
Mr. Larsen. Thank you. And first, let me personally
apologize to you for not getting a prompt response back. I will
make sure that you get that as soon as I get back to the
office.
Senator Franken. Thank you.
Mr. Larsen. With respect to the six requests for
adjustments that we've gotten, we take that review process very
seriously, and it's a very in-depth process. If you've had or
your staff had the opportunity to look at the letters that we
send back and forth, there's a record that's developed. It's an
extensive record. We have denied one, and of the others that we
have approved, I can tell you that we modified every request
that has come in. We have not granted the request as it came in
the door.
Ultimately it's a balancing act, right? We want the
consumers to make sure they get the benefit of the 80 percent
provision. Some States have a number of smaller companies that
in some cases are kind of on the edge of making money or not
making money, and these are the ones that we're most concerned
about leaving the market. And if there aren't other options
available to individuals in the market, we don't want them--if
the company were to leave, and some of them have said they
would leave--they don't always explicitly threaten they're
going to leave, but sometimes they tell the commissioner,
``look, if we have to hit that 80 percent in 1 year, we may
have to leave the market.''
So we try and reach a balance in doing that, and I think
the decisions that we've rendered where we've not granted what
the insurance commissioner requested, tried to get as close as
we can to 80 percent as quickly as we can, I think that's
reflected in our decisions, and we support the MLR provision.
We think it's incredibly important, and we'll continue to look
at these very closely.
Senator Franken. Thank you, and I look forward to a
response to my letter.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Franken.
Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Mr. Chairman.
Senator Enzi, you mentioned the child-only policies and
that as an issue. I thank you for your leadership on this
aspect of health care and the study that you have conducted,
along with your staff.
Alaska is one of these 17 States now that has been impacted
in really a very, very harsh way. We currently have no child-
only policies since the Affordable Care Act went into effect.
It's not only been harmful to my State, but as I look around
the dais here, Minnesota now does not have one, Connecticut
does not have one, and Wyoming does not have these child-only
policies. And I think it's fair to say this is harmful to these
States where we don't have any coverage. We've got to deal with
this.
I've been working on legislation that would allow parents
and grandparents in my State and any other State to purchase
child-only policies across State lines to ensure that we're not
leaving any of these children behind. The legislation would
also require the Department of Health and Human Services to
issue a uniform annual enrollment period of at least 45 days.
Mr. Larsen, I appreciate your testimony here today. A
couple of questions for you, and these relate to the news
stories that describe the burden that this provision has on
these 17 States. The main concerns are that the child-only
policies do not have uniform open enrollment policies so
parents can sign their kids up for insurance on the way to the
emergency room, and then this adverse selection prompts
carriers to exit the child-only market. I think it goes without
saying that as a direct result of this policy, what we're
seeing is our Nation's children are put in a very difficult
position.
Now, we can talk about who is at fault here, whether it's
the insurers or whatnot. I'm not here to defend the insurers.
But the question to you this morning would be what other
options are out there to these children in the 17 States
currently? Maybe there will be more. What other options exist
when there's only one insurer that's writing child-only
policies left in the market, and what is the Administration
doing to help get children access to insurance?
Mr. Larsen. Thank you. And we certainly share your concern
about what has happened, and it's been disappointing, frankly,
to see the reaction of the insurers who--we've given them a
number of tools that they can use to manage the risk. They can
charge higher rates. They can have their own open enrollment
periods. We've given them almost every option to insure both
the sick and the healthy kids, and I think it's clear that they
ultimately didn't want to insure the sick kids. So they've
decided to not participate in some of the markets.
I want to make clear that this doesn't affect kids that are
currently covered. They've stopped issuing new policies.
And I think there are a number of options available in the
States. First of all, as you point out, States have employed
different tools. Some have passed legislation requiring that if
you're in the individual market, you also have to cover child-
only policies. We know under the ACA, and this is new, that
kids now have coverage through their parents' policies up to
age 26. So to the extent that there's parental coverage, you
have access to that under the new provision under the ACA.
We've also made some changes to the PECIP program, the Pre-
existing Condition Insurance Program that operates across the
States to, No. 1, lower premiums so that they're more
affordable; and No. 2, to make it easier for kids to get into
the PECIP program. We've allowed insurers to screen kids for
availability in other programs like PECIP, like the CHIP
program. So when you put all of these provisions together, we
think there are many avenues for access for kids, and then
there are tools available for the States and the issuers like
open enrollment periods, and we encourage that.
Senator Murkowski. Is the Administration planning on
issuing guidance that defines a uniform open enrollment period?
Mr. Larsen. We haven't yet, in part because we have seen--
--
Senator Murkowski. Do you think, though, that it makes
sense to do so?
Mr. Larsen. We can. I mean, our preference, frankly, is for
the States to design a State-based solution, and that's why
many States have enacted open enrollment periods.
Senator Murkowski. Right. But in a State like Alaska,
where we don't have anybody there, 16 others don't have anybody
there, we're really caught in a bind. And, of course, Alaska's
population is low enough that we're not very attractive to too
many insurers coming into the market in the first place. So
when we lose those that will write the child-only policies,
we're stuck.
So my proposal to allow for purchasing across State lines
is one avenue. But I think we recognize that even with the
expansion of Medicaid and the SCHIP, the fact of the matter is
you're going to have a lot of children whose parents won't
qualify for either of those programs, so we've got a real gap
here. And I appreciate the fact that the Administration
recognizes that, but you've got to be working with us so that
we can find these solutions so we don't leave these kids
hanging, as I believe that we are.
Mr. Larsen. We can certainly look harder at that as an
option. Again, I think our initial preference is, because
States were taking action, not to override what the States were
doing. But if we're at the point where States have done as much
as we can, then we can certainly look at kind of a backstop
open enrollment provision for States that, for whatever reason,
still have an issue for these kids.
Senator Murkowski. Mr. Chairman, my time is expired. I do
have another question on the flexibility that's granted to
States, but maybe we'll do that in a second round. Thank you.
The Chairman. Thank you very much.
Senator Blumenthal.
Statement of Senator Blumenthal
Senator Blumenthal. Thank you, Mr. Chairman. I want to
thank the Chairman for having this hearing on a very important
topic.
And thank you, Mr. Larsen, for your continuing work on this
very complex and profoundly important issue.
I know a little bit about it from the standpoint of a State
official, having served as attorney general in Connecticut,
having actually participated in a number of hearings on rate
review issues, hearings that were not required under
Connecticut law. One of the weaknesses of Connecticut law is
that hearings are not required. Rates can go into effect
without prior approval, and despite your citing an example in
Connecticut and, I agree, a very encouraging example of one
insurance proposal being cut as a result of, in effect, public
notice and attention being focused on that proposed increase of
20 percent, there are still more examples of rates going up
than rate proposals being cut. And I venture to say that's true
across the country.
So let me begin with a question based on my experience.
Would you agree that prior approval or disapproval is a very
important feature of effective rate review?
Mr. Larsen. If I can answer it this way, we define
effective rate review in the context of the provisions that
were in the ACA, which is truly a review process. If the
question is in the spectrum of activities that kind of fully
protect consumers, at one end you've got States that had file
and use, use and file, where rates could go into effect really
without any review, and then you've got a review process and
public disclosure and public input, and then kind of at the
other end of the spectrum is prior approval, certainly the
prior approval provisions and the protections that Senator
Feinstein indicated provide the maximum level of protection to
consumers that the commissioner can modify or deny a rate
increase.
Senator Blumenthal. In my personal view, without being
excessively critical of my own State, I believe that our rate
review system should absolutely be strengthened by providing
more transparency and accountability, including the opportunity
for citizens to participate and for prior approval by the
insurance commissioner after that kind of process, and a right
of appeal, which many States lack as well. Would you agree that
that right is also an important feature of accountability?
Mr. Larsen. I think those are all important features of a
full and fair rate process, public input and the right to
appeal.
Senator Blumenthal. Aside from the grants that you can
provide, and thank you for benefitting Connecticut with a grant
among the other States that you've done, what more can the
Administration do, do you think, to encourage more accountable
and effective review systems across the country given its
present authority?
Mr. Larsen. We're certainly in the process of granting,
making and administering the grants. I mean, we have a lot of
back and forth with the staffs of the insurance departments,
and hopefully we can play a role in kind of cross-pollinating
ideas from different States. We get asked that question a lot,
and so we can certainly provide more technical expertise, let
States know what the activities are in other States. We're
working with the NEIC in that regard as well.
In terms of as we evaluate the progress that States are
making in executing on their grant plan, we certainly want to
hold them to standards and make sure they're doing what they
said they were going to do to get the grant. I think that's an
important part of maintaining an effective rate review process.
Senator Blumenthal. Would you say that the industry could
do more in perhaps encouraging that kind of review, especially
companies in the industry, and unquestionably there are some,
who want a responsible and accountable system?
Mr. Larsen. It's been my experience the industry is usually
kind of wary of the rate review process.
Senator Blumenthal. Wary is a euphemism.
Mr. Larsen. Not weary, but wary, yes, or maybe both.
Senator Blumenthal. Or maybe both. But certainly they can
be encouraged to play a more----
Mr. Larsen. I think if they felt that it was a fair
process, which I think it should be, can be, and is, but I
think they have to feel that it's a fair process to engage in
it as well.
Senator Blumenthal. Would they feel, do you think, and
would you feel--two separate questions, I suppose--that a
fairer process would be one administered at the Federal level
that might be applied more uniformly nationwide?
Mr. Larsen. You know, I don't know how to answer that. I
think that most--my experience was most companies want, and we
want, for the reviews to be conducted at the local level by the
local State insurance commissioner who is more familiar with
the market, and where people are situated that are covered by
the policies. So it's not our objective to have a large Federal
involvement in the rate review process. It's our objective to
have that performed at the State level, and we're only
performing what I described as a backstop function. Only where
States can't get to an effective rate review point will we be
doing the reviews.
Senator Blumenthal. Thank you. My time has expired, but I
would welcome a continuing dialogue or conversation on this
issue. Thank you very much.
Mr. Larsen. Thank you.
The Chairman. Thank you, Senator Blumenthal.
Senator Hatch.
Statement of Senator Hatch
Senator Hatch. Thank you, Mr. Chairman. Thank you for
having this hearing to discuss the rising cost of health care
in this country and how the health law has so far failed to
deliver its promise to reduce premiums for individuals,
families, and businesses.
CMS just recently published their annual National Health
Expenditures report that shows that as a result of the health
law, premiums will increase by 9.4 percent in 2014, and I would
like to ask for unanimous consent that my opening statement be
included in the hearing record, along with the health affairs
article written by the CMS Office of the Actuary on National
Health Care Spending.
[The article referred to may be found in Additional
Material.]
The Chairman. So ordered.
Senator Hatch. Thank you, sir.
Welcome, Mr. Larsen. Appreciate the work you're doing and
trying to do there at CMS.
CMS recently published its annual National Health
Expenditures report for 2010. The report found that the health
insurance premiums will increase by 9.4 percent in 2014 as a
result of the President's health law.
In your testimony you discuss two tools, as I view it, that
the Administration is using to decrease the rate of premium
increases. However, the central premise or promise of the law
was that it would reduce premiums, not reduce the rate of
growth in premiums.
Now, in the light of the new report issued by your agency,
how can the law keep its central promise of reducing premiums
by $2,500?
Mr. Larsen. First, my understanding of the NHE report was
it showed that the rate of health care spending for last year
was at the lowest that it had been in many, many years. In
fact, the rate was moderating, and I think that's a significant
point.
I apologize. I'm not able to speak, I guess, to the
estimates by the CMS actuary. I know that--I guess it's the
difference between what rates would have been with or without
the ACA. But, I mean, we continue to believe that the
Affordable Care Act is going to moderate, significantly,
premiums. Now, how it's going to do that in the different
markets depends. Certainly with respect to health insurance
exchanges, I know that for the small businesses, they're going
to have opportunities that they don't have today, and they're
going to get efficiencies through the exchanges that they don't
have today.
So we continue to believe that the tools that are available
in the ACA are going to help moderate--
Senator Hatch. The CMS National Health Expenditures report
also found that prescription drug spending will increase by
10.7 percent in 2014, which is 5.1 percent higher than without
the health law; physician and clinical services will increase
by 8.9 percent in 2014, which is 3.1 percent higher than
without the health law; and hospital spending will increase by
7.2 percent in 2014, which is 1 percent higher than without the
health law.
Now, this report shows that the President's health law did
not reduce the cost of health care in the long run and instead
will bend the cost curve in the wrong direction. Do you agree
with your own chief actuary that the cost of health care
continues to rise and that the tools under the President's
health law will not bend the cost curve downward in the long
run?
Mr. Larsen. I don't agree, but I have to admit that I
haven't reviewed the CMS actuary's estimates. But I do know
that the--
Senator Hatch. All right, that's fair. In your written
testimony you said that, ``States are the principal regulators
of the private insurance market.'' Now, how does the rate
review program established under the President's health law
respect the States' role as principal regulator of the law if
the law requires the Federal Government to conduct rate review
in States without a Federally approved process for reviewing
rates?
Mr. Larsen. That's an important question, and I think we
touched on it a little bit in the prior exchange. Our
objective, and I think we've largely reached that, is for the
States to be the primary reviewer. So we just completed an
evaluation of all the States and the level of effectiveness
that they have, and I think we found that only seven States so
far were not effective, meaning that the vast majority of
States are effective. And even those ones that aren't, at any
point they can come back to us and say, ``look, we've got some
kind of authority to review rates,'' because that's usually the
biggest barrier. Some States don't have an existing State law,
and a lot of States passed legislation this year.
But the vast majority are effective reviewers, and we will
do everything we can to support the small number of States that
are left to get them there.
Senator Hatch. OK. Now, you have an entire section in your
testimony focusing on transparency and accountability. However,
there are a number of areas where the Administration, in my
opinion, has fallen short on both. For example, the preventive
benefits that were mandated for coverage by August 1 of next
year will not receive a public comment period. I sent a letter
to the Secretary asking that she fully consider the impact of
these benefit mandates and urged her to provide a comment
period. However, none was provided.
Now, can you please tell me why the Administration is
seemingly transparent in their implementation process for some
programs but not all?
Mr. Larsen. When we issued the initial interim final rule
on preventive services last year, we did get comments on
various aspects of preventive services and what should be
included and the cost and things like that. So we took those
comments into account when we just issued the latest decision
with regard to women's preventive services.
So we do feel like we took comment. We responded to the
comment. Nonetheless, I think in the amended interim final rule
that we just put out, we have an initial comment period, and if
we get comments that indicate that we should revisit the
policies that we just announced, then we will do that.
Senator Hatch. Mr. Chairman, I have to leave, but can I
ask just one other question? I think if it hasn't been asked,
it should be asked. And that is, do you believe that a majority
of the employers will be incentivized to stop providing health
insurance as a result of the employer mandate and penalties
under the law?
Mr. Larsen. We think that employers will continue to offer.
And, in fact, the rate of offers by particularly small
businesses will increase between now and certainly when the
exchanges are online in 2014.
Senator Hatch. You actually believe that?
Mr. Larsen. Yes.
Senator Hatch. OK.
Mr. Larsen. And I think that there are a number of studies
from Rand and the Urban Institute that also make that
projection.
Senator Hatch. OK. If you could submit those to the
committee, I'd like to read them.
Mr. Larsen. OK.
Senator Hatch. Thank you so much.
Thanks, Mr. Chairman.
[The prepared statement of Senator Hatch follows:]
Prepared Statement of Senator Hatch
Mr. Chairman, I want to thank you for the opportunity to
comment on the well-documented increases in health insurance
premiums in the last year and their relationship to the
President's health care law. Although the President promised to
reduce premiums for all Americans by $2,500, a report published
last week by the Centers for Medicare and Medicaid Services
shows that premiums will increase by 9.4 percent in 2014. The
impact of these increases will be catastrophic for American
families forced to purchase insurance by the individual
mandate, and for taxpayers who will have to foot the bill for
the health law's subsidies for these inflated premiums.
In fact, the annual report by CMS on national health
expenditures for 2010 found that by 2020, once the President's
health law is fully implemented, $1 in $5 of the American
economy will be spent on health care. The health share of the
gross domestic product (GDP) will increase from 17.6 percent in
2009 to 19.8 percent in 2020. The report also found that the
President's health law doubles the size of entitlements to $2.3
trillion by 2020; increases prescription drug spending by 10.7
percent in 2014; increases physician and clinical services by
8.9 percent in 2014; and increases hospital spending by 7.2
percent in 2014.
It is safe to say that in the history of ill-conceived
Federal lawmaking, no law has failed as magnificently and
predictably as the President's misguided and misleading effort
at health care reform. The central promise of the White House's
partisan health law was that it would reduce health care costs,
but unfortunately, as the report by CMS shows, this law is only
making things worse. By implementing further price controls,
Federal mandates, and tax increases on health products, the
Administration is only exacerbating the high cost of health
care for individuals, families and businesses.
Estimates from the Congressional Budget Office show that
premium increases, as a result of the new law, could be as high
as 27 percent to 30 percent in the individual market. I will
continue to work to repeal the President's health law to ensure
that these premium increases are not fully realized. The
Administration should take heed of the recent report by CMS
which demonstrates the true impact of the President's health
law on insurance premiums. Only by first coming to grips with
the fact that the health care law is bending the cost curve
upward, will we be able to prevent the law's costly mandates
from being implemented and further hindering access to health
insurance for all Americans.
The Chairman. Thank you, Senator Hatch.
Senator Hagan.
Statement of Senator Hagan
Senator Hagan. Thank you, Mr. Chairman.
Mr. Larsen, thank you for your testimony. I appreciate the
work that your office is doing, and I do hear from my
constituents on a regular basis about how frustrated and
concerned they are that their insurance premiums obviously
continue to rise.
In your experience, can you tell me what are the top three
reasons that health insurance insurers continue to have such
large increases in rates?
Mr. Larsen. There are a number of different reasons. I
mean, the insurance companies would indicate that they are
simply passing along health care costs that they see. Health
care costs are driven by kind of a unit cost, how much they're
paying for a doctor visit or a hospital stay, and then how many
of these services they're delivering. So there are a number of
different reasons why costs increase, and I think one of the
things that this provision, this rate review provision is going
to get at is bringing transparency to exactly why rates are
going up.
I think there's not always a good answer to your question,
and I think there's a lot of confusion, and that's I think--I
may not be answering your question, but I think that's the real
benefit of this provision, is for the first time we're going to
have a uniform disclosure form about what it is that's driving
these rate increases, and then we can have a discussion about
why they're going up.
Senator Hagan. As a follow-up, the 10 percent threshold
that you mentioned in your testimony, is that a good benchmark
for the percentage increases we should expect to see in the
future? Or should we perhaps expect further reductions in
premium increases? In other words, when States set their own
specific thresholds starting in 2012, do you expect that the
threshold will be greater or less than 10 percent?
Mr. Larsen. That's going to vary by State, and I think that
raises a good point. The 10 percent was a starting point. We
looked at a number of medical trend indices and landed on 10
percent. We thought that was the best one to start with. It is
a national number, but we all know that markets, insurance
markets are very local, and the rate of increase in one State
can be a lot different in another. Cost factors are different.
So the 10 percent may turn into a 12 percent in one State and a
9 percent in another State depending on local factors.
Senator Hagan. I hear from constituents all the time,
particularly small businesses in North Carolina, and they too
are frustrated because their premiums obviously continue to
increase. Under these new regulations, will there be an
opportunity for consumers to file requests for reviews of
premium increases either with you in your office or their State
insurance commissioner?
