Policy

A Year And a Half After ObamaCare, Employee Health Insurance Premiums Spike

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In 2008, the Kaiser Foundation's annual survey of employee health benefits reported that employer-sponsored insurance premiums for families were up by five percent. Family premiums for employer-sponsored insurance rose by five percent again in 2009, and by about three percent in 2010. In Kaiser's 2011 survey, the first report a full year after the passage of ObamaCare, family premiums are up by nine percent.

What accounts for this dramatic spike? At Forbes, Avik Roy suggests some reasons:

First, the blizzard of new mandates and regulations on private insurers has, and will continue, to drive premiums up. If you force every restaurant to serve fancy organic vegetables, restaurants will have to charge higher prices for the food on their menus. Same goes for insurance.

Second, Obamacare contains significant tax increases that will get passed down to consumers in the form of increased premiums. 

…Third, insurers know that Obamacare's insurance price control regulations areset to go into effect for 2012, and are doubtlessly trying to get in as big a price increase as they can before the process of premium increases becomes completely politicized.

So the time-delayed regulations intended to bring health insurance premiums down may have encouraged insurers to hike premiums in the short term in order to start from a higher baseline once the rules kick in. 

Perhaps that's just a temporary effect. Will the law's roundabout system of price controls succeed in keeping the cost of health insurance down once they actually go into effect? In the long term, I wouldn't count on it, at least not unless broader economic factors change considerably. Mandatory medical loss ratios, which require insurers to spend a certain percentage of their premium revenue on federally defined clinical services, end up giving insurers an incentive to increase premiums. And when Massachusetts attempted to enforce health insurance rate reviews that are in many ways more powerful than those in the law, the result was that the state's biggest health insurers ended up operating at a loss—which obviously isn't a sustainable situation. 

The Kaiser report looked at employer-sponsored benefits. But reports from several states, as well as the Congressional Budget Office, project that once ObamaCare is fully operational, the biggest premium increases will be in the individual insurance market.