The health care reform law – known as the Affordable Care Act (ACA) – adds many new benefits to health care coverage, but those benefits also bring new costs. Before reform, there were fewer requirements on the benefits that each insurance policy must provide and fewer restrictions on coverage limits. That allowed individual customers and employers to readily choose a plan that fit their needs and their budgets. The major provisions of the ACA that will impact costs are:
- Coverage is guaranteed. The ACA requires health insurers to accept all individuals and employer groups that apply for coverage regardless of their health status, with a few limited exceptions. While this is largely in place for employer-sponsored plans already, it will have a significant cost impact on individual plans.
- Pre-existing conditions must also be fully covered. This is good for people facing chronic conditions, but it will add costs and therefore impact premiums for individual customers.
- The ACA puts limits on deductibles and out-of-pocket expenses. Premiums are based in part on how much the plan and the member will each pay for health care services. So, lower deductibles will mean higher premiums.
- Age rating restrictions are in place. Older patients tend to need more (and more expensive) health care services than younger patients. Age ratings allow insurers to more accurately spread risk (the likelihood of using health care services) over a range of age groups. A greater range of age ratings can help keep premiums more in line with the cost of care. New restrictions will lower costs for many older members but will raise them significantly for younger, healthier members.
- Younger, healthier members – who are now facing higher premiums – are likely to opt out of coverage in favor of paying the penalty tax. For some, this tax may be as low as $95 for the entire year – a figure much lower than the cost of purchasing insurance. When healthy members opt out of coverage, those remaining are often older and sicker. Those members drive up the costs for the rest of the population when the healthier members aren’t there to balance the risk.
- New taxes – In 2014 our company alone will face $200 million in new taxes and reinsurance fees required by the ACA to help fund subsidies and other provisions within the law. This boosts the amount of taxes paid per member to nearly $163, a 69 percent increase.
Our actuaries – who analyze medical spending to set premium prices – estimate that premiums will rise for many of our members, especially those who purchase individual policies or get coverage through a small-business employer.
- Individual customers are likely to see average premium increases around 30 percent. For some, rates may even double.
- Small-group customers will see average increases around 10 percent.
- Large-group customers will see average increases around 3 percent to 5 percent.
These are in addition to normal increases and are just averages; some will see lower or higher increases depending on their demographics, health status and current levels of coverage.
In 2011, the United States spent $2.7 trillion on health care, up 3.9 percent from the previous year and continuing the industry’s trend of outpacing the rate of consumer inflation. Even though that increase is actually an improvement from the rapid climb of health care spending over the last three decades, this level of spending increases is unsustainable.
Many factors play a role in the underlying trends of health care costs, including the price of medical services, our society’s personal behaviors, new technology, prescription drugs and many others. As the ACA takes effect in 2014, it will also increase the cost of health care as it expands access to insurance for millions of Americans. There are substantial costs associated with having a system in which everyone can obtain health insurance regardless of their age and health condition.
As these changes take effect, BlueCross BlueShield of Tennessee is committed to offering our members affordable health plans that meet their needs. Learn more about what we are doing to help control costs here.
We are all entering a new environment for health care that will be very different from today’s market. It is difficult to predict exactly what impact the new rules and market shifts will have on prices each year in the future.
What we do know is that the ACA provides more people with greater access to health care. The law will also address affordability by providing premium subsidies for qualified individuals. But little has been done to address the increasing costs of medical care – the primary contributing factor of premium increases. And subsidies do nothing to actually lower the total cost of coverage. Over time, it is hoped that all of these provisions working together will bring costs down for all Americans. In the short term, however, costs will go up.
The increases for 2014 that are the result of health care reform provisions are on top of the normal increases driven by medical costs, which typically range from five percent to ten percent. We expect that annual increases will return to similar levels going forward. In fact, our goals are to keep any premium increase as low as possible and to continue our commitment to working with all of our customers to find affordable plans that meet their needs.
No. Premium rates are, and always have been, driven by what we expect to spend on our members’ medical care. In fact, the medical-loss ratio provision of the reform law explicitly restricts the proportion of premiums we can spend on administrative costs, including salaries and profits.
We are a taxpaying not-for-profit company, meaning we are not owned by investors or traded on the stock market. That means we have a unique ability to earn smaller profits – we target 1 percent to 4 percent each year – than other companies, but it’s impossible for any business to survive without earning some profit.
Our goal is to continue to remain financially strong, so that our members can trust we’ll be there for them when they need us. The profits we do earn each year are placed into our reserves, which are important because we don’t have access to capital markets and cannot raise funds on an as-needed basis. Learn more about how our financial strength ensures your peace of mind.
At BlueCross BlueShield of Tennessee our top priority is to make sure our members get the best possible health care at the lowest price. And even before health care reform became law, we were working to develop value-based, cost-saving payment and delivery systems that will help improve efficiency. Here are just a few of the ways we are working with health care providers to improve the delivery of quality, cost-effective care in Tennessee.
- Bundled payments – a reimbursement model that provides a set payment amount for an entire episode of care, rather than separate payments for each component, for common procedures such as hip and knee replacements.
- Accountable care systems – groups of coordinated health care providers (including primary care physicians, hospitals and specialists) who are accountable to their patients and third-party payers for providing appropriate and efficient care at a flat monthly rate, with an incentive to receive a portion of any savings.
- Patient-centered medical homes – a model of care that centers on primary and preventive care of patients and is often used for patients with chronic conditions.
- Reducing gaps in care – developing tools for clinicians to address gaps in care, which can lead to healthier patients and reduce future spending.
These new models will focus on performance measurements and care coordination to ensure that people like you are receiving quality care. They will also shift financial incentives away from the quantity of services to the quality of care provided.
Cost and quality are important to everyone in the health care system. And to make these new models successful, we’re working hand-in-hand with providers (and patients) throughout Tennessee.
The new health care law limits what insurers are legally permitted to spend on administration and make in profits. As a taxpaying not-for-profit company, we typically earn three percent to four percent in net gain, or profit, each year.
In 2011, we spent 81 cents of every premium dollar on direct medical costs. To learn more about how we spend your premium dollars, visit the Our Strength Is Your Security section of this website.
Our sole purpose is to provide our members with peace of mind. Our members want and expect us to perform well operationally and financially. They want to be assured we have the financial means to cover health care claims.
The Tennessee Department of Commerce and Insurance requires that we maintain $1 billion in reserves. We have an additional $309 million in available reserves. That’s a lot of money, but not when you consider that we cover more than 3 million people and it took 67 years to build it up.
If we stopped taking in new revenue, our total reserves would continue paying members’ claims for 60 days and for our statutory reserves it would be 46 days. Our financial reserves are strong not just because the law requires them to be, but because it’s an important part of our mission to give you peace of mind. When you need us, we’re here for you.
Another important point to consider is that if we were to use funds from our reserves to offer artificially low premiums, it would only be a temporary fix. Most of our reserves are legally required and have to be maintained. Medical costs continue rising each year, and even if it were two or three years down the road, premiums would have to jump again to catch up with them.