Mr. Larsen. The way it's structured now, the consumers
don't have the ability, I guess, to ask for a review formally.
We did add into the final rule that we issued an explicit
provision that requires States to have public input in some
way, because many States had no public input into the process.
The reviews are actually triggered by simply a rate being
filed that's over the 10 percent. So the reviews don't depend
on whether someone asks for them. They're kind of automatic
based on that trigger. But we did, as I say, add in that
provision for explicit public input into the process.
Senator Hagan. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Hagan.
I thought about your question about why are these increases
going up, and before you arrived I talked about letters I had
received from my own constituents on this. And I don't know
what it's like in North Carolina, but in Iowa, when you have
two carriers that have over 80 percent of the market, and in
some areas of my State only one carrier, this is a monopoly
practice--why are the rates going up? Because they can. I used
that chart there to show the increase in the profits that these
companies are making, and then you look at the increase in the
premiums and they just about match.
So that's why rate review is so important. Both rate review
and medical loss ratio that we put into this are so important
to try to get on top of this. And as Mr. Larsen said, the
transparency, at least getting the information out there of
what's happening, because a lot of times we just don't know.
There's kind of like a cloud out there. We can't really know
what's driving those costs.
We do know that from 1999 to about the middle of this last
decade, insurance costs went up about 131 percent, but the
medical inflation was only 31 percent, so 100 percent more than
the medical rate of inflation. So some of these companies are
doing quite well.
Mr. Merkley, did you have any questions for Mr. Larsen?
Senator Merkley. Thank you, Mr. Chairman. I'm going to pass
so we can go on to the next panel.
The Chairman. OK. Mr. Larsen, thank you very much for being
here again for the second time.
Oh, I'm sorry. Senator Murkowski.
Senator Murkowski. May I just ask a very, very quick
question? This follows on the discussion earlier about the
flexibility to the States.
Ten States were told at the end of June that they have
insufficient rate review authority--you mentioned that as
well--and that they might be taking them over. HHS is taking
them over in September if they don't get it fixed.
You also mentioned the fact that several of these States
lack that authority to fix it, and unfortunately, it's my
understanding many of these States don't have legislators that
are currently in session. In Alaska, we passed a law this year
to address this, the rate review structure. It goes into effect
January 2012. But what is going to happen is that HHS is still
going to step in for this period between September and the date
that it goes into enactment, and I really have to question how
this promotes States' flexibility.
You've got a State that lacked the authority. We passed the
law to gain it. It doesn't quite mesh with the requirements
under the law, and so we've got a 3-month period where you all
step in. Does this really promote the flexibility that we're
hoping for? It just doesn't seem like it works to me.
Mr. Larsen. I think you put it well when you said it
doesn't quite mesh. We're kind of caught in the switches
between the September 1 date in the regulation and the date
that your law takes effect. I can certainly go back and talk to
our staff. I mean, the one thing we wanted to make sure is that
somehow or another the consumers in the State of Alaska were
going to get the benefit of the law, and my understanding was
that until the law took effect for the markets that are
involved in Alaska, that the insurance department there didn't
have the authority to actually get all the information to do
the reviews.
So the challenge for us is, like I said, we would prefer
for the States to do it.
Senator Murkowski. And we would as well.
Mr. Larsen. Right.
Senator Murkowski. We'd like to work with you on this to
see if there's some way. It just seems highly inefficient and
goes against the goals here for you to have a 3-month----
Mr. Larsen. Yes. I mean, our challenge would be if there
were--if you couldn't do it and we didn't step in, and then
you're going to have companies who are going to be raising
rates typically for January. So this is the period of the year
when they're looking for increases, and the rates aren't
getting reviewed, and then probably you and HHS and others are
going to get asked, well, how come these rates aren't getting
reviewed? We thought we were supposed to get that.
So I think we have the same goal, and if there's a way to
get there----
Senator Murkowski. Alaska's situation is probably unique,
but it does also bring up the issue for these other States
that, again, lack the authority. Their legislatures are not in
session to do anything about it, and you're just kind of hung
in there. I'd like to know that perhaps we can be working with
you so that we provide for the information that we're all
hoping for without some really serious inefficiencies within
the system.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Thank you, Mr. Larsen, for being here again.
Mr. Larsen. Thank you.
The Chairman. We'll call our next panel. Our next panel
will have three witnesses.
Mr. John Dicken, Director for Health Care Issues at the
U.S. Government Accountability Office, where he directs GAO's
evaluations of private health insurance, long-term care
insurance, and prescription drug pricing issues.
We have Daniel Withrow. Mr. Withrow is president of the CSS
Distribution Group, an international packaging company
headquartered in Kentucky, and his testimony covers the U.S.
Chamber of Commerce.
I will yield to Senator Merkley for purposes of the third
introduction.
Statement of Senator Merkley
Senator Merkley. Thank you, Mr. Chairman. It's my pleasure
to introduce Teresa Miller, Oregon's Insurance Division
administrator. I commend her for her stellar work leading
Oregon's Department of Consumer and Business Services Insurance
Division.
She joined the Division in 2008, bringing a background in
legislative and policy issues, previously having worked as
legislative director for former Oregon governor Ted Kulongoski.
As insurance administrator, she oversees a staff of 100 and an
annual budget of $10 million. In addition to regulating health
insurance rates in the small group and individual markets, the
Division protects consumers by licensing insurance companies
and agents, making sure insurers are financially sound,
reviewing policies for consumer protections, and investigating
potential violations of insurance law.
She has done a superb job of bringing diverse parties to
the table and of taking Oregon forward based on a strong rate
review statute which preceded Congress' passage of the
Affordable Care Act.
Delighted you're here to share your insights. Welcome.
The Chairman. Thank you, Senator Merkley.
And welcome, Ms. Miller.
We'll start with Mr. Dicken and then go across. Your
statements will all be made a part of the record in their
entirety. If you could sum up in 5 to 7 minutes, we would
appreciate that.
Mr. Dicken, welcome and please proceed.
STATEMENT OF JOHN DICKEN, DIRECTOR OF HEALTH CARE, GOVERNMENT
ACCOUNTABILITY OFFICE, WASHINGTON, DC
Mr. Dicken. Thank you. Mr. Chairman, Ranking Member Enzi,
and members of the committee, I am pleased to be here today to
discuss the State oversight of health insurance premiums. As
the cost of health insurance coverage continues to rise,
policymakers have raised questions about the extent to which
these increases in health insurance premiums are justified and
could adversely affect consumers.
While oversight of private health insurance, including
premium rates, is primarily a State responsibility, the 2010
Patient Protection and Affordable Care Act established a role
for HHS. The Act requires the Secretary of HHS to work with
States to establish a process for the annual review of
unreasonable premium increases. In addition, the Act requires
the Secretary to award grants to assist States in their review
practices.
My statement highlights key findings from a report
requested by Chairman Harkin and Senator Feinstein that GAO is
releasing today. This report describes State oversight of
health insurance premium rates in 2010 and changes that States
that received HHS rate review grants have begun making to
enhance their oversight. For this report, we surveyed officials
from the insurance departments of all 50 States and the
District of Columbia. We also conducted interviews with
insurance department officials and other experts, and reviewed
the States' rate review grant applications submitted to HHS.
In brief, we found that oversight of health insurance
premium rates varied among States in 2010. While 48 of the 50
State officials who responded to our survey reported that they
reviewed rate filings in 2010, the practices reported by State
insurance officials varied in three key areas.
First, there was variation in terms of the timing of rate
filing reviews. Specifically, respondents from 38 States
reported that all reviewed rate filings were reviewed before
the rates took effect, while other respondents reported
reviewing at least some rate filings after they went into
effect.
Second, there is variation in the types of information
respondents reported reviewing. While nearly all survey
respondents reported reviewing information such as trends in
medical costs and services, fewer than half of respondents
reported reviewing carriers' capital levels. Some survey
respondents also reported conducting comprehensive reviews of
rate filings, while others reported reviewing little
information or conducting cursory reviews.
A third area of variation was in opportunities for consumer
involvement in rate reviews. Fourteen survey respondents
reported providing consumers with opportunities to be involved
in premium rate oversight such as participation in rate review
hearings or public comment periods. However, most respondents
reported that their State did not provide opportunities for
consumer involvement.
Not only States' practices but also the outcomes of States'
reviews of rate filings varied among States in 2010.
Specifically, survey respondents from five States reported that
over half of the rate filings they reviewed in 2010 were
disapproved, withdrawn, or resulted in rates lower than
originally proposed. In contrast, State survey respondents from
19 States reported these outcomes occurred from their rate
reviews in less than 10 percent of the time.
Let me close by discussing how States have begun using rate
review grants provided by HHS. Our survey found that 41
respondents reported their States have begun making changes to
enhance their State's abilities to oversee health insurance
premium rates. For example, about half of these respondents
reported taking steps to either review their existing rate
review processes or develop new processes. Some States also
reported that they were changing information that carriers are
required to submit with rate filings, incorporating additional
data or analyses in rate filings, or taking steps to involve
consumers in the rate review process.
In addition, over two-thirds reportedly have begun to
increase their capacity to oversee premium rates. These
capacity enhancements included hiring staff or outside
actuaries, and improving the information technology systems
used to collect and analyze rate filing data.
Finally, more than a third reported that their States have
taken steps such as introducing or passing legislation in order
to obtain additional legislative authority for overseeing
health insurance premium rates.
Mr. Chairman, this concludes my statement. I will look
forward to answering any questions you or other members of the
committee may have.
[The prepared statement of Mr. Dicken follows:]
Prepared Statement of John Dicken
summary
My statement will highlight key findings from a report requested by
Chairman Harkin and Senator Feinstein that describes State oversight of
health insurance premium rates in 2010 and changes that States that
received HHS rate review grants have begun making to enhance their
oversight of health insurance premium rates. For that report, we
surveyed officials from the insurance departments of all 50 States and
the District of Columbia, and received responses from all but one
State. We also interviewed other State and Federal officials and
experts and reviewed applications for HHS rate review grants.
We found that oversight of health insurance premium rates--
primarily reviewing and approving or disapproving rate filings
submitted by carriers--varied across States in 2010. While nearly all--
48 out of 50--of the State officials who responded to our survey
reported that they reviewed rate filings in 2010, the practices
reported by State insurance officials varied in terms of the timing of
rate filing reviews, the information considered in reviews, and
opportunities for consumer involvement in rate reviews. Specifically,
respondents from 38 States reported that all rate filings reviewed were
reviewed before the rates took effect, while other respondents reported
reviewing at least some rate filings after they went into effect.
Survey respondents also varied in the types of information they
reported reviewing. While nearly all survey respondents reported
reviewing information such as trends in medical costs and services,
fewer than half of respondents reported reviewing carrier capital
levels compared with State minimums. Some survey respondents also
reported conducting comprehensive reviews of rate filings, while others
reported reviewing little information or conducting cursory reviews. In
addition, while 14 survey respondents reported providing consumers with
opportunities to be involved in premium rate oversight, such as
participation in rate review hearings or public comment periods, most
did not. Finally, the outcomes of States' reviews of rate filings
varied across States in 2010. Specifically, survey respondents from 5
States reported that over 50 percent of the rate filings they reviewed
in 2010 were disapproved, withdrawn, or resulted in rates lower than
originally proposed, while survey respondents from 19 States reported
that these outcomes occurred from their rate reviews less than 10
percent of the time.
Our survey of State insurance department officials found that 41
respondents from States that were awarded HHS rate review grants
reported that they have begun making changes in order to enhance their
States' abilities to oversee health insurance premium rates. For
example, about half of these respondents reported taking steps to
either review their existing rate review processes or develop new
processes. Other States reported that they were changing information
that carriers are required to submit with rate filings, incorporating
additional data or analyses in rate filings, or taking steps to involve
consumers in the rate review process. In addition, over two-thirds
reported that they have begun to make changes to increase their
capacity to oversee premium rates, including hiring staff or outside
actuaries, and improving the information technology systems used to
collect and analyze rate filing data. Finally, more than a third
reported that their States have taken steps--such as introducing or
passing legislation--in order to obtain additional legislative
authority for overseeing health insurance premium rates.
______
Chairman Harkin, Ranking Member Enzi, and members of the committee,
I am pleased to be here today to discuss State oversight of health
insurance premium rates in 2010 and changes that States that received
Department of Health and Human Services (HHS) rate review grants have
begun making to enhance their oversight of premium rates. In 2009,
about 173 million nonelderly Americans, about 65 percent of the U.S.
population under the age of 65, had private health insurance coverage,
either through individually purchased or employer-based private health
plans. The cost of this health insurance coverage continues to rise. In
a 2010 survey, over three-quarters of U.S. consumers with individually
purchased private health plans reported health insurance premium
increases. Of those reporting increases, the average premium increase
was 20 percent.\1\ A separate survey found that premiums for employer-
based coverage more than doubled from 2000 to 2010.\2\ Policymakers
have raised questions about the extent to which these increases in
health insurance premiums are justified and could adversely affect
consumers.
---------------------------------------------------------------------------
\1\ The Kaiser Family Foundation, ``Survey of People Who Purchase
Their Own Insurance,'' (Menlo Park, CA, June 2010).
\2\ The Kaiser Family Foundation and Health Research & Education
Trust, ``Employer Health Benefits 2010 Annual Survey,'' (Menlo Park,
CA, September 2010).
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Oversight of the private health insurance industry is primarily the
responsibility of individual States.\3\ This includes oversight of
health insurance premium rates, which are actuarial estimates of the
cost of providing coverage over a period of time to policyholders and
enrollees in a health plan.\4\ While oversight of private health
insurance, including premium rates, is primarily a State
responsibility, the 2010 Patient Protection and Affordable Care Act
(PPACA) established a role for HHS by requiring the Secretary to work
with States to establish a process for the annual review of
unreasonable premium increases.\5\ In addition, PPACA required the
Secretary to carry out a program to award grants to assist States in
their review practices.\6\ Since the enactment of PPACA, Members of
Congress and others have continued to raise questions about rising
health insurance premium rates and States' practices for overseeing
them.
---------------------------------------------------------------------------
\3\ See Law of Mar. 9, 1945, ch. 20, 59 Stat. 33 (codified, as
amended, at 15 U.S.C. ch. 20) (popularly known as the McCarran-Ferguson
Act). The McCarran-Ferguson Act provides States with the authority to
regulate the business of insurance, without interference from Federal
regulation, unless Federal law specifically provides otherwise.
Therefore, States are primarily responsible for overseeing private
health insurance premium rates in the individual and group markets in
their States. Through laws and regulations, States establish standards
governing health insurance premium rates and define State insurance
departments' authority to enforce these standards. In general, the
standards are used to help ensure that premium rates are adequate, not
excessive, reasonable in relation to the benefits provided, and not
unfairly discriminatory.
\4\ To determine rates for a specific insurance product, carriers
estimate future claims costs in connection with the product and then
the revenue needed to pay anticipated claims and nonclaims expenses,
such as administrative expenses. Premium rates are usually filed as a
formula that describes how to calculate a premium for each person or
family covered, based on information such as geographic location,
underwriting class, coverage and copayments, age, gender, and number of
dependents.
\5\ Pub. L. 111-148 1003, 10101(i), 124 Stat. 119, 139, 891
(adding and amending 2794 to the Public Health Service Act (PHSA)).
\6\ Pub. L. 111-148 1003, 124 Stat. 139, 140, 891 (adding and
amending PHSA 2794 (a)(1) and (c).
---------------------------------------------------------------------------
My statement will highlight key findings from a report we are
publicly releasing today that describes State oversight of health
insurance premium rates in 2010 and changes that States that received
HHS rate review grants have begun making to enhance their oversight of
health insurance premium rates.\7\ For that report, we surveyed
officials from the insurance departments \8\ of all 50 States and the
District of Columbia (collectively referred to as ``states''). We
received responses from all but one State.\9\ In order to obtain more
detailed information about State oversight of health insurance premium
rates in 2010, we also conducted interviews with insurance department
officials from five selected States.\10\ Additionally, we interviewed
other experts and officials from relevant organizations, including the
Center for Consumer Information and Insurance Oversight within the
Centers for Medicare & Medicaid Services, the National Association of
Insurance Commissioners (NAIC), the American Academy of Actuaries,
America's Health Insurance Plans, two large carriers based on their
number of covered lives,\11\ NAIC consumer representatives (individuals
who represent consumer interests at meetings with NAIC), and various
advocacy groups such as Families USA and Consumers Union. We also
reviewed portions of the States' Cycle I rate review grant applications
submitted to HHS and other relevant HHS documents. Our work was
performed from September 2010 through July 2011 in accordance with
generally accepted government auditing standards.
---------------------------------------------------------------------------
\7\ GAO, Private Health Insurance: State Oversight of Premium
Rates, GAO-11-701 (Washington, DC: July 29, 2011).
\8\ For the purposes of this report, we refer to the entities
responsible for the oversight of premium rates as insurance
departments, even though the entity responsible for oversight of
premium rates in each State was not always called the Department of
Insurance. For example, in Minnesota, the Department of Commerce is
responsible for the oversight of health insurance premium rates.
\9\ Officials from the Indiana Department of Insurance declined to
complete our survey. In addition, not all States responded to each
question in the survey. We conducted the survey from February 25, 2011
through April 4, 2011, collecting information primarily on State
practices for overseeing premium rates in calendar year 2010.
\10\ We selected these States--California, Illinois, Maine,
Michigan, and Texas--based on differences among the five States in
terms of their (1) State insurance departments' authority to oversee
premium rates, (2) proposed changes to their existing practices for
overseeing premium rates, (3) size, and (4) geographic location.
\11\ A carrier is generally an entity--either an insurer or managed
health care plan--that bears the risk for and administers a range of
health benefit offerings.
---------------------------------------------------------------------------
In brief, we found that oversight of health insurance premium
rates-- primarily reviewing and approving or disapproving rate filings
submitted by carriers--varied across States in 2010. While nearly all--
48 out of 50--of the State officials who responded to our survey
reported that they reviewed rate filings in 2010, the practices
reported by State insurance officials varied in terms of the timing of
rate filing reviews, the information considered in reviews, and
opportunities for consumer involvement in rate reviews. Specifically,
respondents from 38 States reported that all rate filings reviewed were
reviewed before the rates took effect, while other respondents reported
reviewing at least some rate filings after they went into effect.
Survey respondents also varied in the types of information they
reported reviewing. While nearly all survey respondents reported
reviewing information such as trends in medical costs and services,
fewer than half of respondents reported reviewing carrier capital
levels compared with State minimums. Some survey respondents also
reported conducting comprehensive reviews of rate filings, while others
reported reviewing little information or conducting cursory reviews. In
addition, while 14 survey respondents reported providing consumers with
opportunities to be involved in premium rate oversight, such as
participation in rate review hearings or public comment periods, most
did not. Finally, the outcomes of States' reviews of rate filings
varied across States in 2010. Specifically, survey respondents from 5
States reported that over 50 percent of the rate filings they reviewed
in 2010 were disapproved, withdrawn, or resulted in rates lower than
originally proposed, while survey respondents from 19 States reported
that these outcomes occurred from their rate reviews less than 10
percent of the time.
