Cost of Private Health Insurance Coverage

Cost of Private Health Insurance Coverage

Introduction
The health care reform debate has focused on three main issues: providing affordable coverage to the
uninsured, promoting quality healthcare, and "bending the cost curve", or slowing the growth of
healthcare spending. While complementary in some cases, these goals can also conflict. Efforts to
increase coverage and promote quality could lead to a more efficient healthcare sector, but they could
also lead to increased growth in costs if implemented without a full appreciation of the downstream impact
on cost of health insurance coverage. Analyzing the overall impact of these reform efforts requires an
evaluation from all perspectives. America's Health Insurance Plans engaged PricewaterhouseCoopers
(PwC) to examine the potential impact of certain provisions of health reform bills on the cost of private
health insurance coverage.
Private healthcare costs are anticipated to grow over the next decade by approximately 6 percent per
year under current law, which is more than double the expected growth in the Consumer Price Index of
approximately 2.5 percent per year.5 Controlling the growth in these costs will require restructuring and
realigning the incentives in the system.6 While the healthcare reform packages take steps in this
direction, a major focus of the current legislation is on expanding insurance coverage. These reforms
propose to make insurance more widespread by providing new subsidies for the uninsured and those with
lower incomes.
This report focuses on several key provisions that are part of current health reform proposals that would
have a significant impact on the premiums for private health insurance coverage, including:
􀁸 Insurance market reforms and consumer protections that would raise health insurance
premiums for individuals and families if the reforms are not coupled with an effective coverage
requirement.
􀁸 An excise tax on employer-sponsored high value health plans (or "Cadillac plans") that could
raise premiums for many private consumers.
􀁸 Cuts in payment rates in public programs that could increase cost shifting to private sector
businesses and consumers. These changes are expected to more than offset the potential
reduction in cost shifting resulting from providing coverage to the uninsured.
􀁸 New taxes on health sector entities that are likely to be passed through to consumers.
Collectively these provisions would raise the premiums for private health insurance coverage.
The reform packages under consideration have other provisions that we have not included in this
analysis. We have not estimated the impact of the new subsidies on the net insurance cost to
households. Also, if other provisions in health care reform are successful in lowering costs over the long
term, those improvements would offset some of the impacts we have estimated.
5 The 6 percent increase is consistent with the per capita growth rate in total health expenditures as detailed in the
National Health Expenditure Accounts, Projected total health expenditures 2010 to 2018. The Blue Chip Consensus
expects inflation to average 2.5 percent over the same period.
6 PwC has previously estimated that structural reforms, such as improved wellness and prevention, disease
management, value based payment reform, improvements in health information technology, comparative
effectiveness and malpractice reform, could mitigate growth in healthcare costs by between 0.5 and 1.0 percent per
year after an initial investment period. See PricewaterhouseCoopers "A Review of AHIP Savings Estimates" in
Appendix to AHIP, "A Shared Responsibility," 2008.

Potential Impact of Health Reform on the
Cost of Private Health Insurance Coverage

Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage
E - 3
Chart 1: Average premiums for single coverage are estimated to be about $4,800 in 2010, will
increase to approximately $8,200 in 2019 in the absence of reform and could increase to $9700 if
these reforms become law.