(MintPress) – The Patient Protection and Affordable Care Act (ACA) was created under the pretense of cost reduction for all consumers, ideally broadening a base while eliminating unfair practices of the private insurance industry. Yet one year before the program’s full implementation, premiums are increasing, leaving consumers in a mandatory market of growing costs.
As ACA provisions begin to roll out, policy experts are alerting the government to loopholes that allow insurance companies to raise rates exponentially for those covered through small business or individual payer policies. Consumers could, technically, see premium increases of hundreds of dollars.
In an attempt to drive down costs, ACA mandates insurance providers to submit proposals for rate increases to state boards for review before taking action. The outside scrutiny of business practices is intended to keep insurance companies from raising rates without just cause. Yet, according to recent premium increase proposals, it’s not working.
In states where the government does not have the power to deny premium proposals, the review board is nothing more than an extra step for insurance companies on their way to a larger profit margin.
Only 37 states have the power to turn down proposals by insurance companies for premium increases. As pointed out by the New York Times and California Healthline, the remaining 13 states have the ability to question the reasons behind rate increases but have no real authority to stop them. California is one of those states that lacks power for change.
“With the enactment of the Patient Protection and Affordable Care Act on March 23, 2010, and subsequent amendments, the federal government will assume a role in private health insurance rate reviews by providing grants to states and requiring health insurance companies to provide justifications for proposed rate increases determined to be unreasonable,” according to a Congressional Research Service report, released in 2011.
Here’s what the premium rates in 13 states without veto power look like: Insurance companies in California are proposing premium increases of 20 percent or more, with Aetna seeking a 22 percent increase, Anthem Blue Cross asking for 26 percent more and Blue Shield of California proposing a 20 percent hike. And while the state may say they don’t like the rate hikes, their hands are tied.
“They still don’t guarantee affordability,” Consumer Watchdog, an advocacy organization, said in a statement regarding the premium loophole. “Ultimately, we can’t expect to pay a fair price for health insurance until all insurance companies are required to get approval for every rate hike and the public is allowed to challenge any unfair increase.”
In 2010, the organization sent a letter to Kathleen Sebelius, secretary of the Department of Health and Human Services, calling for scrutiny over premium raises. In a sense, it was a warning of things to come if certain provisions weren’t implemented into the ACA.
“In the same way that a Hollywood agent who gets a 20 percent cut of an actor’s salary has an incentive to seek the highest salary, insurers will have incentive to increase health care costs and raise premiums so that their 15 percent or 20 percent cut is a larger dollar amount,” the letter states.
In states where legislators have the power to strike down premium proposals, real change has been achieved. New York Gov. Andrew Cuomo issued a press release Jan. 6 indicating the state’s Department of Financial Services had struck down a proposal to raise health insurance premiums by 12.4 percent. That premium increase, after review from the DFS, was cut down to 7.5 percent, saving New Yorkers more than $500 million.
That’s progress for consumers, it seems, but there is still an increase in premiums — and there likely will continue to be.
What do premiums have to do with it?
Under the ACA, requests for premium hikes of 10 percent are allowed to be submitted for consideration. Yet within the requests, the insurance provider must give a formulaic reason for hiking premiums.
Premiums, typically paid monthly, take three factors into cost consideration: expected costs of health expenses, administrative costs and profit. Requests for increases in premiums would largely reflect inflation and increased costs of services.
The ACA does require insurance companies to use between 80 and 85 percent of all premium costs on medical care, although there is concern that the definition of medical care has been altered. If an insurance company is discovered to have spent less than the 80 percent, it is required under law to provide a rebate to customers.
While this will allow for transparency, in part, within the private insurance industry, it will still allow residents of 13 states to be subject to rate hikes that exceed inflation. A recent report in the Los Angeles Times points out that while premium insurance companies, including Aetna and Health Net, are proposing increases of more than 20 percent, inflation and costs of services don’t come close to mirroring that rise.
Health insurers are faced with the lowest rate of growth of medical cost increases in 50 years, with spending growth of 4 percent within the last three years, according to the LA Times. However, the request submitted by Anthem, a leading health insurance company, indicates that its costs are increasing by more than 13 percent.
This, seemingly, was the reason for oversight provisions on premium hikes. Yet without the ability to take the insurance companies down, what’s the point? For consumers, that doesn’t matter much when it comes to the bottom line.
Elli Podway, 55, a customer of Anthem interviewed by the LA Times, indicated that her and her husband’s premiums increased 14 percent in 2012, raising it to $881 a month. Podway told the newspaper her insurance premiums had risen 81 percent since 2010.
Backlash from employers
While intended to give those in lower income bracket a break in terms of health care coverage costs, some of the nation’s leading low-income employers are cutting back their workforce, citing a rise in costs associated with mandated health insurance coverage under the ACA.
A movement among food chains to cut employees through justifications rooted in the expense of the ACA was announced in December by Darden Restaurants, Inc., owner of Olive Garden and Red Lobster, yet was later retracted after negative publicity negatively impacted profit prediction — investors got nervous.
Yet that hasn’t stopped other companies from stepping forward, warning employees of a company-wide slimdown. Wendy’s announced it would cut back employees’ hours so they didn’t have to pay health benefits. According to WOWT, an NBC affiliate in Omaha, Neb., 100 employees in the area were told their hours were being cut.
Under the ACA, health care must be provided to employees working more than 32 hours a week, so long as the company employs more than 100 employees, which Wendy’s clearly does. While companies that have announced cutback measures, including Papa Murphy’s, have received negative attention within the consumer community, not everyone is blaming them.
Either way, employees of the company are the ones receiving the short end of the stick — fewer wages to support their family and a mandate of purchasing health insurance that could hypothetically rise 10 percent each year.