Our survey of State insurance department officials found that 41
respondents from States that were awarded HHS rate review grants
reported that they have begun making changes in order to enhance their
States' abilities to oversee health insurance premium rates. For
example, about half of these respondents reported taking steps to
either review their existing rate review processes or develop new
processes. Other States reported that they were changing information
that carriers are required to submit with rate filings, incorporating
additional data or analyses in rate filings, or taking steps to involve
consumers in the rate review process. In addition, over two-thirds
reported that they have begun to make changes to increase their
capacity to oversee premium rates, including hiring staff or outside
actuaries, and improving the information technology systems used to
collect and analyze rate filing data. Finally, more than a third
reported that their States have taken steps--such as introducing or
passing legislation--in order to obtain additional legislative
authority for overseeing health insurance premium rates.
Chairman Harkin, Ranking Member Enzi, this concludes my prepared
remarks. I would be pleased to respond to any questions you or other
members of the committee may have at this time.
The Chairman. Thank you very much, Mr. Dicken, and thanks
for getting the report out in a timely manner.
Now, Ms. Miller, please proceed.
STATEMENT OF TERESA MILLER, ADMINISTRATOR, OREGON INSURANCE
DIVISION, SALEM, OR
Ms. Miller. Good morning. Chairman Harkin, Ranking Member
Enzi, and distinguished members of the committee. For the
record, my name is Teresa Miller, and I'm the administrator of
the Oregon Insurance Division of the Department of Consumer and
Business Services, and I'm honored to be here today and
appreciate the opportunity to talk to you about how Federal
grants available through the Affordable Care Act are improving
our health insurance rate review process in Oregon.
Oregon has worked very hard over the last 4 years to
strengthen our State rate review law and open our process.
Because of these efforts, Oregon's rate review process is one
of the most transparent in the country and is supported by a
strong rate review statute.
As we've continued to improve our process, the Federal rate
review grants have allowed us to hire the staff necessary to
conduct more in-depth reviews of rate filings and have provided
the funds necessary to solicit meaningful public comments.
In my written testimony I've included more detail about the
key features of our rate review process. But just briefly,
those include: posting all documents contained in a rate filing
in their entirety upon submission on our Web site; emailing
policyholders who signed up to be notified of rate filings;
opening a 30-day public comment period; and issuing a plain-
language summary of our decision, and then emailing
policyholders with a link to that decision.
I want to focus my remarks this morning on the improvements
that we've made to our process with Federal grant dollars.
First, the funding that we've received as part of the Cycle 1
rate review grant allowed us to solicit more detailed and
meaningful public comments. I mentioned that we have a 30-day
public comment period. Initially, that public comment period
attracted few comments, and those who did comment generally
simply said that they couldn't afford their rising premiums,
but they didn't address the statutory factors that we review as
we review rate filings.
So this is why we used $100,000 of our Cycle 1 grant to
contract with a consumer advocacy group to weigh in on behalf
of consumers. This group used the funding we provided to hire
an actuary and has been providing very detailed analyses
focused on the factors contained in our statute.
Unlike many States, Oregon has a competitive health
insurance market. We have seven Oregon-based insurers who
actively compete in the small group and individual markets that
we regulate. Because of our competitive process, we review
approximately 40 rate requests a year in these markets.
The first round of Federal grants enabled us to add an
actuary to our staff, and we're proposing to add another
actuary in our next grant cycle. This will allow us to dig even
deeper in rate filings to address issues brought up by the
consumer advocacy group and to hold public hearings so that
those who want to watch or participate in our process can see
the scrutiny firsthand that we provide with regard to these
rate requests.
Federal grant dollars have also allowed us to communicate
better with consumers about rate filings. We created a new Web
page devoted to health insurance rates, with a search engine
that allows consumers to more easily find a rate filing, as
well as information about how we review health insurance rate
filings. We used grant dollars to create a 7-minute animated
story about health insurance costs that breaks down the premium
dollar and describes how we review health insurance rates. We
also used Federal dollars to conduct a public hearing on a
recent filing.
So how have consumers benefitted from the improvements that
we've made? Aside from the transparency efforts that help
educate consumers about what's driving health insurance costs
and give them opportunities to weigh in on requests, the
changes that we've made have saved consumers money. In the year
that followed the strengthening of our State's rate review law,
we lowered insurance company requests 50 percent of the time,
saving consumers more than $25 million, or just under $10 per
person on a monthly insurance premium. Of course, that doesn't
solve the affordability of health insurance, but every
percentage point of a rate request matters to us because it
matters to consumers.
At the same time, we understand that we must control health
care costs to stabilize insurance rates. That brings me to the
study that we're conducting with first-year grant funds.
Ultimately, the key to stabilizing health insurance costs is
controlling medical costs. In Oregon, considering all insurance
markets, an average of 89 cents of every premium dollar goes to
pay health care costs. To try to tackle health care costs, we
used $150,000 to contract with an actuarial firm for a study.
The study, which will wrap up in the fall, is exploring whether
there are opportunities within our current rate review process
to control the growth of health care costs or improve the
health care delivery system.
As I mentioned earlier, we're applying for a second round
of grant money to hire another health actuary and to allow us
to conduct public hearings for most of our rate requests. In
conducting a public hearing on a recent rate filing, it became
clear that even with one of the most open processes in the
country, consumers are unaware of the scrutiny we apply to rate
filings. I am proud of the work that we do, and I want
Oregonians to see the rigor of our reviews.
The Federal grant funding available through the Affordable
Care Act is helping States improve the review of health
insurance rates. It is giving States like Oregon the resources
needed to solicit detailed and meaningful consumer input,
conduct more in-depth reviews of rate filings to prevent
excessive increases, and improve rate filing information
available to consumers.
In Oregon, the next frontier in rate review is finding ways
to help lower medical costs so that we can make insurance more
affordable for consumers. Thank you for the opportunity to
share Oregon's experience and for the funding that enables us
to strive for continued improvement.
I'd be happy to answer any questions.
[The prepared statement of Ms. Miller follows:]
Prepared Statement of Teresa Miller
summary
Over the past 4 years, Oregon has strengthened its rate review law
and opened up its process. Today, we have one of the most transparent
reviews in the country, supported by a strong rate review statute. As
we have improved our process, Federal rate review grants provided staff
to conduct more in-depth reviews of rate increases and funds to solicit
meaningful public comment.
Key features of our rate review process
Post to Web site all rate filing documents.
Email policyholders who sign up to be notified of rate
filings.
Open 30-day public comment period.
Consumer advocacy group begins its review of the rate
request.
Division review looks at actual and projected claims
costs, a company's past history of rate changes and its financial
strength, enrollment trends, premiums, administrative costs by line of
business, and a company's overall profitability as opposed to just its
performance in one line of business. Division can consider factors such
as investment income, surplus and cost containment/quality improvement
efforts.
Issue a plain language summary of our decision.
Email policyholders with a link to our decision.
Improvements we have made with Federal grant dollars
Advocacy group: We used $100,000 of our cycle 1 grant to
contract with a consumer advocacy group to weigh in on behalf of
consumers. This group used the funds to hire an actuary and offer
detailed analyses.
In-depth reviews: We hired an actuary and market analyst,
among others, so that we can conduct more in-depth reviews of the
approximately 50 rate requests we evaluate annually. We propose to add
a second actuary in the next grant cycle, doubling the number of our
health actuaries from two to four. This will allow us to pursue any
issues raised by the consumer group and to hold more public hearings.
Enhance communications: We created a new web page
(www.oregon
healthrates.org) devoted to health insurance rates with search engines
that allow consumers to more easily find a rate filing along with other
information about how we review health insurance rates.
Study: Ultimately, the key to stabilizing health insurance
costs is controlling medical costs. We used $150,000 to contract with
an actuarial firm to find ways to use rate review to control the growth
of health care costs or improve the health care delivery system. The
results of the study are due this fall.
Improvements we propose to make with future grant dollars
Continue existing staff and consumer group funding from
cycle 1.
Incorporate public hearings into most rate requests.
In addition to another health actuary, establish a health
insurance rate liaison to explain our process and to provide rate
information to consumers.
Hire a health reform/exchange coordinator to assist with
Federal and State reform efforts that impact our rate review process.
______
introduction
Good morning Chairman Harkin, Ranking Member Enzi, and
distinguished members of the committee. My name is Teresa Miller, and I
am the administrator of the Oregon Insurance Division of the Department
of Consumer and Business Services. I am honored to be here today and
appreciate the opportunity to explain how Federal grants are improving
our health insurance rate review process in Oregon.
Over the past 4 years, Oregon has transformed its review of rate
requests, making it more transparent, rigorous, and inclusive. Our
process is as open as any in the country and it is backed by a strong
rate review statute. As we strengthened our State law and opened our
process, Federal grants available through the Affordable Care Act
provided additional staff to conduct more in-depth reviews of rate
increases and funds to solicit meaningful public comment. In addition
to giving the Oregon Insurance Division the ability to prevent
excessive rate increases, Oregon's rate review allows us to engage
consumers and educate them about the factors that lead to rising health
insurance costs.
I would like to give you some background on rate review in Oregon
and the improvements we have made--and plan to make--with grants
available under the Affordable Care Act.
rate review in oregon
Oregon, unlike many States, has a competitive health insurance
market. Seven Oregon-based insurers actively compete in the small group
and individual markets that we regulate. Insurers in these markets must
submit rates and have them approved by the State before they take
effect.
The Oregon Insurance Division reviews rates to ensure they are
reasonable in relation to the benefits provided. During our review, we
look at the cost of medical care and prescription drugs, the company's
past history of rate changes, the financial strength of the company,
actual and projected claims costs, enrollment trends, premiums,
administrative costs, and profit. Oregon's own health reform law passed
in 2009 expanded the factors we can consider in evaluating a rate
request. It gives us, for example, explicit authority to consider
factors such as an insurer's investment income, surplus, and efforts to
control costs and improve quality.
Perhaps most significantly, we may also consider an insurer's
overall profitability rather than just the profitability of a
particular line of insurance. Finally, insurers must separately report
and justify changes in administrative expenses by line of business and
must provide more detail about what they spend on salaries,
commissions, marketing, advertising, and other administrative expenses.
In addition to strengthening our authority, we also have taken many
steps in recent years to make our process more transparent. For
example, we have added the following elements:
We post rate filings for individual, portability, and
small-employer plans on the Insurance Division Web site once they are
deemed complete. All information is public.
A required feature of the filing by the insurer is a
plain-language summary highlighting the insurer's request along with a
5-year history of rate increases for that line of insurance.
The posting of the filing triggers a 30-day public comment
period. We send an email to policyholders who sign up for email
notification when their company files a rate request. Any comments
consumers make are posted to the Web site.
We contract with a consumer group, using Federal grant
money, to comment on key rate requests on behalf of consumers.
We must issue a decision within 10 days of the close of
the public comment period--meaning we have 40 days to complete most of
the work.
Because every rate change is based on a unique set of
facts, we file a plain-language summary on the Web site listing key
factors underlying each rate filing decision.
Finally, we send policyholders an email with a link to the
decision.
Let me explain how this process works in the context of a rate
filing. This past spring, Regence BlueCross BlueShield of Oregon, the
largest carrier in the markets we regulate, requested a 22.1 percent
rate increase. This affected about 59,000 people with individual health
plans, the State's single-largest group of individual health plan
policyholders.
Once our intake coordinator (hired with new Federal grant funding)
verified the filing was complete, we posted all the company's documents
on our Web site, notified consumers that Regence had filed for a rate
increase, and launched the 30-day public comment period.
At the same time, a consumer watchdog group that we contract with
using Federal grant funds began its analysis of the request. In
addition to reviewing the filing with its own actuary, this group
generated an additional 800 public comments as part of its outreach.
Finally, because of the size of the proposed increase and number of
policyholders affected, I scheduled the division's first public hearing
in at least 20 years. We used Federal grant funds to help pay the
hearing costs. At the hearing, which was attended by more than 150
people, the company outlined its request, the division posed questions
to the insurer, and the consumer group outlined its concerns.
In this case, our actuaries questioned the company's assumptions
about future medical costs and the costs of new benefits required by
Federal reform. Our authority to take into account an insurer's surplus
and overall profitability were also key factors.
Of course, we analyzed the company's medical loss ratio--that is
how much of the premium dollar goes to health care costs as opposed to
administration and profit. In Oregon's competitive market, most or all
of our large health insurers already meet the new Federal requirement
to spend at least 80 percent of premium dollars on medical costs.
The division ultimately approved a 12.8 percent rate increase
instead of the 22.1 percent requested. The division's decision to
significantly reduce the rate increase was based on a desire to stem a
recent history of enrollment losses in these particular plans and to
spur greater stability in rates going forward. And, it was done with
the knowledge that Regence is financially sound with substantial
surplus, which could help offset any losses incurred from these plans.
Once the decision was made, our grant-funded project coordinator
drafted a brief, plain-language explanation of our decision as well as
a detailed response to the consumer group's comments. We posted these
online and sent an email link to consumers.
aca grants to improve rate review
Federal grants have proved essential for us to conduct these
detailed reviews and to solicit meaningful public comments. Here are
some examples of how we have spent Federal grant dollars to date.
Public input: When we instituted a 30-day public comment period, we
initially attracted few public comments. After all, the bulk of rate
filing materials remain highly technical. Those who did comment
generally said they could not afford rising premiums but did not
address the factors we must consider by law in weighing rate requests.
That is why we used $100,000 of our cycle 1 grant to contract with a
consumer advocacy group to weigh in on behalf of consumers. This
group's detailed analyses have been extremely helpful. Oregon State
Public Interest Research Group (OSPIRG) keeps us on our toes and
reminds us of the questions consumers want answered.
In-depth review: Because Oregon has a competitive health insurance
market, we review approximately 50 rate requests a year. The first
round of Federal grants enabled us to add an actuary to our staff, and
we propose to add another one in the next grant cycle. This would
double the number of our health actuaries, from two to four. This
enables us to do a more in-depth analysis, to pursue any issues raised
by the consumer group, and to hold more public hearings so that those
who want to watch or participate can see the scrutiny we give these
requests.
Additionally, the grant funds pay for a market analyst who tracks
insurers' administrative costs by line of business and for staff to
process filings, manage the grants and write the explanations of our
rate decisions.
These additional staff members are key to making decisions within
the required 40 days from the time a filing is deemed complete. Meeting
this deadline became increasingly difficult as we added steps to open
up our process and as we required more information from insurers
through our strengthened rate review law.
Our strengthened law and additional staff have resulted in cost
savings for consumers. In the year that followed the strengthening of
our State's rate review law, we lowered insurance company rate requests
50 percent of the time. The size of the reduction averaged 4 percentage
points--for example a company would request a 16 percent rate increase
and we would grant a 12 percent increase. That saves consumers just
under $10 a month. Of course, that does not solve the problem of
affordability, but every percentage point of a rate request matters to
us. At the same time, we understand we must control health care costs
to stabilize insurance rates.
Communications: Although insurance company rate request documents
have been public for several years, they have been difficult for
consumers to find on our Web site. With the Federal grant, we were able
to create a new web page devoted to health insurance rates featuring a
search engine that allows consumers to more easily find a rate filing,
a 7-minute animated video explaining why health insurance costs so
much, and other information about how we review health insurance rates.
I have attached a screenshot of this page. On the day we issued the
Regence decision, we had 500 hits on this page. We also used some money
to conduct the Regence public hearing, which was instructive for a
variety of reasons. The Oregonians who attended appreciated the
opportunity to have their voice heard as well as watching us question
the company about the request.
Study on how rate review could help lower medical costs:
Ultimately, the key to stabilizing health insurance costs is
controlling medical costs. In Oregon, considering all insurance
markets, an average of 89 cents of every premium dollar goes to pay for
health care. To explore how we might be able to affect health care
costs in rate review, we used $150,000 of our first-year Federal grant
to contract with an actuarial firm to conduct a study. The study
results are due this fall, and may result in legislation. One idea we
are exploring is to deny rate requests if the insurer reimburses
providers for specified medical errors that should never happen. With
Oregon's competitive insurance market, providers in more rural parts of
the State often have an upper hand in contract negotiations. One of the
goals of this study is to identify ways of leveling the playing field
between insurers and providers by, for example, requiring all insurers
to include certain provisions aimed at controlling costs in their
contracts with providers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
future grant proposals
In conducting the recent public hearing in Oregon, it became clear
that even with one of the most open processes in the country, consumers
are unaware of the scrutiny we apply to rate requests. I'm proud of our
work and want Oregonians to see the rigor of our reviews, so we plan to
apply for additional Federal grant money to incorporate public hearings
into most individual and small group rate requests.
We anticipate approximately 20 public hearings a year and would
expand funding to the consumer group so it could provide comments and
participate. During the proposed hearings, our actuaries and a
contracted consumer advocacy group would pose questions to insurance
company actuaries--covering issues that we might otherwise call or
email about. At the conclusion, we would open the meeting to public
comment. We are including money in the grant for technology that would
allow people to watch the hearings from their computers--live or later
at their convenience. By fall, we also hope to begin posting all the
actuarial correspondence between the division and insurers. While this
correspondence is public record, it currently is not readily accessible
to the public.
In addition to the public hearings, we will propose using grant
money to hire another health actuary to scrutinize rate requests and
participate in public hearings and a health insurance rate liaison to
explain our process and to provide rate information to consumers. We
also will propose a health reform/exchange coordinator to assist with
Federal and State reform efforts that impact our rate review process.
In Oregon, the Health Insurance Exchange is governed by a public
corporation, and much of the planning rests with this corporation and a
separate State agency charged with coordinating and implementing State
health care reform. We work closely with the Exchange and this agency
and will continue to do so as the Exchange in Oregon becomes
operational. For example, we will review health plans offered through
the Exchange to ensure that they meet the standards established by the
State Exchange and the Affordable Care Act.
Finally, we will continue improvements to our web and print
publications designed to better educate consumers about rate review,
including the key factors that drive health insurance rates.
conclusion
Federal grants to improve States' review of health insurance rates
are essential to educating the public and preventing excessive rates.
In Oregon, the next step in rate review is finding ways to help lower
medical costs so that we can truly make health insurance affordable to
consumers. Thank you for this opportunity to share Oregon's experience
and for the funding that enables us to strive for continued
improvement. I'm happy to answer your questions.
References
Oregon's rate review web page: www.oregonhealthrates.org.
Example of a decision summary: http://
www.oregonhealthrates.org/files/decision.pdf.
Insurance Division response to OSPIRG analysis: http://
www.oregonhealthrates
.org/files/dcbs_response_ospirg.pdf.
Grant page: http://insurance.oregon.gov/consumer/federal-
health-reform/rate-review-grant.html.
Oregon's administrative rules on rate review (836-053-
0471): http://arcweb.sos
.state.or.us/rules/OARS_800/OAR_836/836_053.html.
The Chairman. Thank you very much, Ms. Miller.
Mr. Withrow, please proceed.
STATEMENT OF DANIEL C. WITHROW, PRESIDENT, CSS DISTRIBUTION
GROUP, INC., LOUISVILLE, KY
Mr. Withrow. Chairman Harkin, Ranking Member Enzi, and
Senator Franken, Senator Merkley, thank you for inviting me
today to testify on health care, the efforts to empower the
States.
My name is Dan Withrow. I'm president of CSS Distribution
Group, headquartered in Louisville, KY. Behind me sits my
beautiful daughter, Hallie Grace Withrow. And I apologize. I
might be a bit nervous because I'm testifying in front of my
biggest fan.
I'm honored to be here, and thank you for your service to
the United States.
In 2006, after working in the packaging and distribution
industry for decades, my wife and I borrowed nearly $1 million
from friends, banks, credit card companies, to open CSS
Distribution Group. At our company, we approach everything with
a challenge of building trust and partnerships by doing the
right things right. We've worked hard to grow our company, but
to date, CSS has not made a net profit. Although we projected
this year would be a breakout year, it's now hard to see how
new regulations will impact our business. We did reduce our
workforce from 16 to 10 full-time employees in order to retain
as much flexibility as possible, and we're paying our full-time
employees overtime instead of hiring new employees. We're
trying to hedge our bets.
One element of our business that continues to be
unpredictable is the cost of health care coverage, and we've
offered our employees health care coverage ever since we opened
our doors. As a small business, our employees are like family
to us. So for the past 5 years, we have offered all employees a
choice between PPOs and HSA health savings accounts. At this
time, half of our employees take up the offering, three
participate in our HDHP, two are enrolled in the PPO. Of the
employees that do not participate, three are covered under
their spouse's plan, one has elected to purchase a less
expensive, more basic plan, and that leaves one more, and
that's my wife.
While I'm committed to offering coverage to all my
employees, the premium increases that we have seen and those
that we continue to see are beyond what we can afford, and even
more worrisome, it's beyond what my employees can afford. Each
year we have seen at least 30 percent premium increases, except
the summer after the health reform law was passed. Last summer,
after the enactment of the Patient Protection and Affordable
Care Act, we were quoted an increase of over 42 percent.
I've tried everything that I know to do to mitigate the
increases, and the only way I've been able to moderately
curtail these increases is by restructuring the plans,
increasing deductibles, revising co-payments and drug tiering
formulary. These changes have helped reduce the premiums, but
they really do nothing to impact the out-of-pocket costs that
we all have to pay for.
These year-over-year increases, in my opinion, cannot be
blamed on my plan or the insurance industry at large. I believe
health care costs are what's driving this, not the insurance
companies. Each year I spend between 30 and 45 days researching
other plans and insurance options. I'm in the middle of that
research right now. Despite my repeated efforts, I have not
been able to find any other options that I can offer to my
employees at lower premiums and, unfortunately, I'm an optimist
at heart, I don't think this will change.
The reason premiums are increasing is because the cost of
coverage is increasing. It's pretty simple economics.
Additionally, plans are now required to cover a laundry list of
services, many at no cost to the enrollee or the participant.
The thing is, merely requiring a review of premium increases,
in my opinion, will not stop that from happening. Restructuring
the insurance market while also mandating plans cover an
exhaustive list of benefits will also not reduce the cost of
coverage.
It's really simple. If you want more, it's going to cost
more. A product cannot be sold for less than it costs to create
or offer. This business principle applies to the pallets that I
sell or the coverage for health care services that my plan
provides.
In conclusion, I know this may not be what you want to
hear, but the new health care law has made it more difficult
for small business to compete than you may realize. I hope what
I've shared today is helpful and urge you to repeal the costly
parts of the law. On behalf of thousands and thousands of
business men and women in America, please listen to our
concerns.
Thank you for allowing me to testify, and I look forward to
taking your questions.
[The prepared statement of Mr. Withrow follows:]
Prepared Statement of Daniel C. Withrow, on Behalf of
the U.S. Chamber of Commerce*
summary
My name is Dan Withrow. I am the president of CSS Distribution
Group, Inc. headquartered in Louisville, KY and I am honored to speak
with you on behalf of the U.S. Chamber of Commerce. I hope that my
testimony and remarks will help further explain the burdens that the
new health care law places on the ability of businesses, including
small ones like mine, to compete, grow and create jobs. Despite efforts
to expand coverage options and curtail dramatic health insurance
premium increases, the law in fact is having a negative impact on our
ability to continue to offer our employees health care benefits.
---------------------------------------------------------------------------
* The U.S. Chamber of Commerce is the world's largest business
federation, representing the interests of more than 3 million
businesses of all sizes, sectors, and regions, as well as State and
local chambers and industry associations.
More than 96 percent of the Chamber's members are small businesses
with 100 or fewer employees, 70 percent of which have 10 or fewer
employees. Yet, virtually all of the Nation's largest companies are
also active members. We are particularly cognizant of the problems of
smaller businesses, as well as issues facing the business community at
large.
Besides representing a cross-section of the American business
community in terms of number of employees, the Chamber represents a
wide management spectrum by type of business and location. Each major
classification of American business--manufacturing, retailing,
services, construction, wholesaling, and finance--is represented. Also,
the Chamber has substantial membership in all 50 States.
The Chamber's international reach is substantial as well. It
believes that global interdependence provides an opportunity, not a
threat. In addition to the U.S. Chamber of Commerce's 115 American
Chambers of Commerce abroad, an increasing number of members are
engaged in the export and import of both goods and services and have
ongoing investment activities. The Chamber favors strengthened
international competitiveness and opposes artificial United States and
foreign barriers to international business.
Positions on national issues are developed by a cross-section of
Chamber members serving on committees, subcommittees, and task forces.
More than 1,000 business people participate in this process.
---------------------------------------------------------------------------
While our customers are large, oftentimes multinational,
businesses, CSS is a small, privately owned business. While our
business has grown in terms of sales and customers and we've been able
to give back in our community, we unfortunately recently had to reduce
our number of employees. Because of the overall uncertainty brought on
by the economic downturn and the rising costs of health insurance, we
went from 16 to 10 employees in 2010. For the first 4 years of
operation, CSS did not make a net profit. This year is supposed to be
our breakout year; we had hoped that it would be the first time we will
realize a net profit. Despite a positive projection, we cannot really
be sure what all the new regulations will actually bring. In fact, in
order to retain as much flexibility as possible, we are paying our
full-time employees overtime instead of hiring any new employees.
Skyrocketing premiums continue to harm our ability to offer
coverage, even now--16 months after the passage of the health reform
law. Even when we first began our company and had to borrow nearly $1
million from friends, banks and credit card companies to open our
doors, we offered health care coverage to our employees. The premium
increases that we have seen, and those we continue to see, are beyond
what I can afford and even more worrisome, it is beyond what my
employees can afford too. These increases cannot be blamed on my plan
or the insurance industry at large. Each year, I have researched other
plans and insurance options. Despite my repeated efforts, I have not
been able to find any other options that can offer coverage to my
employees at lower premiums.
While I understand that in 2014 there may be new marketplaces
called exchanges where my employees may be able to purchase coverage, I
am not sure how they will work or what coverage in the exchanges will
look like and cost. I do not want to leave my employees in the lurch;
they are all valued team members and I want to have some security that
they are going to get affordable and appropriate coverage.
I'm here today to share with you the real effect the law is having
on me and other small businesses. I hope what I've shared today is
helpful and urge you to repeal the most costly parts of the law, such
as the employer mandate. This employer mandate truly prevents us from
expanding our businesses and hiring more people--in other words
creating new real jobs.
______
Chairman Harkin, Ranking Member Enzi, and distinguished members of
the committee, thank you for inviting me to testify before you today on
health reform and efforts to empower States to serve consumers. I hope
that my testimony and remarks will help further explain the burdens
that the new health care law places on the ability of businesses,
including small ones like mine, to compete, grow and create jobs.
Despite efforts to expand coverage options and curtail dramatic health
insurance premium increases, the law, in fact, is having a negative
impact on our ability to continue to offer our employees health care
benefits.
My name is Dan Withrow. I am president of CSS Distribution Group,
Inc., headquartered in Louisville, KY and I am here today with my
oldest daughter, Hallie Grace Withrow. I am honored to speak with you
today on behalf of the U.S. Chamber of Commerce. The U.S. Chamber of
Commerce is the world's largest business federation, representing the
interests of more than 3 million businesses and organizations of every
size, sector, and region. As you might know, more than 96 percent of
the Chamber's members are small businesses with 100 or fewer employees
and 70 percent of which have 10 or fewer employees, just like mine.
company background
A Certified Woman-Owned Enterprise by the Women's Business
Enterprise National Council (WBENC), CSS Distribution Group aims to
maximize our customers' packaging and shipping efficiency throughout a
nationwide network of locations. Our national network helps our clients
leverage their buying power by essentially creating one national supply
chain. By allowing our clients to purchase collectively for all of
their locations across the country, we can save our clients millions of
dollars and positively impact their bottom line. For example, one of
our customers has 43 warehouse locations across the country. In the
past, each of the 43 facilities individually bought pallets and
shipping materials from a different supplier, making it virtually
impossible for the customer to track company-wide costs, payments, etc.
CSS has helped this customer save significantly by serving as one
supplier for all of their facilities. This has streamlined the system
and saved on average 7-10 percent per facility for our customer.
Helping companies reduce their costs is one of our top priorities
and we approach every challenge with the goal of ``Building Trust and
Partnerships by Doing the Right Things Right.'' Our distribution super
center is located in Louisville; and, by utilizing strategic partners
across the country, we are able to ensure timely, superior customer
service without incurring a large overhead. Whether it's sourcing
shipping pallets or providing custom automated packaging, we strive to
fulfill our customers' needs and help to move their goods economically
and proficiently through the global supply chain.
While our customers are large, oftentimes multinational,
businesses, CSS is a small, privately owned business. While we have
grown to serving 20 customers and anticipate doing $18.5 million in
sales this year, we started with just one customer, a strong desire to
succeed and a willingness to work hard and take risks. I've spent 25
years in the packaging industry and my wife, Mindy, has 15 years of
equal experience in the packaging industry. In 2006, we partnered with
a friend and investor to borrow $500,000 and set up a $250,000 line of
credit from a bank to pursue our dream of starting and owning our own
company. In June of that year, we launched our company and we have
never looked back.
The success we have had in growing our business has not gone
unnoticed. Last year, CSS Distribution Group ranked #55 on Inc.
Magazine's ``Inc. 500'' which celebrates the fastest growing privately
held companies in the United States, and my wife Mindy was ranked #5 on
the ``Inc. 5000,'' as one of the top women entrepreneurs. While we
appreciate the accolades, we have not forgotten the community we call
home. I am proud to serve on Mayor Jerry Abramson's High Impact
Program, a public-private partnership designed to help Louisville's
fast-growth and innovative companies overcome obstacles that might
impede their progress. I am also active in Greater Louisville Inc., the
Metro Chamber of Commerce and the region's leading business
organization. I have also just recently been assigned to Kentucky
Governor Beshear's ``Business One Stop Portal Focus Group'' and we are
leaving Washington after my testimony so that I can attend our first
meeting in Frankfort, KY tomorrow.
CSS is a supporter of our local swim team, the Hillcrest
Hurricanes. My wife serves on the team's board and is an active member
of the local PTA and a volunteer at our children's school, Goshen
Elementary. CSS also supports the Girl Scouts, annually buying Girl
Scout cookies and sending them to members of our Armed Forces serving
our Nation overseas. Additionally, CSS is a good steward of the
environment through our green practices. We have four beautiful
children and certainly care about the health of the planet we leave for
them. CSS sells more than 2 million pallets a year and by reducing the
amount of wood a pallet has in it and recycling old pallets we are able
to save trees and reduce our carbon footprint.
While our business has grown in terms of sales and customers and
we've been able to give back in our community, we unfortunately
recently had to reduce our number of employees. Because of the overall
uncertainty brought on by the economic downturn and the rising costs of
health insurance, we went from 16 to 10 employees in 2010. This was not
an easy decision. Our employees are like family; but for the health and
future stability of our business, it was necessary.
For the first 4 years of operation, CSS did not make a net profit.
This year is supposed to be our breakout year; we had hoped that it
would be the first time we will realize a net profit. Despite a
positive projection, we cannot really be sure what all the new
regulations will actually bring. In fact in order to retain as much
flexibility as possible, we are paying our full-time employees overtime
instead of hiring any new employees. We are trying to hedge our bets as
best we can because it seems every time we take a step forward, we get
hit in the face and are forced to take two steps back. One of the
things already pushing us backwards despite our projections is the
health care law. At a time when we may finally become profitable, we
are still struggling to offer health care coverage to our employees.
Skyrocketing premiums continue to harm our ability to offer coverage,
even now--16 months after the passage of the health reform law.
health care: my experience with premium increases
Even when we first began our company and had to borrow nearly $1
million from friends, banks and credit card companies to open our
doors, we offered health care coverage to our employees. We are a small
business and our employees are like family to us--so for the past 5
years, we have offered our employees a choice between coverage through
a Preferred Provider Organization (PPO) or a High Deductible Health
Plan (HDHP) with a Health Savings Account. At this time, half of our
employees take up this offering--with three participating in the HDHP,
and two enrolled in the PPO. Of our employees that do not participate,
three of them are covered under their spouse's plan and one has elected
to purchase a less expensive more basic plan on her own.
While I am committed to offering coverage to my employees, it is
becoming more and more challenging to continue to provide our employees
coverage. The premium increases that we have seen, and those we
continue to see, are beyond what I can afford and even more worrisome,
it is beyond what my employees can afford too.
Each year, when it comes time to renew our coverage we have seen at
least 30 percent premium increases--with the exception of the summer
after the health reform law was passed. Last summer, after the
enactment of the Patient Protection and Affordable Care Act, we had
increases of 42.2 percent and 42.4 percent in our PPO and HDHP plans
respectively. Unfortunately, for me, the law is not making health care
affordable. As with every other year when we have been quoted insurance
with increases, I spent between 30 to 45 days researching other
options. I have tried everything I know to do to try to mitigate these
increases.
Last year, when facing the highest premium increase for our company
ever, we had to agree to an increase in the PPO's deductible by $1,500
(from $1,500 to $3,000). Additionally, all of our co-payments were
raised across the board. For office visits, the copayments increased
from $25 to $50 for in-network providers, and from $30 to $60 for out-
of-network providers. For urgent-care visits, copayments increased from
$50 to $75. We revised the pharmacy drug tier formula from 3 levels to
4 levels, which meant that some drugs would cost $150, even after the
deductible had been met. So instead of our PPO premiums jumping up
$1,080/month, we were able to reduce the premium jump to $743/month.
These changes amounted to an annual savings of $4,044. While these
changes brought the overall monthly increase to 26.7 percent, down from
42.2 percent, it still raised our out-of-pocket expenses--which are
nearly impossible to measure year over year.
Similarly, we had to restructure our HDHP plan in 2010. While
previously our HDHP had covered prescription drugs at 100 percent once
the deductible is met, we changed to a tiered drug formulary where
prescriptions cost either $10, $30, $50, or $150, even after the
deductible is met. We increased the maximum out-of-pocket expenses from
$2,500 to $3,500 for individual coverage and from $5,000 to $7,000 for
family coverage. These changes to the HDHP allowed us to reduce the
premium increase from 42.4 percent to 26.5 percent. So instead of our
premiums jumping up $768.75/month, we were able to cut the premium jump
to $483.45/month. These changes amount to an annual savings of
$3,423.60.
health care--why?
One thing that I want to make perfectly clear in talking about
these year-over-year increases which have continued despite the passage
of health reform, these increases cannot be blamed on my plan or the
insurance industry at large. Each year, I have researched other plans
and insurance options. Despite my repeated efforts, I have not been
able to find any other options that can offer coverage to my employees
at lower premiums. While we continue to uphold our motto when it comes
to our employees and ``build trust and partnerships by doing the right
things right,'' we are struggling with how to continue to offer our
team health insurance.
So is there someone or something to blame? Really, the only thing
to ``blame'' is the increasing health care costs which the law
regrettably does very little to curtail. Merely requiring a review of
premium increases will not stop them from increasing. In fact, the law
in many ways will increase costs and drive premiums up. By requiring
all plans to cover a laundry list of services, many of which have to be
covered 100 percent with no copayment or cost born by the enrollee/
participant, the law eliminates the ability to mitigate premium
increases. It is really simple economics and simple business, if you
want more, it will cost more. This applies to pallets that I sell, or
coverage for health care services that my plan covers.
health care--so, what now?
So where does this leave me, as an employer committed to offering
health coverage and ``doing the right things right? '' Honestly, I
don't know. Because of the plan design changes that I have made over
the years, the plans that I offer my employees are not grandfathered
plans. As a result, my plan will have to comply with the full list of
new mandates and requirements including the new internal claims and
appeals and external review process, among other things. Many of these
new requirements add an additional layer of administrative and
procedural requirements, which will increase the cost of coverage just
as mandating coverage of additional services will. Because of the size
of my payroll, I am not eligible for the small business tax credit and
will therefore not receive any help in paying for my employees'
coverage. Since I am not deemed a ``large employer'' under the law, I
will not be penalized if I stop offering coverage to my employees. The
law has put me, a practical businessman, in a very strange place.
Despite the law's premium rate review, the cost of coverage is
continuing to increase--and most likely will continue to do so--by
amounts neither I, nor my employees can absorb. While I understand that
in 2014 there may be new marketplaces called exchanges where my
employees may be able to purchase coverage, I am not sure how they will
work or what coverage in the exchanges will look like and cost. I do
not want to leave my employees in the lurch; they are all valued team
members and I want to have some security that they are going to get
affordable and appropriate coverage. How do I continue ``Doing the
Right Things Right''--now?
conclusion
By nature I'm an optimist. I always have been, but given the
fragile state of our economy and a lot of uncertainty coming from
Washington, I'm more worried about our future than ever before. Right
now, our company cannot afford to expand or hire more people. I want
to, but I'm just not certain what the Federal Government's going to do
next week, next month, or next year--let alone by 2014. This may not be
what you want to hear, but this new health care law has made it much
more difficult for small businesses to compete than you may realize.
I'm here today to share with you the real effect the law is having
on me and other small businesses. I hope what I've shared today is
helpful and urge you to repeal the most costly parts of the law, such
as the employer mandate. This employer mandate truly prevents us from
expanding our businesses and hiring more people--in other words
creating new real jobs.
On behalf of the thousands and thousands of small business men and
women in America, please listen to our concerns. The bottom line is
that the decisions you make will either hurt us or help us. I'm very
concerned that our new health care law may end up significantly hurting
business and our country.
Thank you for this opportunity to testify, and I look forward to
your questions.
The Chairman. Thank you very much, Mr. Withrow.
We'll start a series of 5-minute questions.
Ms. Miller, I'll start with you. I was reading your
testimony last night, and you're talking about what you did.
You used $100,000 to make a contract with a consumer advocacy
group to weigh in on behalf of consumers. The Oregon State
Public Interest Research Group, as you said, keeps us on our
toes and reminds us of the questions consumers want answered.
You also made a contract with an actuarial firm. Quite
frankly, I don't know of any other insurance commissioner in
the entire country that would do something like that. I applaud
you for that. Not many insurance commissioners want to contract
with a consumer advocacy group like the PIRGs, who usually are
a thorn in your side. But I compliment you for that because I
think, as you mentioned, that gives you input from consumers
and what they want. So I think you have shown some great
leadership there.
One of the other things you mentioned is you were looking
at different ideas on how you can affect health care costs, and
you mentioned in your testimony, you said one idea we are
exploring is to deny rate requests if the insurer reimburses
providers for specified medical errors that should never
happen. I find that very intriguing. Can you flush that out a
little bit more for me?
Ms. Miller. Mr. Chairman, thank you for the question. It
really gets down to the contracts that insurers enter into with
providers. And when I reach out and talk to the insurers in
Oregon, one of the things I heard for years was that they have
a difficult time negotiating with providers, particularly the
hospitals, and getting all the provisions in the contract that
they would like to see in the contract, and they raised this as
a specific issue and said we would really like to include a
provision in our contract with hospitals that essentially says
if a never event happens, if you amputate the wrong arm, if
something happens that we can all agree should never happen,
who should bear the brunt of that expense? Should policyholders
pay it? Should it come out of the provider?
And what I heard from our carriers is that they had a very
difficult time getting providers to agree to those sorts of
provisions. I understand that today it's more common for those
provisions to be included in contracts, but that's one of the
ways--again, we're studying this because I don't know exactly
how we get at these underlying costs. But I think as State
regulators, we may have an interesting opportunity to get at
these costs.
And so trying to look at, can we influence that insurer-
provider contracting process, that might be an interesting
place to look. So I hope that's helpful.
The Chairman. That's very helpful. Are you looking at
things like re-admission rates, for example, in hospitals? Now,
we know there are some hospitals in this country that are doing
a great job in keeping the re-admission rates extremely low.
Other hospitals don't. But then when you have all these re-
admission rates time and time again, who bears it? Should
policyholders bear that, or not? So I hope you're also looking
at re-admission rates, too, since you're looking at never-
should-happen events.
Ms. Miller. Mr. Chairman, part of what we asked the actuary
who is looking into this and performing this study is let's
look at everything. I don't want anything to be off the table,
because if there's a way for us to address health care costs
and make a dent in those costs, I think we want to do it. So I
think everything is on the table for that study.
The Chairman. I compliment you for what you've done. I
think you set a very high standard for insurance commissioners
around the country.
Ms. Miller. Thank you.
The Chairman. Mr. Withrow, welcome again. Is that Haley or
Hallie?
Mr. Withrow. It's Hallie Grace.
The Chairman. Hallie.
Mr. Withrow. Hallie Grace.
The Chairman. All right, Hallie Grace. Welcome. Are you
enjoying Washington?
You know one thing I can tell, you're having a great
summer. You look like you've been swimming, right? Thanks for
coming.
Mr. Withrow, you said something in your testimony about the
health insurance exchanges, which will be up in 2014. Since I
come from a State that has a lot of small businesses and I met
with them on this issue many, many times, in 2014 when the
insurance exchanges come up, because of the number of employees
you have, you'll be then able to go to an exchange, and you'll
have more competition, more people competing for covering you,
and it will be open, it will be transparent. Won't that help
you in terms of both your premiums and the quality and
coverage?
Mr. Withrow. I really don't know. Senator Harkin, thank you
for the question. Because there's no definitive information
about exchanges at this point that I can read about, I can't
really comment on what the exchanges will do for me. I've done
my best to try to research that, and even working through the
Chamber of Commerce it's difficult to find that information.
The Chairman. States are setting up the exchanges now. I
don't know where Kentucky is right now on that, but States are
in the process of setting up those exchanges right now. But I
think the law basically sets out how those exchanges are to
operate. Again, I don't know Kentucky. I can only tell you that
in our State, where we have two insurance carriers that have 80
percent of the market, there's not much competition, and
there's not much transparency. So that when the exchanges come
up, a lot of small businesses that have a few employees will be
able to go on them.
Let me also ask you, right now small businesses can get a
tax credit for the purchases of their--for what they put in for
their employees, right? Up to 50 employees, and you don't have
50 employees.
Mr. Withrow. No, sir.
The Chairman. Are you taking advantage of the tax credit?
Mr. Withrow. No, sir. We pay our employees too well, so we
don't qualify for the tax credit.
The Chairman. Oh, you're over the $50,000----
Mr. Withrow. Yes, correct.
The Chairman [continuing]. Cutoff on that. So you don't get
the tax credit. But you will be able to shop on the exchange.
Mr. Withrow. According to the law, yes. I just--we try to
plan business in 1- and 2-year increments, and not having
information on it, it's very difficult to plan for it.
The Chairman. I think my time has run out. Thank you very
much, Mr. Withrow.
Mr. Withrow. Thank you.
The Chairman. Senator Enzi.
Senator Enzi. I think we're still short about five rules
yet on the exchanges for the States to even begin working on
it. So I don't think there's much out there that any of us can
comment on exchanges yet.
But, Mr. Dicken, I want to thank you for the work that GAO
does. It's a tremendous help, and I appreciate the reports that
have come out.
In looking at the States' authority to review rates, did
any of the States provide evidence that because of the rate
review process burden or the review results, that any of the
companies have pulled out of the market in that State? Is there
any evidence to suggest that the rate review policies for
States will decrease the number of policies available to
consumers, or at least decrease the types of policies available
for consumers?
Mr. Dicken. Thank you, Senator Enzi. We did not
specifically ask as part of our survey as to whether there were
any changes in the market share or carriers in the market.
Certainly your point is very fair. We have looked in the past
at the market shares of carriers in the small group market, and
many States only have one carrier that may represent half of
the market or more. Many States, I think 23 States had five or
fewer carriers that were representing 90 percent of the market.
So we did not examine to what extent carriers may have either
increased or decreased their role in the market as part of
these rate reviews.
Senator Enzi. Thank you. I still think the small business
health plans would have increased the number of companies that
were out there participating, and I'm hoping that this health
care reform does, too.
Ms. Miller, congratulations on hiring an actuarial firm.
The only thing better is an accounting firm.
[Laughter.]
So I assume that the actuary was used to determine the rate
that you allow Regents to pursue, Regents company.
Ms. Miller. Senator Enzi, just to be clear, we have
actuaries on staff that do the review of our rate filings. The
study that I mentioned, we hired an actuarial firm to conduct
that study, which is really a separate study from our rate
review process, just to clarify. So we have actuaries on staff.
We added an additional actuary to deal with workload issues
with the Federal grant funds in addition to hiring an actuarial
firm, if that makes sense.
Senator Enzi. OK. Concentrating a little bit here on the
Regents company, if they're selling a product for less than
what the people pay, that wouldn't be a sustainable business
model. So if their costs are higher than the actuarial charts
apparently say, how long do you think Regents will be able to
take in less premiums than they pay providers in the medical
claims? Do you have an adjustment for that?
Ms. Miller. Senator Enzi, when we consider surplus and an
insurer's overall profitability as part of the rate filing
process, we do so very carefully, and we understand that long-
term, products need to be priced appropriately.
So, with that said, in the Regents case, we reduced the
initial request, which was a 22.1 percent request, to a 12.8
percent increase, and there were additional concerns that
caused us to have them dip or potentially dip into their
surplus. The company's enrollment in their individual plans has
been a concern for us and was actually a concern pointed to by
the consumer advocacy group.
Their plans have dropped from enrollment of about 100,000
members in 2007 to less than 60,000 members today. So the key
concern here was that if we had approved a 22.1 percent
increase, that would result in further enrollment losses.
Typically your healthiest people are leaving, and that would
drive up claims, resulting in the future in even higher
increases down the road. So part of what we were trying to do
in the Regents case, by potentially having them dip into
surplus, was to try to stem those enrollment losses.
Senator Enzi. Thank you.
Mr. Withrow, I thank you for bringing your daughter on this
experience to Washington. I did that when my kids were young,
and they have a lot of memories from it.
But getting back to the insurance, though, did you know
that in 2014 the small businesses will not be able to buy
health insurance plans that have deductibles that are more than
$2,000 for individual plans or $4,000 for family plans? So do
you think this new requirement will increase your premiums?
Mr. Withrow. Senator, thanks for the question. No, I did
not know, but I can tell you from the work that I've done in
the last 30 days that the only way that we can stem the
increasing cost is by raising deductibles. So if we have a cap
of $2,000 and $4,000, then our monthly premiums should rise.
Senator Enzi. My time has expired.
The Chairman. Thank you, Senator Enzi.
Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
First of all, I can assure the Ranking Member that
Minnesota is hard at work in setting up its exchange even
though the final rule isn't out, and I know that many States
are as well. My former legislative assistant, Lauren Gilchrist,
is now deputy commissioner of health in Minnesota, and I keep
in touch with her, and she's very, very hard at work setting up
that exchange. So the fact that the final rules aren't in
really hasn't slowed that down.
Senator Enzi. Is the information out to the businesses,
though, on that exchange?
Senator Franken. I think it's available. Certainly that is
available, but I can't speak to that. But what you said was
that you don't know if they are working on it, and I just want
to assure you that they are.
Mr. Withrow, in your testimony--first of all, you have a
beautiful daughter.
Hallie, you don't have to stand up again.
[Laughter.]
You can stay there.
You at one point in your testimony said there was a laundry
list, and then I can't remember what you said, of new medical
procedures or care that are required.
Mr. Withrow. Right, the lifetime maximum that children who
are 26 years old, the insurance companies having to cover for
anyone that does not get insurance because of a pre-existing
condition. Those benefits are what I was referring to as were
adding cost to the system. As we add cost to the system,
premiums are going to rise, in my opinion.
Senator Franken. OK. And that's anyone that has a pre-
existing condition, any adult?
Mr. Withrow. What I know of the law----
Senator Franken. I mean, I don't think that's part of the
law now. I think that kicks in in 2014.
Mr. Withrow. Right, right. I'm not sure I understand the
question that you're asking.
Senator Franken. You enumerated what you said were the
requirements that increased the cost, and you stated one that I
don't think exists now.
Mr. Withrow. Then I stand corrected.
Senator Franken. OK. And you're representing the Chamber
of Commerce here.
Mr. Withrow. Yes.
Senator Franken. OK. I just think it's very important that
we just----
Mr. Withrow. Absolutely.
Senator Franken [continuing.] When you testify in front of
the Senate, that you be accurate. I think that's very
important.
Are you aware of what the medical loss ratio is?
Mr. Withrow. No, I'm not. I sell pallets. I'm not an
insurance person.
Senator Franken. OK. The medical loss ratio is part of the
law. In Oregon, for example, Ms. Miller, the medical loss ratio
is about 89 percent. Is that it? OK. And the medical loss ratio
is the percentage of premiums that are paid into a health
insurance company that must be actual health care. So it's 85
percent for the large group market because of this law. There
was no law before. And it's 80 percent for individual and small
groups, and small groups have typically been much, much
smaller.
And when you're on the exchange, you'll be in a much larger
group, and the medical loss ratio will be 85 and above, which
means that 85 percent of all premiums will have to be spent on
actual health care, not on administrative costs and not on
advertising or marketing, and not on CEO salaries, et cetera.
And that's why in certain markets already we're seeing--in
Connecticut, Aetna, we're seeing them cut premiums by 10
percent on an average.
Is that right, Ms. Miller? Do you think that medical loss
ratio is going to bring down health care costs or the cost of
premiums?
Ms. Miller. Senator Franken, in just speaking for Oregon,
since we have such high medical loss ratios, I don't think that
medical loss ratio will make a big difference in Oregon, but
I'm not as familiar with other States and what's happening in
other States in terms of medical loss ratios. It certainly
could have an impact in other States.
Senator Franken. Minnesota has an over 90 percent medical
loss ratio. That's because Oregon and Minnesota are high-value
States. And part of actually one thing that I believe is going
to bring down the bend in the cost curve is that we're going to
increase the value of health care, that we're going to reward,
incentivize States that have high-value care.
My time is up, but I did want to point out that earlier
Senator Hatch said that the purpose of health care reform was
not to reduce the rate of growth of premiums but to reduce
premiums, and I don't think that's the case.
And sometimes I hear that from opponents of health reform
who say, like, ``well, premiums went up, and we were told
they'd go down.'' Well, no. We didn't say that premiums would
go down. We said that the rate of growth of premiums would go
down. That at least was the goal, and whether that's been
achieved everywhere, we will have to see if that's the case.
But I just wanted to clarify the goal.
And I also wanted to clarify because Senator Murkowski from
Alaska was talking about children-only plans, because children
now do have pre-existing conditions covered. If you have pre-
existing, you're allowed to get care. And in Minnesota, while
we don't have a children-only plan, that's being taken care of
by State plans, and that is the reason for an individual
mandate, that everyone will have to get care. That's the whole
purpose of the individual mandate, is so that we cover people
with pre-existing conditions.
So I just wanted to clarify a couple of things, and I
apologize for going over my time, Mr. Chairman.
The Chairman. Excuse me. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
It's a pleasure to have you all testifying today.
It was in 2007 that the Oregon legislature passed a bill
that made the health insurance rate filing process public, and
then in 2009 they expanded on that by creating more protocols
for interaction with the public. And it was in June, Ms.
Miller, that you hosted this public testimony on the rate
increase, and I believe that was the first public testimony on
a rate increase in 20 years.
Were you required to do that by the law, or you just said
this would be an interesting experiment?
Ms. Miller. Senator Merkley, this was the first time in
about 20 years that we conducted a public hearing on a rate
filing. We, of course, have had the public comment period so
people could comment for a couple of years, but this was the
first public hearing, and we were not required by law to do
that.
Senator Merkley. So if I recall, you were a little
skeptical about how that would unfold. And how did it unfold?
Was it valuable?
Ms. Miller. Senator Merkley, I have to say, it was--I
didn't know what to expect going into the hearing. I didn't
know if consumers would find the experience helpful or
valuable, and I didn't know how the company would react to it.
And I have to say, I found it to be--and I think everyone who
attended found it to be a very valuable experience. I heard
from consumers that they so appreciated the opportunity to be
heard and to come and testify and make their views known and
have somebody listen to them.
We also had a lot of comments about--the way we structured
the hearing, we had the company present the rate filing. I
asked the company about 10 questions, and then we had the
consumer advocacy group that we contract with present their
thoughts on the filing, and then we took comments from the
public. And we got comments from people as they were leaving--
they left comment cards and whatnot--that said things like I
have a lot more confidence in the work that the Oregon
Insurance Division does having witnessed this hearing. That
meant a lot to me because I know behind closed doors that we
are doing an excellent job of scrutinizing rate filings, but if
people don't have an opportunity to see that, they don't
necessarily know that and they don't have the confidence in our
process. But I certainly do, and have for years.
I think it was a very valuable experience, and the company
I think also found it to be a valuable experience.
Senator Merkley. I think it's just absolutely terrific.
Part of this process was to create a plain-language strategy so
the public could actually understand the documents before them.
Could you just share a little bit about that?
Ms. Miller. Senator Merkley, I will tell you that over the
last 3 years that I have been at the department, I think our
single greatest challenge has been to try to find a way to take
what otherwise is a very technical process that historically
has been actuaries speaking to actuaries, our department
actuaries speaking to the company actuary, to try to take that
process and turn it into something that you and I can
understand and the public can understand has been one of our
biggest challenges, and it's why we did take some of our grant
funding, as I mentioned, and created the animated story of the
health insurance premium.
We've tried to do everything we can to make this more
easily understandable. We spend a lot of time and staff time
developing our plain-language decision summaries because we
want people--that's our way of holding ourselves accountable.
But we want people to understand why their rates are going up
and why we approve the rate we approve.
Senator Merkley. Could you bring that expertise to bear on
our legislative language?
[Laughter.]
I want to switch to the health insurance exchange. You've
set up a public corporation, the Health Insurance Exchange
Corporation, and are hard at work designing the elements of
that. How is that going?
Ms. Miller. In terms of developing the exchange, I will
tell you Rocky King is the--I think his title is administrator
or interim executive director, whatever it is, and I will tell
you they are just starting to do things like try to find office
locations. Some of the things they're doing right now are very
basic in terms of setting up a corporation.
So I would say it's a little bit slow only because there
are things that we don't necessarily think of that they've had
to focus on, like finding buildings, figuring out where their
office is going to be located, getting workers comp coverage
for their employees.
Senator Merkley. So in general, the vision of the exchange,
which is to have all the policies in one computer site where a
consumer can compare them to see what features would best fit
their family and so forth, is that resonating? Is there a lot
of interest in that, a lot of support for it, or do people see
that as unnecessary?
Ms. Miller. Senator Merkley, I think especially in a market
like Oregon, if you go to healthcare.gov now and you look at
all of your options, the last time I did it for an individual
like myself, I think there were 77 options that came up, and
sometimes I think too many options is difficult for consumers
in terms of figuring out which is the best plan for them.
So I think the exchange, I think particularly in Oregon
there's a lot of excitement because it will make it easier for
people to compare plans. We have so many options today, but
they're not necessarily plans that are easy to compare.
Senator Merkley. Good. So I just have one last request. My
colleague from Minnesota likes to point out that Oregon has a
medical loss ratio of only 89 percent, while Minnesota is at 90
percent. Can you do something about that so that I don't have
to continue to hear this?
[Laughter.]
Ms. Miller. Senator Merkley, we will work on that.
Senator Merkley. Thank you very much. Thank you, Mr. Chair.
Senator Franken. It's 91 percent in Minnesota.
[Laughter.]
The Chairman [Inaudible]. I'll submit those to you in
writing.
Senator Franken. May I just thank Mr. Withrow for coming
here and bringing your family, and for having a small business.
I love pallets. I do.
[Laughter.]
Palletizing things, that's a great thing. I've been on a
USO tour where they palletize everything on the back of that
plane, and I love pallets. So it's a good business.
The Chairman. In fact, a friend of mine and a former
colleague of mine who is in Minnesota by the name of Richard
Nolan, a former congressman, went into the pallet business.
Senator Franken. You've got to put stuff on pallets. I
mean, if you go to any factory, they're putting stuff on
pallets. Food, all food, goes on pallets.
Mr. Withrow. Senator Franken, would you mind if I clarified
something I said earlier?
Senator Franken. Yes.
Mr. Withrow. And I'll never forget it again.
Senator Franken. OK.
Mr. Withrow. The areas that I mentioned, the additional
cost, is what's concerning me, but also the preventive costs,
and also the addition that's added by the Health and Human
Services Secretary Sebelius that added additional cost on
women's lactose, lactician--excuse me--breastfeeding, and also
birth control. Those additional costs is what I was referencing
when I said there's additional cost here that I think is really
going to hurt us from a small business perspective on the
exchanges. So I appreciate correcting what I had said before.
Senator Franken. I think that when you attribute the--and
I don't know what's going on in Kentucky, but when you
attribute the cost going up because of provisions that are in
the Affordable Care Act that have not kicked in, I just think
that, you know, as you say, you're a small businessman who pays
attention to his business, and you obviously care about your
employees, and you're obviously doing what we need Americans to
be doing, which is working to build businesses and working to
create economic opportunity for people. You pay your employees
too much to qualify for the tax credit, so I credit you on
that.
But so you're not, I think, you're not expected to know
every detail of the law, which is over 2,000 pages long.
Mr. Withrow. It just speaks to the confusion of it.
Senator Franken. Thank you.
The Chairman. Senator Enzi.
Senator Enzi. Some of those provisions have already gone
into effect, including the prevention provisions.
Senator Franken. Some have. But I'm saying that some that
were mentioned as having gone into effect haven't, and I just
wanted to make that clear.
The Chairman. Thank you all very much. The record will stay
open for 10 days for further submissions or questions.
Senator Merkley.
Senator Merkley. Can I insert one last question? I wanted
to follow up on your lactation point, Mr. Withrow, because that
was something I was very much involved in in Oregon. I
championed companies providing this basic work and the
flexibility for women to express milk. And here in the Senate,
Dr. Coburn from Oklahoma partnered with me on the Senate side
because it was basically no cost. In fact, actually, it turned
out from the experiment in Oregon that they had much less
absenteeism and a much higher esprit de corps among women who
were returning to work after childbearing because it helped
relieve that stress over whether they're doing the right thing
by their child or not.
So you mentioned the cost associated with lactation, and
I'm not sure what costs you were referring to.
Mr. Withrow. I'm talking specifically about the coaches,
the breast pump rentals. I mean, having had four kids, I
certainly know the costs that we had to pay in order to either
buy or rent breast pumps, and also birth control. Those costs
are what concern me because we just seem to be adding more and
more to the ticket of benefits, and as we add benefits,
typically in business, you add benefits, the more you add, the
more it's going to cost. So it concerns me from a small
business perspective that we seem to keep adding more and more
to the party.
Senator Merkley. Yes. My understanding, and I could be
wrong, but my belief is that those features that you referred
to actually are not a mandate in the law. Those are not
required. Many companies are putting them in because they have
a very strong appeal to the customer. But that's a market
decision, not a mandate decision.
I'll check on that and close the loop with you.
Mr. Withrow. Would it be to everyone? Is it something that
has to be part of the entire mandate that everyone has to have
that available, or could it----
Senator Merkley. No, no. That's my point. It's my
understanding that those services are not mandated, that that
is an insurance company decision. But let me check on that and
close the loop for you.
Mr. Withrow. OK, OK.
Senator Enzi. Actually, everyone has to pay for all of
those for free, and they are mandated benefits.
The Chairman. As long as everyone is weighing in, I guess
the Chairman will weigh in on this.
[Laughter.]
Being the basic author of the prevention section of the
health care bill, I would just say it again, that we keep
paying and paying and paying and paying to fix, to mend, to
cure, to patch. We spend precious little on prevention. That's
the one failure, the one big failure of our health care system
in America, that we've not put enough into prevention, about 4
cents, less than 4 cents of every dollar goes into prevention.
And your mother was right, an ounce of prevention is worth a
pound of cure.
And so as we're making this shift, we are putting more out
there for preventive services, and in some cases they do cost a
little bit more. They're added on. But every single study I
have ever seen indicates that the amount that you have put into
proven preventive services, approved by the U.S. Preventive
Services Task Force, pay off huge amounts in the future in
terms of cutting health care expenditures to patch and mend and
fix later on.
So we want to do more in preventive health care, a lot
more. A lot of companies, are stepping up to the bar. Some have
preceded this with prevention. We were just talking about
Safeway that did a great job on this in the past, and it was
one of those companies that we looked at in how you devise
preventive health services and interventions.
Also, as the former chair at one time of the national
breast feeding coalition, it's been a lifelong goal of mine to
change society's attitudes in this country on breast feeding.
It should be available easily. We all know from pediatricians
that the first months of a child's life is enhanced
immeasurably by mother's milk. There's no substitute for it
anywhere.
Now, again, some people can. I understand that there have
to be replacements in infant formula and stuff, but we should
make it as easy as possible for every mother to be able to
nurse her child, as easily as possible, in the workplace, in
traveling, no matter where. It ought to be the norm, not the
exception that we do this.
I don't know your business from anything, Mr. Withrow, or
any other businesses here. But I have seen small businesses
that really go out of their way to provide time, to provide
whatever modicum of support they can give to women and young
women who are in their childbearing years to be able to nurse
their children. To those I say God bless you, keep doing more,
and I hope all businesses will do that, and I hope we do that
on the government level, both Federal, State, and local
governments. This is one of the best things we can do for the
health of this country.
Mr. Merkley.
Senator Merkley. Thank you, Mr. Chair. It was very
interesting in Oregon that we had an exemption for any company
that applied and said it's just not feasible to provide privacy
and flexibility in break time in our setting. So we assumed
that a number of companies would take advantage of that
situation, and what actually transpired was that not a single
Oregon company has asked for that exemption. Some have explored
it and basically tried to understand what's required of them
and how can they make it fit, and they've gotten advice on how
other companies have tackled it, and I think it really is a
testimony to the fact that when people pause, they realize what
profound value it is for women to be able to express milk.
There is no substitute for it for the child, and it's not only
good for the child's health, it's tremendous for the mother's
health.
We had testimony in this very committee from Dr. Coburn,
who said, when I first introduced that amendment, ``Senator
Merkley hasn't begun to say all the advantages to it.'' So I
think it was a tremendous step.
The Chairman. I think we'd better close now before we're
accused of practicing pediatric medicine without a license
here.
[Laughter.]
Thank you all very much. The committee will stand
adjourned.
Mr. Withrow. Thank you.
[Additional material follows.]
ADDITIONAL MATERIAL
Health Affairs--At the Intersection of Health, Health Care and Policy
(By Sean P. Keehan, Andrea M. Sisko, Christopher J. Truffer, John A.
Poisal, Gigi A. Cuckler, Andrew J. Madison, Joseph M. Lizonitz and
Sheila D. Smith) *
National Health Spending Projections Through 2020: Economic Recovery
and Reform Drive Faster Spending Growth
Abstract: In 2010, U.S. health spending is estimated to have grown
at a historic low of 3.9 percent, due in part to the effects of the
recently ended recession. In 2014, national health spending growth is
expected to reach 8.3 percent when major coverage expansions from the
Affordable Care Act of 2010 begin. The expanded Medicaid and private
insurance coverage are expected to increase demand for health care
significantly, particularly for prescription drugs and physician and
clinical services. Robust growth in Medicare enrollment, expanded
Medicaid coverage, and premium and cost-sharing subsidies for exchange
plans are projected to increase the Federal Government share of health
spending from 27 percent in 2009 to 31 percent by 2020. This article
provides perspective on how the Nation's health care dollar will be
spent over the coming decade as the health sector moves quickly toward
its new paradigm of expanded insurance coverage.
---------------------------------------------------------------------------
* The opinions expressed here are the authors' and not necessarily
those of the Centers for Medicare and Medicaid Services. The authors
thank Richard Foster, Stephen Heffler, John Shatto, Kent Clemens,
Liming Cai, Tristan Cope, and Cathy Curtis. [Published online July 28,
2011].
The online version of this article, along with updated
information and services, is available at: http://
content.healthaffairs.org/content/early/2011/07/27/
hlthaff.2011.0662.full.html.
For Reprints, Links & Permissions: http://healthaffairs.org/
1340_reprints.php.
E-mail Alerts : http://content.healthaffairs.org/subscriptions/
etoc.dtl.
To Subscribe: http://content.healthaffairs.org/subscriptions/
online.shtml.
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National health spending is expected to grow 5.8 percent per year
for the period 2010 through 2020, 1.1 percentage points faster than the
expected average annual rise in gross domestic product. As a result,
the health share of the gross domestic product is projected to increase
from 17.6 percent in 2009 to 19.8 percent by 2020.\1\ During this
period, we expect that the Affordable Care Act of 2010 will reduce the
number of uninsured people by nearly 30 million, lead to prescription
drugs and physician services accounting for a greater share of health
spending than would have been the case otherwise, and contribute to an
increase in the government-sponsored (Federal, State, and local) share
of health spending to just under 50 percent by 2020.
In this article we review some highlights of overall projected
spending trends in several time periods; summarize our methods and
assumptions; then provide an outlook for major health industry sectors,
payers, and sponsors. In so doing, we provide perspective on how the
Nation's health care dollar will be spent over the coming decade as the
health sector moves quickly toward its new paradigm of expanded
insurance coverage.
2010
National health spending is estimated to have reached $2.6 trillion
in 2010, reflecting a growth rate of 3.9 percent over the previous
year, which is slightly slower than the previous historic low growth
rate of 4.0 percent in 2009 (Exhibits 1 and 2).\2\ Growth in nominal
gross domestic product (that is, not adjusted for inflation)
accelerated to 3.8 percent in 2010 from--1.7 percent in 2009.\3\
Because the rate of economic growth has accelerated and the projected
rate of growth of health spending is similar, the health share of gross
domestic product is projected to remain unchanged in 2010 at 17.6
percent. This is in contrast to the period from 2008 to 2009, when the
health share of gross domestic product rose by 1 percentage point.
The continued low rate of estimated growth in national health
spending in 2010 reflects two major factors. First, Medicare spending
growth is estimated to have been lower as the rate of growth in
payments to private plans under the Medicare Advantage program slowed
in 2010. Second, the continuing impact of losses in employment and
health insurance coverage associated with the recession helped to limit
growth in private spending. Private health insurance spending growth is
estimated to have been just 2.6 percent in 2010 as the number of people
enrolled in private plans fell by roughly 5 million. Moreover, out-of-
pocket spending climbed just 1.8 percent (after 0.4 percent growth in
2009) as many people continued to restrain their use of health care
goods and services.
Exhibit 1.--National Health Expenditures (NHE), Aggregate and Per Capita Amounts, and Share of Gross Domestic Product (GDP), Selected Calendar Years
2008-20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Spending category 2008 2009 2010 2011 2012 2013 2014 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
NHE, billions........................................... $2,391.4 $2,486.3 $2,584.2 $2,708.4 $2,823.9 $2,980.4 $3,227.4 $4,638.4
Health Consumption Expenditures....................... 2,234.2 2,330.1 2,424.3 2,540.8 2,646.9 2,792.6 3,027.6 4,337.7
Personal health care................................ 1,997.2 2,089.9 2,166.6 2,266.9 2,354.8 2,481.6 2,680.0 3,840.7
Hospital care..................................... 722.1 759.1 794.3 831.4 873.1 919.1 985.2 1,410.4
Professional services............................. 652.2 674.9 690.4 718.0 728.3 768.0 834.2 1,164.2
Physician and clinical services................. 486.5 505.9 517.8 538.4 542.9 573.5 624.3 867.7
Other professional services..................... 63.4 66.8 70.2 74.0 75.8 79.7 88.2 128.7
Dental services................................. 102.3 102.2 102.4 105.7 109.6 114.7 121.7 167.9
Other health, residential, and personal care \1\.. 113.3 122.6 130.7 137.6 147.4 158.4 170.8 271.5
Home health care \2\.............................. 62.1 68.3 71.9 75.7 80.2 85.7 92.0 136.1
Nursing care facilities and continuing care 132.8 137.0 140.6 145.6 150.7 157.3 164.5 218.4
retirement communities \2\ \3\...................
Retail outlet sales of medical products........... 314.7 328.0 338.7 358.7 375.1 393.1 433.4 640.1
Prescription drugs.............................. 237.2 249.9 258.6 275.7 290.2 305.3 337.9 512.6
Durable medical equipment....................... 35.1 34.9 35.7 37.0 37.5 38.7 41.2 55.0
Other nondurable medical products............... 42.3 43.3 44.4 46.0 47.3 49.1 54.2 72.4
Government administration \4\....................... 29.2 29.8 32.8 35.6 38.6 42.1 48.3 71.5
Net cost of health insurance \5\.................... 134.8 133.2 144.0 152.1 162.2 171.9 195.8 271.0
Government public health activities................. 72.9 77.2 81.0 86.2 91.3 97.1 103.5 154.4
Investment............................................ 157.2 156.2 159.9 167.6 176.9 187.8 199.9 300.7
Research \6\........................................ 43.2 45.3 49.9 53.3 56.7 60.3 64.1 93.0
Structures and equipment............................ 114.0 110.9 110.0 114.3 120.3 127.4 135.8 207.7
Population (millions)................................... 304.8 307.5 310.3 313.2 316.0 318.8 321.6 338.4
NHE per capita.......................................... $7,845.0 $8,086.5 $8,327.3 $8,648.5 $8,936.8 $9,348.8 $10,035.2 $13,708.8
GDP, billions of dollars................................ $14,369.1 $14,119.0 $14,659.6 $15,334.4 $16,071.0 $16,891.1 $17,803.8 $23,388.4
NHE as percent of GDP................................... 16.6 17.6 17.6 17.7 17.6 17.6 18.1 19.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of
Economic Analysis; and U.S. Bureau of the Census.
Notes: Numbers may not add to totals due to rounding. Data from 2010 to 2020 are projections.
\1\ Includes spending for residential care facilities (North American Industry Classification Codes (NAICSI 623210 and 623220), ambulance providers
(NAICS 621910), medical care delivered in nontraditional settings (such as community centers, senior citizens centers, schools, and military field
stations), and expenditures for Home and Community Waiver programs under Medicaid.
\2\ Includes freestanding facilities only. Additional services of this type provided in hospital-based facilities are counted as hospital care.
\3\ Includes care provided in nursing care facilities (NAICS 6231), continuing care retirement communities (623314 State and local government nursing
facilities, and nursing facilities operated by the Department of Veterans Affairs.
\4\ Includes all administrative costs (Federal, State, and local employees' salaries; contracted employees including fiscal intermediaries; rent and
building costs; computer systems and programs; other materials and supplies; and other miscellaneous expenses) associated with insuring individuals
enrolled in the following public health insurance programs: Medicare, Medicaid, Children's Health Insurance Program, Department of Defense, Department
of Veterans Affairs, Indian Health Service, workers' compensation, maternal and child health, vocational rehabilitation, Substance Abuse and Mental
Health Services Administration, and other Federal programs.
\5\ Net cost of health insurance is calculated as the difference between calendar year premiums earned and benefits paid for private health insurance.
This includes administrative costs, and in some cases, additions to reserves; rate credits and dividends; premium taxes; and plan profits or losses.
Also included in this category is the difference between premiums earned and benefits paid for the private health insurance companies that insure the
enrollees of the following public programs: Medicare, Medicaid, Children's Health Insurance Program, and workers' compensation (health portion only).
\6\ Research and development spending of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from
``research expenditures'' but are included in the expenditure class in which the product fails.
Exhibit 2.--National Health Expenditures (NHE), Average Annual Growth From Prior Year Shown, Selected Calendar
Years 2008-20
----------------------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013 2014 2020
Spending category [In [In [In [In [In [In [In [In
percent] percent] percent] percent] percent] percent] percent] percent]
----------------------------------------------------------------------------------------------------------------
NHE, billions................... 7.1 4.0 3.9 4.8 4.3 5.5 8.3 6.2
Health Consumption 7.1 4.3 4.0 4.8 4.2 5.5 8.4 6.2
Expenditures.................
Personal health care (PHC).. 7.0 4.6 3.7 4.6 3.9 5.4 8.0 6.2
Hospital care............. 7.2 5.1 4.6 4.7 5.0 5.3 7.2 6.2
Professional services..... 6.7 3.5 2.3 4.0 1.4 5.4 8.6 5.7
Physician and clinical 6.7 4.0 2.4 4.0 0.8 5.6 8.9 5.6
services...............
Other professional 7.0 5.3 5.0 5.5 2.4 5.2 10.7 6.5
services...............
Dental services......... 6.5 -0.1 0.2 3.2 3.7 4.7 6.1 5.5
Other health, residential, 7.2 8.3 6.6 5.3 7.1 7.5 7.8 8.0
and personal care \1\....
Home health care \2\...... 8.5 10.0 5.3 5.3 6.1 6.8 7.3 6.8
Nursing care facilities 5.7 3.1 2.6 3.5 3.5 4.4 4.6 4.8
and continuing care
retirement communities
\2\ \3\..................
Retail outlet sales of 7.4 4.2 3.3 5.9 4.6 4.8 10.2 6.7
medical products.........
Prescription drugs...... 8.8 5.3 3.5 6.6 5.3 5.2 10.7 7.2
Durable medical 4.3 -0.8 2.3 3.8 1.4 3.0 6.5 5.0
equipment..............
Other nondurable medical 3.7 2.2 2.7 3.6 2.9 3.7 10.4 4.9
products...............
Government administration \4\. 7.0 2.0 9.9 8.7 8.4 9.0 14.6 6.8
Net cost of health insurance 9.8 ^1.2 8.1 5.6 6.6 6.0 13.9 5.6
\5\..........................
Government public health 6.8 5.9 4.8 6.5 6.0 6.3 6.6 6.9
activities...................
Investment...................... 7.3 ^0.6 2.4 4.8 5.6 6.1 6.5 7.0
Research \6\.................. 6.8 4.8 10.1 6.8 6.3 6.5 6.3 6.4
Structures and equipment...... 7.5 ^2.7 ^0.8 3.9 5.2 6.0 6.5 7.3
Population (millions)........... 1.0 0.9 0.9 0.9 0.9 0.9 0.9 0.8
NHE per capita.................. 6.1 3.1 3.0 3.9 3.3 4.6 7.3 5.3
GDP, billions of dollars........ 4.7 ^1.7 3.8 4.6 4.8 5.1 5.4 4.7
----------------------------------------------------------------------------------------------------------------
Sources: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group;
U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census.
Notes: 2008 shows average annual growth, 2000-08; data from 2010 to 2020 are projections; percent changes are
calculated from unrounded data.
\1\ Includes expenditures for residential care facilities (North American Industry Classification Codes (NAICS)
623210 and 623220), ambulance providers [NAICS 621910, medical care delivered in nontraditional settings (such
as community centers, senior citizens centers, schools, and military field stations), and expenditures for
Home and Community Waiver programs under Medicaid.
\2\ Includes freestanding facilities only. Additional services of this type provided in hospital-based
facilities are counted as hospital care.
\3\ Includes care provided in nursing care facilities (NAICS 6231), continuing care retirement communities
(623311), State and local government nursing facilities, and nursing facilities operated by the Department of
Veterans' Affairs.
\4\ Includes all administrative costs (Federal, State, and local employees' salaries; contracted employees
including fiscal intermediaries; rent and building costs; computer systems and programs; other materials and
supplies; and other miscellaneous expenses) associated with insuring individuals enrolled in the following
public health insurance programs: Medicare, Medicaid, Children's Health Insurance Program, Department of
Defense, Department of Veterans' Affairs, Indian Health Service, workers' compensation, maternal and child
health, vocational rehabilitation, Substance Abuse and Mental Health Services administration, and other
Federal programs.
\5\ Net cost of health insurance is calculated as the difference between calendar year premiums earned and
benefits paid for private health insurance. This includes administrative costs, and in some cases, additions
to reserves; rate credits and dividends; premium taxes; and plan profits or losses. Also included in this
category is the difference between premiums earned and benefits paid for the private health insurance
companies that insure the enrollees of the following public programs: Medicare, Medicaid, Children's Health
Insurance Program, and workers' compensation (health portion only).
\6\ Research and development expenditures of drug companies and other manufacturers and providers of medical
equipment and supplies are excluded from ``research expenditures'' but are included in the expenditure class
in which the product falls.
2011-13
For the period 2011-13, national health spending is projected to
increase more rapidly than the preceding 2 years, averaging 4.9
percent. Underlying this projection is expected faster growth in
private health insurance spending (reaching 4.8 percent in 2013),
related to anticipated gains in employer-sponsored health insurance
enrollment. Out-of-pocket spending is also projected to grow faster
through 2013, averaging 3.2 percent growth in this period. The
accelerated growth in out-of-pocket spending is driven by increases in
disposable personal incomes during economic recovery and expansion,
which in turn leads to greater use of more medical services. The
projection is also based on an expectation that many employers will
continue the recent trend of offering health insurance plans that
require higher cost sharing, also leading to higher out-of-pocket
spending.\4\
During the period 2011-13, the immediate reforms prescribed by the
Affordable Care Act will continue to be implemented, including two
programs that expand access to insurance coverage to specific
populations. The Pre-Existing Condition Insurance Plan program (for
those who have had difficulty acquiring individual coverage because of
their medical conditions) and the expansion of dependent coverage to
eligible people under age 26 are projected to provide coverage to 1.6
million people in 2013. The impact of these reforms on overall health
spending levels, however, is projected to be minor during this period
(averaging 0.1 percent higher).
Medicare spending growth through 2013 most notably reflects the
effect of a 29.4 percent scheduled physician payment rate reduction,
effective January 1, 2012. This rate reduction is mandated by
Medicare's sustainable growth rate formula, which determines the rates
that Medicare pays for services under the physician fee schedule.
Accordingly, Medicare spending growth is projected to decelerate
sharply in 2012 to 1.7 percent, down from 5.9 percent in 2011. Under
the alternative Medicare projection scenario in which physician payment
rate increases are based on growth in the Medicare Economic Index,\5\
Medicare spending growth is projected to accelerate to 6.6 percent in
2012.
2014
In 2014, the Affordable Care Act will greatly expand access to
insurance coverage, mainly through Medicaid and new State health
insurance exchanges which will facilitate the purchase of insurance.
The result will be an estimated 22.9 million newly insured people, some
of whom will be covered through employer-sponsored insurance. The
associated increases in Medicaid spending (20.3 percent) and private
health insurance spending (9.4 percent) for this newly insured
population are anticipated to contribute to a significant acceleration
in the national health spending growth rate in 2014 (8.3 percent,
compared to 5.5 percent in 2013) (Exhibit 3). Correspondingly, out-of-
pocket spending is projected to decline by 1.3 percent as the number of
people with insurance coverage increases and many services formerly
paid for out-of-pocket are now covered by insurance.\6\
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Spending growth for major health care services and goods in 2014 is
expected to be higher than in previous years as the effects of expanded
coverage more than offset the Medicare savings provisions found in the
Affordable Care Act. (These Medicare savings include a slowing in the
rate of growth of payments to hospitals, for example.) Notably, because
many of the newly insured will be younger and healthier, on average,
compared to the existing Medicaid and private insurance populations,
they are expected to use physician services and prescription drugs to a
greater extent than hospital or other more intensive services.
Prescription drug spending growth is projected to be 10.7 percent
in 2014, or 5.1 percentage points higher than in the absence of the
Affordable Care Act. The higher growth rate stems from the fact that
the newly insured are expected to consume more prescriptions because of
substantially lower out-of-pocket requirements for prescription drugs
(Exhibit 4). Spending growth for physician and clinical services is
projected to be 8.9 percent (3.1 percentage points higher than in the
absence of the Affordable Care Act) in 2014, driven by an expected
increase in office visits. Hospital spending is projected to grow 7.2
percent or 1.0 percentage point higher than it would have without the
passage of the Affordable Care Act.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
2015-20
For 2015-20, national health spending growth is projected to
average 6.2 percent per year. During this period, some large employers
with low-wage employees are expected to discontinue offering health
insurance to their workers and instead pay the penalty mandated in the
Affordable Care Act. Of the workers losing employer-based coverage,
many are expected to obtain insurance coverage through the State
exchanges, while others would enroll in Medicaid (and some would become
uninsured). Also, the Affordable Care Act mandates an excise tax on
high-cost insurance plans starting in 2018; costs of employer-sponsored
health insurance plans that exceed $10,200 for an individual employee
or $27,500 for dependent coverage will be subject to a 40 percent tax.
Consequently, many plans that exceed the taxable threshold are expected
to provide enrollees incentives to enroll in plans with lower premiums
and higher cost-sharing requirements. The effect is likely to be a
slowdown in the growth of health services, health insurance premiums,
and health spending overall. As a result, in our projection both
premiums and the use of health services are expected to grow more
slowly in 2018 than in the absence of this provision.
model and assumptions
These projections are generated within a ``current-law'' framework
that incorporates actuarial and econometric modeling techniques, as
well as judgments about future events and trends that influence health
spending. The projections use the economic and demographic assumptions
from the 2011 Medicare Trustees Report, which are updated to reflect
the latest macroeconomic data.\7\
Consistent with the trustees report methodology, the Medicare
projections are estimated under two scenarios: current law (where
growth in physician payment rates is based on the sustainable growth
rate formula) and an alternative scenario (where growth in physician
payment rates is based on growth in the Medicare Economic Index).\5\
\7\ \8\ The Centers for Medicare and Medicaid Services' Office of the
Actuary health reform model and other actuarial cost estimates were
used to determine the full effect of reform on national health spending
and to assign the impact of reform among categories for goods and
services.\9\
The projections presented in this article differ somewhat from past
projections. Specifically, they incorporate data and classification
changes made in a recent National Health Expenditure Accounts
comprehensive revision, in addition to incorporating new and revised
source data and refinements to our models.\10\ \11\ In addition, this
article features health spending projections by sponsor or source of
financing, as well as the typical projections by payer and service.
These projections remain subject to substantial uncertainty given
the variable nature of future economic trends and a lack of historical
experience for many Affordable Care Act health system reforms.
Moreover, ``supply-side'' impacts of the Affordable Care Act, such as
changes in provider behavior in reaction to an influx of newly insured
patients, remain highly uncertain and are not estimated at this
time.\12\
outlook for medical services and goods
The Affordable Care Act is expected to exert varying effects on
spending trends for medical services and goods. For the three largest
sectors (hospital services, physician and clinical services, and
prescription drugs), total spending is projected to be higher when the
major expansions of this law are implemented in 2014. However, the
magnitude of the impact on their respective growth rates is expected to
be different. The increased demand in response to expanded insurance
coverage for physician services and pharmaceuticals is anticipated to
be higher than that of hospital services. One reason is that insurance
expansions can typically lead to more efficient use of health care
services (that is, more preventive care), which would increase office
visits and prescription drugs, and could lead to less reliance on
hospital care.\3\ As a result, the projected share of national health
spending in 2020 accounted for by physicians (19 percent) and
prescription drugs (11 percent) is higher than it would have been in
the absence of the Affordable Care Act, and the hospital share (30
percent) is lower.
Hospital Care. Hospital spending growth is estimated to have slowed
by half a percentage point to 4.6 percent in 2010 and to have reached
$794.3 billion (Exhibits 1 and 2). Growth in private health insurance
spending on hospital care is estimated to have remained relatively low
at 2.1 percent in 2010 (compared to 2.7 percent in 2009), reflecting
the impact of the recent recession and a continued decline in service
use.\14\ Largely as a result of a 3.4-percent reduction to Medicare's
private health plan payments, growth in Medicare spending on hospital
care is estimated to have slowed in 2010 to 4.0 percent, from 5.9
percent in 2009.\7\
For 2011 through 2013, growth in hospital spending is projected to
accelerate, reaching 5.3 percent by 2013. With expected gains in
employment, a rebound in projected private health insurance enrollment
is also expected. As a result, private health insurance hospital
spending is projected to be 4.2 percent in 2013. Medicare hospital
spending growth is projected to grow faster in each year, reaching 6.4
percent in 2013. This trend mainly reflects faster growth in Medicare
enrollment as the baby boom generation reaches age 65, offsetting much
slower growth in per person spending due to the savings provisions in
the Affordable Care Act. These provisions include reduced fee-for-
service provider payment updates and lower payments to private plans.
In 2014, overall hospital spending growth is projected to
accelerate to 7.2 percent, which is 1.0 percentage point and $8.6
billion higher than projected in the absence of health reform (Exhibit
4). This growth rate reflects the net impact of increased service use
associated with the coverage expansions under Medicaid and private
insurance. These impacts are partially offset by lower Medicare payment
rate increases for hospitals mandated by the Affordable Care Act, which
result in Medicare hospital spending growth of 6.7 percent in 2014, 1.8
percentage points slower than projected had the Affordable Care Act not
become law.
Hospital spending is projected to grow 6.2 percent per year during
the period 2015-20. By 2020, Medicare hospital spending growth is
projected to reach 7.3 percent (up from 5.1 percent in 2015), while
private health insurance spending is projected to slow to 5.8 percent.
This trend largely reflects the net result of the baby boom enrollment
shift from private health insurance coverage to Medicare and is not
related to coverage expansions in the Affordable Care Act.
Physician and Clinical Services. Spending growth for physician and
clinical services is estimated to have slowed from 4.0 percent in 2009
to a historically low rate of 2.4 percent in 2010, and to have reached
$517.8 billion (Exhibits 1 and 2). This trend is driven by recession-
related declines in physician visits, as many consumers delayed health
care to reduce expenses, and in part, by a less severe flu season than
in the previous year, 2009.\15\ \16\ Private health insurance spending
growth is estimated to have slowed to only 0.9 percent in 2010 (from
1.9 percent in 2009) in response to elevated unemployment and increased
cost sharing in employer-based plans.\14\ After rebounding temporarily
in 2011 to 4.0 percent, spending growth for physician and clinical
services is projected to slow to 0.8 percent in 2012 largely due to the
29.4-percent Medicare physician payment rate reduction that is mandated
by Medicare's sustainable growth rate formula. Under the alternative
Medicare projection scenario, total physician and clinical spending
growth would be 4.5 percent in 2012. This scenario is more fully
described in the ``Model and Assumptions'' section.
By 2014, spending growth for physician and clinical services is
projected to accelerate 3.3 percentage points to 8.9 percent, which is
3.1 percentage points and $17.8 billion higher than projected in the
absence of reform (Exhibit 4). Given the demographic and health profile
of the populations expected to gain insurance through Medicaid or the
exchanges--generally expected to be younger, healthier, and requiring
less acute care than those currently insured--the newly insured are
anticipated to devote a higher proportion of their total health
spending to physician and clinical services.\13\
Overall, spending growth for physician and clinical services is
projected to average 5.6 percent for the period 2015-20. Medicaid
spending growth for these services (averaging 7.4 percent) is driven by
enrollment growth and, in part, by the projected higher proportion of
new enrollees' benefits going toward these services. Medicare spending
growth for physician and clinical services, averaging 5.7 percent, is
driven by higher enrollment in tandem with somewhat suppressed growth
in payment levels. This growth rate is expected to slightly outpace
that of private health insurance (averaging 5.1 percent) as more people
shift into Medicare from private insurance.
Prescription Drugs. Prescription drug spending is estimated to have
grown 3.5 percent in 2010, down from 5.3 percent in 2009, and totaled
$258.6 billion (Exhibits 1 and 2). This deceleration resulted from
continued slow growth in the use of drugs and the ongoing change in the
mix of drugs purchased. Through tiered copays and other mechanisms,
health plans have continued to shift medication use toward less-costly
generic drugs. Thus, the generic dispensing rate is projected to have
increased to 69 percent in 2010, up from 66 percent in 2009.\2\
For the period 2011-13, prescription drug spending growth is
projected to be faster than in 2010, averaging 5.7 percent as economic
conditions improve. Offsetting this faster growth somewhat, 6 of the
top 50 brand-name drugs (based on 2010 retail sales) are scheduled to
lose patent protection in 2011, which is projected to affect growth the
most in 2012 as lower-priced generic versions of these drugs become
available for a full 12 months.\17\ \18\
In 2014, growth in prescription drug spending is expected to
increase sharply to 10.7 percent, which is 5.1 percentage points and
$15.8 billion higher than projected in the absence of the Affordable
Care Act (Exhibit 4). This acceleration is driven mainly by the
expectation of a substantial increase in the use of drugs by the newly
insured portion of the population.\19\
From 2015 through 2020, prescription drug spending growth is
expected to average 7.2 percent. This reflects, in part, a projected
leveling off of the dispensing rate for generic drugs, resulting in
slightly higher drug price growth, and higher spending for new drugs
due to an expected increase in the Food and Drug Administration's
approvals for new molecular entities and therapeutic biologics during
this period.\20\
outlook for payers
Medicare. Growth in Medicare spending (including spending for fee-
for-service providers, private health plans, and administrative costs)
is estimated to have slowed from 7.9 percent in 2009 to 4.5 percent in
2010, and to have reached $525.0 billion (Exhibit 5). This deceleration
reflects slower growth across most of Medicare's service categories due
in part to an across-the-board reduction of 3.4 percent in Medicare's
payments to private health plans.\7\ In 2011, Medicare spending growth
is projected to increase 5.9 percent before slowing to 1.7 percent in
2012, as a result of the 29.4-percent reduction in physician payment
rates scheduled in current law.\21\ Under the alternative Medicare
projection scenario, projected 2012 Medicare spending growth will
accelerate to 6.6 percent.
Average annual Medicare spending growth is anticipated to be 6.3
percent for 2013 through 2020. This rate is the net result of, on the
one hand, increasing enrollment that will drive up spending, and on the
other hand, provisions of the Affordable Care Act that call for reduced
fee-for-service provider payment updates and lower payments to private
plans.\7\ By 2020, Medicare's share of national health spending is
expected to remain at 20 percent (unchanged from 2009). This, too, is
the net result of different forces: on the one hand, increases in
enrollment from the baby boom generation; on the other, the non-
Medicare coverage expansions that will cause spending to rise for other
payers, lower Medicare payment updates, and other Medicare savings
provisions in the Affordable Care Act.
Medicaid. Medicaid spending (Federal and State combined) is
estimated to have grown 7.2 percent in 2010, down from 9.0 percent in
2009, and to have accounted for $400.7 billion (Exhibit 5). The
slowdown in Medicaid spending growth was primarily driven by slower
enrollment growth (6.0 percent in 2010 compared to 7.4 percent in 2009)
following the end of the recession.\22\ Medicaid spending per enrollee
is estimated to have grown slowly in 2010 (1.1 percent). This slow rate
of growth was due to projected faster enrollment growth of
beneficiaries with relatively lower health care costs (mainly children
and adults under age 65) than other Medicaid beneficiaries. Further
projected improvements in the economy are expected to result in slower
enrollment growth in Medicaid during 2011-13, leading to a slight
deceleration in spending growth (averaging 6.8 percent).\4\
Exhibit 5.--National Health Expenditures (NHE), Amounts And Average Annual Growth From Previous Year Shown, By Source of Funds, Selected Calendar Years
2008-20
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source of funds 2008 \1\ 2009 2010 2011 2012 2013 2014 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
NHE ($ in billions)............................. $2,391.4 $2,486.3 $2,584.2 $2,708.4 $2,823.9 $2,980.4 $3,227.4 $4,638.4
Health consumption expenditures............... 2,234.2 2,330.1 2,424.3 2,540.8 2,646.9 2,792.6 3,027.6 4,337.7
Out-of-pocket............................... 298.2 299.3 304.9 312.1 322.0 334.6 330.3 443.8
Health insurance............................ 1,681.8 1,767.4 1,847.5 1,942.8 2,023.9 2,139.9 2,371.3 3,411.4
Private health insurance.................. 790.6 801.2 822.3 850.3 884.4 926.9 1,013.7 1,402.0
Medicare.................................. 465.7 502.3 525.0 556.1 565.6 599.5 636.8 922.0
Medicaid.................................. 343.1 373.9 400.7 428.1 456.8 487.8 586.8 908.1
Federal................................. 202.4 247.0 270.9 261.5 264.5 284.5 366.0 561.1
State and Local......................... 140.7 127.0 129.9 166.6 192.3 203.3 220.8 347.0
Other health insurance programs \2\....... 82.4 90.0 99.5 108.3 117.1 125.7 134.0 179.4
Other third-party payers and programs and 254.1 263.3 271.9 285.8 300.9 318.1 326.0 482.4
public health activity \3\.................
Investment.................................... 157.2 156.2 159.9 167.6 176.9 187.8 199.9 300.7
Average Annual Growth From Prior Year Shown:
NHE (In percent)................................ 7.1% 4.0% 3.9% 4.8% 4.3% 5.5% 8.3% 6.2%
Health consumption expenditures............... 7.1 4.3 4.0 4.8 4.2 5.5 8.4 6.2
Out-of-pocket............................... 5.0 0.4 1.8 2.4 3.2 3.9 (1.3) 5.0
Health insurance............................ 7.8 5.1 4.5 5.2 4.2 5.7 10.8 6.2
Private health insurance.................. 7.1 1.3 2.6 3.4 4.0 4.8 9.4 5.6
Medicare.................................. 9.6 7.9 4.5 5.9 1.7 6.0 6.2 6.4
Medicaid.................................. 6.9 9.0 7.2 6.8 6.7 6.8 20.3 7.5
Federal................................. 7.1 22.0 9.7 (3.5) 1.2 7.6 28.7 7.4
State and local......................... 6.7 (9.8) 2.3 28.3 15.4 5.7 8.6 7.8
Other health insurance programs \2\....... 11.0 9.2 10.6 8.9 8.1 7.3 6.6 5.0
Other third-party payers and programs and 5.3 3.6 3.3 5.1 5.3 5.7 2.5 6.8
public health activity \3\.................
Investment.................................... 7.3 (0.6) 2.4 4.8 5.6 6.1 6.5 7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source. Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.
Notes. Numbers may not add to totals due to rounding. Percentage change is calculated from unrounded data. Data from 2010 to 2020 are projections.
\1\ Average annual growth, 2000-08.
\2\ Includes Children's Health Insurance Program (Titles XIX and XXI), Department of Defense, and Department of Veterans Affairs.
\3\ Includes worksite health care, other private revenues, Indian Health Service, workers' compensation, general assistance, maternal and child health,
vocational rehabilitation, other Federal programs, Substance Abuse and Mental Health Services Administration, other State and local programs, and
school health.
In 2014, Medicaid spending is projected to increase substantially
(20.3 percent) as a result of the expansion in Medicaid eligibility
under the Affordable Care Act. Enrollment (75.6 million) is projected
to be about one-third higher than in 2013 as eligibility is extended to
all persons under age 65 in families with incomes at or below 138
percent of the Federal poverty level. The transition into the program
for those newly eligible is expected to take about 3 years,
contributing to projected Medicaid spending growth of 7.5 percent in
2015 and 8.5 percent in 2016. By 2020, Medicaid is projected to account
for nearly 20 percent of national health spending (from 15 percent in
2009).
Private Health Insurance. Growth in private health insurance
premiums is estimated to have accelerated, but remained low, reaching
2.6 percent in 2010 (up from 1.3 percent in 2009) and accounted for
$822.3 billion (Exhibit 5). A drop of 5.1 million in the number of
people enrolled in private health insurance was the major reason for
this slow growth. Additionally, because growth in the use of services
was slower than was anticipated when premiums were originally set, the
net cost of insurance, or the difference between premiums collected and
benefits paid, grew significantly in 2010 at 8.7 percent.\23\
Also in 2010, private health insurance benefit payments totaled an
estimated $725.5 billion, representing an increase of just 1.9 percent
(down from 2.8 percent in 2009). This historically low rate of growth
was influenced by the same factors that contributed to the relatively
low premium growth, namely the drop in the number of private health
insurance enrollees, as well as slowing growth in the use of some
services (such as elective hospital procedures and physician
visits).\14\ \16\
For 2011-13, private health insurance enrollment is projected to
increase by 4.0 million as employment levels increase and more
individuals are covered by employer-sponsored insurance due, in part,
to the Affordable Care Act. Notably, growth in benefits per enrollee is
expected to fall from 4.7 percent in 2010 to below 3 percent in 2011
due, in part, to the Affordable Care Act's expansion of coverage to
relatively less-expensive benefits for children under age 26 who can
join their parents' policies.
In 2014, growth in private health insurance premiums is expected to
accelerate to 9.4 percent, 4.4 percentage points higher than in the
absence of health reform, as an estimated 13.9 million people obtain
coverage through exchange plans. At that time, private health insurance
is anticipated to account for roughly 31 percent of national health
spending, or about the same share as was expected without enactment of
the Affordable Care Act.
For 2015-20, growth in private health insurance premiums is
expected to slow somewhat and average 5.6 percent annually. Underlying
this expectation is that some employers of low-wage workers will stop
offering health coverage (and many of their employees will move to the
exchange plans, while others move into Medicaid or become uninsured).
Also, as discussed earlier, in 2018, the excise tax on high-cost
employer-based insurance plans will take effect, placing further
downward pressure on health insurance premiums.
Out-of-Pocket Spending. Out-of-pocket spending is estimated to have
grown 1.8 percent in 2010, up from 0.4 percent in 2009, and to have
reached $304.9 billion (Exhibit 5).\24\ The low growth in out-of-pocket
health spending was influenced by job losses and the corresponding loss
of employer-sponsored insurance, as well as employers' willingness to
increase deductibles and/or copayments.\4\ For 2011-13, growth in out-
of-pocket spending is projected to accelerate, reaching 3.9 percent in
2013, partly due to faster growth in disposable personal income that
leads to more consumption of medical care.
In 2014, out-of-pocket spending is projected to decline 1.3
percent, largely as a result of the uninsured attaining health coverage
through Medicaid or health insurance exchange plans. In addition, cost
sharing for exchange plan enrollees in families with incomes at or
below 250 percent of the Federal poverty level is subsidized, thereby
reducing their out-of-pocket spending at the point-of-service.\25\ Out-
of-pocket spending growth is anticipated to reach a projection-period
high of 6.6 percent in 2018. This outcome is expected as enrollment
shifts to higher cost-sharing employer-sponsored insurance due to the
existence of the new excise tax on high-cost insurance plans.
Although cost sharing is expected to increase throughout the
projection period, the out-of-pocket share of national health
expenditures is projected to fall from 12 percent in 2009 to 9.6
percent in 2020 (the projected out-of-pocket share in 2020 would be
10.5 percent had the Affordable Care Act not been enacted).
outlook for sponsors
In contrast to the preceding analysis of national health
expenditures by payer, our sponsor analysis focuses on the financing of
health care. In 2010, health spending financed by governments (Federal
and State) is estimated to have grown 7.2 percent (reaching $1.2
trillion) while spending by businesses, households, and other private
sources is expected to have risen 1.4 percent (reaching $1.4 trillion)
(Exhibit 6). The effects of the recession, as well as increased Federal
matching rates to States for Medicaid, are estimated to have influenced
the shift of health care financing toward the Federal Government. For
2010, the Federal Government's share of national health spending is
estimated to have increased by just over 1 percentage point, to 29
percent, with State and local governments maintaining their 16-percent
share (see online Appendix).\26\
For 2011-13, government outlays (averaging 5.2 percent growth) are
projected to roughly maintain a 45-percent share of total health
spending. The Federal Government share of health spending is projected
to decline to 27 percent by 2013, partly due to the expiration of
temporary increases in the Federal share of Medicaid and the slowdown
in Medicare expenditure growth related to the sustainable growth rate
formula-based reduction in physician payment rates. Reflecting faster
projected economic growth, spending growth financed through private
businesses and households is expected to increase during this period
(averaging 4.6 percent).
Exhibit 6.--National Health Expenditures (NHE), Amounts and Average Annual Growth From Previous Year Shown, By
Type of Sponsor, Selected Calendar Years 2010-20
----------------------------------------------------------------------------------------------------------------
Expenditures (billions) Percent change
Type of sponsor --------------------------------------------------------------------------
2010 2013 2014 2020 2011-13 2014 2015-20
----------------------------------------------------------------------------------------------------------------
NHE.................................. $2,584.2 $2,980.4 $3,227.4 $4,638.4 4.9 8.3 6.2
Business, households and other 1,423.4 1,628.9 1,707.2 2,356.5 4.6 4.8 5.5
private...........................
Private business................. 518.8 595.3 635.6 820.5 4.7 6.8 4.3
Employer contributions to 394.9 452.5 485.6 622.8 4.6 7.3 4.2
private health insurance
premiums \1\..................
Other \2\...................... 123.8 142.8 150.1 197.8 4.9 5.1 4.7
Household........................ 727.7 828.0 854.2 1,205.3 4.4 3.2 5.9
Household private health 257.5 291.7 306.3 439.1 4.2 5.0 6.2
insurance premiums \3\........
Medicare payroll taxes and 165.3 201.6 217.6 322.4 6.8 7.9 6.8
premiums \4\..................
Out-of-pocket health spending.. 304.9 334.6 330.3 443.8 3.2 -1.3 5,0
Other private revenues \5\....... 176.9 205.6 217.3 330.7 5.1 5.7 7.2
Government......................... 1,160.8 1,351.5 1,520.2 2,281.9 5.2 12.5 7.0
Federal Government............... 741.6 816.1 950.8 1,445.2 3.2 16.5 7.2
Employer contributions to 28.8 32.6 34.0 43.4 4.3 4.3 4.1
private health insurance
premiums......................
Employer payroll taxes paid to 4.0 4.1 4.2 5.3 0.3 3.9 3.8
Medicare hospital insurance
trust fund....................
Medicare \6\................... 249.6 266.5 283.5 425.7 2.2 6.4 7.0
Medicaid \7\................... 280.1 292.3 374.2 574.1 1.4 28.0 7.4
Other programs \8\............. 179.1 220.7 254.9 396.7 7.2 15.5 7.7
State and local government....... 419.2 535.4 569.4 836.8 8.5 6.4 6.6
Employer contributions to 131.2 143.2 150.8 214.5 3.0 5.3 6.1
private health insurance
premiums \1\..................
Employer payroll taxes paid to 11.4 13.0 13.8 18.4 4.6 5.8 4.9
Medicare hospital insurance
trust fund....................
Medicaid....................... 133.9 209.4 227.3 357.3 16.1 8.5 7.8
Other programs \9\............. 142.7 169.8 177.5 246.5 6.0 4.6 5.6
----------------------------------------------------------------------------------------------------------------
Source. Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.
Note: Numbers may not add to totals due to rounding. Percentage change is calculated from unrounded data.
\1\ Includes premiums paid on behalf of employees.
\2\ Includes employer Medicare hospital insurance payroll taxes, one-half self-employment payroll taxes,
temporary disability insurance, workers' compensation, and worksite health care.
\3\ Includes household contributions to employer-sponsored health insurance, health insurance purchased through
Exchanges, and other private health insurance.
\4\ Includes employee and self-employment payroll taxes and premiums paid to Medicare hospital insurance and
supplementary medical insurance trust funds.
\5\ Includes health-related philanthropic support, nonoperating revenue, investment income, and privately funded
structures and equipment.
\6\ Includes trust fund interest income, Federal general revenue contributions to Medicare less the net change
in the trust fund balance, and payments for the Retiree Drug Subsidy. Excludes Medicare hospital insurance
trust fund payroll taxes and premiums, Medicare supplementary medical insurance premiums, State phase-down
payments, Medicaid buy-ins, and taxation of benefits.
\7\ Includes Medicaid buy-ins for the dually eligible Medicare premiums.
\8\ Includes maternal and child health, Children's Health Insurance Program (Titles XIX and XXI), vocational
rehabilitation, Substance Abuse and Mental Health Services Administration, Indian Health Service, Federal
workers' compensation, other Federal programs, public health activities, Department of Defense, Department of
Veterans Affairs, research, structures and equipment, and exchange premium and cost-sharing subsidies.
\9\ Includes State phase-down payments, maternal and child health, public and general assistance, Children's
Health Insurance Program (Titles XIX and XXI), vocational rehabilitation, other State and local programs,
public health activities, research, and structures and equipment.
As the major coverage expansions of the Affordable Care Act are
implemented in 2014, health care financing is anticipated to further
shift toward governments. In 2014, the Federal share of national health
spending is projected to rise 2 percentage points to 29 percent,
primarily a result of premium and cost-sharing subsidies for exchange
coverage and a 100-percent Federal match rate for Medicaid coverage
expansion costs. In contrast, households' share of expenditures is
projected to decrease to 26 percent, from 28 percent in 2013, due
mostly to net lower out-of-pocket spending for those who gain coverage.
By 2020, government health care spending is projected to be 49
percent of national health spending, up from 47 percent in 2014,
reaching a total of $2.3 trillion; it is expected that the Federal
Government will pay almost two-thirds of this amount. During this
period, projected increases in the government's share of health care
financing is largely associated with the robust projected Medicare
enrollment growth, the Medicaid expansion, and Federal costs associated
with the exchange premium and cost-sharing subsidies (but offset
somewhat by the lower Medicare expenditures resulting from Affordable
Care Act provisions). As the government share of spending rises, the
projected share for private businesses declines (from 20 percent in
2014 to 18 percent by 2020), and the share for households remains at 26
percent.
conclusion
This article provides an analysis of projected health care spending
by sector, payer, and sponsor inclusive of the effects of the
Affordable Care Act. Average annual growth in national health spending
is expected to be 0.1 percentage point higher (5.8 percent) under
current law compared to projected average growth prior to the passage
of the Affordable Care Act (5.7 percent) for 2010 through 2020.
Simultaneously, by 2020, nearly 30 million Americans are expected to
gain health insurance coverage as a result of the Affordable Care Act.
The largest impact on the growth of health spending is expected to
occur in 2014, when the major coverage expansions begin. There is
projected to be a proportionately larger impact on physician and
clinical services and on prescription drug spending growth relative to
other services and goods, as those who gain coverage are likely to be
relatively young and healthy and to use less intensive care than the
populations currently enrolled in Medicaid and private health
insurance.
Combined with the entry of the baby boomers into Medicare and
Medicaid, the impact of the Affordable Care Act--stemming from the
expansion of Medicaid, subsidies associated with exchanges, and
administrative costs associated with implementing and operating the
various provisions--is projected to increase Federal, State, and local
governments' estimated share of total health spending to near 50
percent in 2020. At the same time, households and private businesses
are anticipated to pay for a smaller portion of the Nation's health
bill than they would have without the Affordable Care Act, but still
will face a growing burden on their respective limited resources.
Notes
1. Under the alternative Medicare projection scenario in which
physician payment increases are based on growth in the Medicare
Economic Index, national health spending would grow 6.0 percent per
year over the projection period, resulting in a health share of gross
domestic product of 20.1 percent. For more information on the Medicare
projection scenarios, see the ``Model And Assumptions'' section of this
article.
2. Martin A, Lassman D, Whittle L, Catlin A. Recession contributes
to slowest annual rate of increase in health spending in five decades.
Health Aff (Millwood). 2011;30(1): 11-22.
3. For comparing national health spending and gross domestic
product, nominal levels and growth rates are used. Gross domestic
product is often measured in real, inflation-adjusted terms; real gross
domestic product growth was ^2.6 percent in 2009 and 2.9 percent in
2010.
4. Claxton G, DiJulio B, Whitmore H, Pickreign J. Health benefits
in 2010: premiums rise modestly, workers pay more toward coverage.
Health Aff (Millwood). 2010;29(10): 1942-50.
5. The Medicare Economic Index is a price index that measures the
price changes of the inputs physicians require in order to provide
services.
6. Other things being equal, the availability of coverage would
cause a sizable decrease in out-of-pocket costs for affected
individuals. The new coverage, however, typically induces greater use
of health care services, thereby increasing out-of- pocket costs in
many instances.
7. Boards of Trustees. 2011 annual report of the boards of trustees
of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds [Internet]. Baltimore (MD):CMS; 2011 May [cited
2011 May 13]. Available from: http://www.cms.hhs.gov/ReportsTrustFunds/
downloads/tr2011.pdf.
8. The full effects that a 29.4-percent reduction in physician
reimbursement would have are difficult to predict. No secondary effects
of the reduction in physician payment rates are modeled in these
projections. For more information, see Clemens MK, Shatto JD. Projected
Medicare expenditures under an illustrative scenario with alternative
payment updates to Medicare providers [Internet]. Baltimore (MD):
Centers for Medicare and Medicaid Services; 2011 May [cited 2011 May
13]. Available from: http://www.cms.gov/ReportsTrustFunds/downloads/
2011TRAlternative Scenario.pdf.
9. Sisko AM, Truffer CJ, Keehan SP, Poisal JA. National health
expenditure projections: the impact of reform through 2019. Health Aff
(Millwood). 2010;29(10):
1933-41.
10. Centers for Medicare and Medicaid Services. Summary of national
health expenditure account 2009 comprehensive revisions [Internet].
Baltimore (MD): CMS; 2011 Jan [cited 2011 Jun 27]. Available from:
http://www.cms.gov/National
HealthExpendData/downloads/benchmark2009.pdf.
11. Centers for Medicare and Medicaid Services. Accuracy analysis
of the short-term (11 year) national health expenditure projections
[Internet]. Baltimore (MD): CMS; [cited 2011 Jun 28]. Available from:
http://www.cms.gov/National
HealthExpendData/downloads/ProjectionAccuracy.pdf
12. Foster RS. Estimated financial effects of the ``Patient
Protection and Affordable Care Act,'' as amended [Internet]. Baltimore
(MD): Centers for Medicare and Medicaid Services; 2010 Apr 22 [cited
2010 Dec 1]. Available from: http://www.cms.gov/ActuarialStudies/
Downloads/PPACA_2010-04-22.pdf.
13. Buchmueller T, Grumbach K, Kronick R, Kahn J. The effect of
health insurance on medical care utilization and implications for
insurance expansion: a review of the literature. Med Care Res Rev.
2005;62(1):3-30.
14. Boorady C, Giacobbe R, Santangelo G, Carter C. Making sense of
the utilization downtrend. New York (NY): Credit Suisse; 2010.
15. Centers for Disease Control and Prevention. Morbidity and
Mortality Weekly Report (MMWR): Update: influenza activity--United
States, 2010-11 season, and composition of the 2011-12 influenza
vaccine [Internet]. Atlanta (GA): CDC; [cited 2011 Jun 8]. Available
from: http://www.cdc.gov/mmwr/preview/mmwrhtml/mm
6021a5.htm.
16. Johnson A, Rockoff J, Mathews A. Americans cut back on visits
to doctor. Wall Street Journal. 29 July 2010.
17. Carollo K. Lipitor among top drugs coming off patent. ABC News,
9. March 2011 [cited 2011 Jul 11]. Available from http://
abcnews.go.com/Health/top-selling-drugs-coming-off-patent-paving-
cheaper/story?id=13048629.
18. SDI/Verispan. 2010 top 200 branded drugs by retail dollars
[Internet]. Drug Topics; 14 June 2011 [cited 2011 Jul 11]. Available
from: http://drugtopics
.modernmedicine.com/drugtopics/data/articlestandard//drugtopics/252011/
727252/article.pdf.
19. Smith L. Pharma's reform bounce: how big a boost will $80
billion buy? [Internet]. Rockville (MD): The RPM Report; 21 Sep 2009
[cited 2011 Jul 6]. Available from: http://therpmreport.com/Free/
db79ab7c1c40-4fe6-bb90-9b3ee1f65b9b.aspx.
20. Medco. 2011 drug trend report: healthcare 2020. Franklin Lakes
(NJ); Medco;2011.
21. As Medicare's private health plan payment rates and spending
are affected by changes in Medicare's fee-for-service payment rates,
the decrease in physician payment rates in 2012 under current law would
also result in slower growth in Medicare private health plan payments
across most service categories.
22. Kaiser Commission on Medicaid and the Uninsured. Medicaid
matters: understanding Medicaid's role in our health care system. Menlo
Park (CA): Kaiser Family Foundation; [cited 4 Mar 2011]. Available
from: http://www.kff.org/medicaid/upload/8165.pdf.
23. Abelson R. Health insurers making record profits as many
postpone care. New York Times. 13 May 2011.
24. Out-of-pocket spending consists of direct spending by consumers
for health care goods and services including coinsurance and
deductibles; enrollee premiums for private health insurance and
Medicare are not within this funding category.
25. Kaiser Family Foundation. Focus on health reform. Explaining
health care reform: questions about health insurance subsidies. Menlo
Park (CA): KFF; 2010 Apr [cited 2011 Jul 6]. Available from: http://
www.kff.org/healthreform/upload/7962-02.pdf.
26. To access the Appendix, click on the Appendix link in the box
to the right of the article online.
Response to Questions of Senator Harkin by Steve Larsen
Question 1. A recent report released by the CMS Office of the
Actuary found a 3.9 percent growth in national health spending in
2010--an historic low. Further, overall Medicare cost growth dropped
from 7.9 to 4.5 percent between 2009 and 2010. The report projects that
average annual growth in national health spending is expected to be 0.1
percentage point higher under the Affordable Care Act for 2010 to 2020,
but that, by 2020, 30 million Americans will gain health insurance as a
result of this law.
Many critics of the ACA highlight the report's finding that ``in
2014, growth in private health insurance premiums is expected to
accelerate to 9.4 percent'' to argue that the ACA will cause insurance
premiums to rise. However, the report draws no such conclusion--the
projected increase in 2014 is in total expenditures for private
insurance premiums, not in premium rates. Indeed, the report explicitly
links this expenditure increase to the significant expansion of
coverage in 2014.
In addition, the nonpartisan Congressional Budget Office estimated
that under the new law, health insurance premiums in the individual and
group markets will decrease. CBO found that by 2016, premiums per
person for those receiving subsidies in the individual market could
decrease by up to 56 percent; by 2 percent in the small group market;
and by 3 percent in the large group market.
Can you please clarify the CMS Actuary's projections about
expenditures for health insurance premiums in its July report?
Answer 1. In a report issued in July 2011, the CMS Office of the
Actuary estimated that the coverage expansions included in the
Affordable Care Act will result in an estimated 22.9 million newly
insured Americans by 2014 and about 30 million over the next decade.
Covered primarily through Affordable Insurance Exchanges and Medicaid,
the newly insured population is, as expected, projected to contribute
to increased national health spending in 2014, including the estimated
9.4 percent increase in private health insurance spending. This is not
an estimate for the projected increase in the cost of private health
insurance premiums.
The CMS actuary also estimates that in 2014, out-of-pocket spending
will decline by 1.3 percent as the number of people with insurance
coverage increases and many services formerly paid for out-of-pocket
are now covered by insurance.
Most importantly, however, the CMS actuary also projects that the
rate of growth in per capita health care spending will begin to slow
down after 2014 as a result of the Affordable Care Act, producing only
a 0.1 percent difference in the growth of national health expenditures
over the coming decade.
Question 2. Additionally, can you explain the implications of these
findings in relation to CBO's estimates of premiums under ACA?
Answer 2. The CMS actuary estimated that in 2014, the aggregate
amount of spending on private health insurance premiums would increase
by 9.4 percent due to increases in the insured population, inflation,
and small real increases in average premiums. Since more Americans will
be insured, more people will be paying private insurance premiums,
which will cause the aggregate amount of spending on private health
insurance premiums to increase. With respect to premiums paid, the
actuary predicts a modest 5 percent increase in household private
insurance premiums in 2014, up only 0.1 percentage point from 2013, and
the Actuary does not attribute this increase to the Affordable Care
Act.\1\
---------------------------------------------------------------------------
\1\ National Health Expenditure Projections 2010-20, Table 16:
https://www.cms.gov/nationalhealthexpenddata/downloads/proj2010.pdf.
---------------------------------------------------------------------------
In a letter to Senator Bayh dated November 30, 2009,\2\ the
Congressional Budget Office (CBO) provided an estimate of the
Affordable Care Act's impact on average premiums paid. CBO estimated
that the Affordable Care Act will lower average premiums for comparable
plans in the individual market due in part to the improved health of
the risk pool and by eliminating administrative costs such as medical
underwriting. In total, the average premium in the individual market
for the same amount of coverage will decrease between 7 and 10 percent
due to better risk pooling and another 7 to 10 percent decrease through
competition and administrative simplifications after the Affordable
Care Act takes effect. CBO also estimated that the effect of the
Affordable Care Act for the average small group market premium varies
from a 1 percent increase to a 2 percent decrease. Estimates of the
effect on large group market premiums range from no impact to a 3
percent decrease in average premium.
---------------------------------------------------------------------------
\2\ http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]