House Energy and Commerce Subcommittee on Oversight and Investigations Hearing
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I. Introduction
Chairman Murphy, Ranking Member DeGette, and members of the subcommittee, I am
We appreciate this opportunity to testify on the impact the Affordable Care Act (ACA) will have on health insurance premiums in 2014. Our members are strongly committed to competing in the new Exchanges and offering high quality, affordable coverage options under the framework established by the new health reform law. At this stage of the ACA implementation process, many of our members already have submitted applications for qualified health plans (QHPs) they will be offering in the federally-facilitated health insurance Exchanges in 2014. Others have or are preparing to offer coverage in the state-based Exchanges, state partnership Exchanges, and in the outside market. All across the nation, our members are working hard to provide value to individuals and families, employers, and beneficiaries in government programs.
Our members are focused on implementing all of the new changes required by the ACA in 2014 in a manner that will be least disruptive and least costly for consumers and employers, and we have been working closely with federal and state regulators to identify challenges and offer constructive solutions. Health plans are committed to ensuring implementation is as smooth as possible and are doing their part to be ready to go when open enrollment begins. Companies have dedicated teams working around the clock to implement all of the changes, and we will continue to work constructively with federal and state regulators.
Our testimony today will focus on two broad areas:
. Factors that are driving health insurance premiums, including specific provisions of the ACA and underlying medical costs; and
. Strategies we support for bringing down health care costs and our participation in a diverse stakeholder group that has developed recommendations for decelerating health care costs and improving quality.
II. Factors Driving Health Insurance Premiums
A broad range of studies, including several commissioned by AHIP, provide insights into the likely impact the ACA will have on health insurance premiums beginning in 2014. Additional studies examine the role that underlying medical costs play in increasing the cost of coverage.
Comprehensive Analysis of ACA by
In late April, AHIP released a report n1 from
The
The impact on specific individuals will vary significantly depending on their age, gender, location, health status, income level, and what coverage they have today. The
Individuals and families with household incomes up to 400 percent of the federal poverty level (FPL), or approximately
The report also notes that millions of people will not be eligible for subsidies and that the amount of the subsidy declines significantly as incomes rise. The
The report also highlights the importance of bringing younger and healthier people into the system to help keep coverage as affordable as possible.
Focusing on numerous aspects of ACA implementation that will impact premiums, the
. Health Insurance Tax: The ACA's new health insurance tax is estimated to increase premiums in 2014 by about 2 percent on average.
. Exchange User Fees: The user fee that applies to insurers participating in the federally-facilitated Exchanges is estimated to increase premiums by an average of 1.4 percent. Although the user fee is set at 3.5 percent, the estimate by
. Transitional Reinsurance Assessment: The fee to support the ACA's transitional reinsurance program is estimated to increase premiums for all consumers by an average of 1 to 2 percent. However, the subsidy the transitional reinsurance provides in the individual market for high cost claims is estimated to reduce premiums for consumers in the individual market by 6 to 12 percent.
. Benefit Buy-Up: Beginning in 2014, the ACA will require health plans to provide coverage for an essential health benefits (EHB) package covering a broad range of mandated benefits, some of which typically are not included in current individual and small group policies. As noted in the
. Minimum Actuarial Value Requirement: The ACA requires that coverage sold through the new Exchanges must be at one of four actuarial value levels: 60% (Bronze); 70% (Silver); 80% (Gold); and 90% (Platinum). Most people will be required to buy coverage with a minimum actuarial value requirement of at least 60 percent (i.e., the "Bronze" plan).
. Age Rating Restrictions: Beginning in 2014, the ACA will allow heath insurance rates to vary, based on an enrollee's age, by a ratio of no more than 3 to 1 (3:1). This is a dramatic change from the "age bands" of 5 to 1 (5:1) or more that are currently effective in 42 states where state policies recognize that utilization of health care services is correlated with age and that health insurance only works if younger and healthier consumers are part of the risk pool. These states, relying on decades of expertise in setting rules that balance the needs of different age groups, provide protection to older consumers without making coverage unaffordable for younger consumers. We are deeply concerned that the ACA's restrictive age band, by overriding these state policies, will cause premiums to increase dramatically for younger people.
. Changes in Risk Pool Composition / Adverse Selection:
. Pent-Up Demand:
.
. Innovation in Benefit Design: New innovative benefit designs developed by health plans will lead to more affordable coverage options than otherwise would be available. These include wellness programs that encourage healthy living; prescription drug formularies that incentivize patients to choose lower-cost generic drugs; and the availability of high-value networks.
. Premium Assistance Tax Credits:
. Catastrophic Plans: The ACA allows for the availability of "catastrophic plans" to individuals under the age of 30 and anyone who is exempt from the individual mandate due to lack of affordable coverage options. Catastrophic plans are intended to provide lower premiums and more affordable coverage options - particularly for price-sensitive, younger adults.
Milliman report are reinforced by studies conducted by other research organizations, including the
A
A
The New ACA Health Insurance Tax
The health insurance tax established by the ACA - which we mentioned above in our review of the
The health insurance tax will be imposed broadly on health insurance providers, based on their market share, and will impact the following: (1) businesses and public employers that purchase health insurance on a fully insured basis, including small businesses that provide coverage; (2) all individuals and families who purchase coverage in the individual market or through an Exchange; (3)
While the ACA health insurance tax is assessed on health plans, experts agree that it will impact consumers and employers that purchase coverage directly from health insurance plans in the individual and group markets as well as beneficiaries in public programs. The
The magnitude of the expected premium increase is addressed by a pair of actuarial studies that have been conducted by the Oliver Wyman firm and commissioned by AHIP. The first study n7 examined the impact the premium tax will have - from a nationwide perspective - on individual market consumers, employers,
The Oliver Wyman analysis concluded that the health insurance tax alone will increase the cost of family coverage in the individual market by
The health insurance tax is particularly burdensome not only because of its size, but also because it is not deductible for income tax purposes. This means that health plans must pay the tax and then also pay federal, state, and local taxes on the taxed amount. The Oliver Wyman study notes that because the ACA health insurance tax is not deductible, the potential impact of the tax on premiums will be
Focusing specifically on the
We also are deeply concerned by estimates in the Oliver Wyman study that the health insurance tax will put greater pressure on state
Oliver Wyman's state-by-state findings provide additional information showing which states will be most severely impacted by the ACA health insurance tax. The charts below highlight the top 20 states with the highest per-person cost impact in each market segment. These charts show, for example, that families purchasing coverage in the individual market will be hit the hardest in
To avoid the increased costs that would result from the ACA health insurance tax, we strongly support legislation, H.R. 763, which would repeal the tax. This bipartisan bill, the "Jobs and Premium Protection Act," was introduced in
Underlying Medical Costs
Additional challenges are raised by the underlying costs of medical care, which are driving up the cost of coverage, taking up a greater share of federal and state budgets, and threatening the long-term solvency of our nation's public safety net programs.
A
Another study n11, published by the
Our study also found wide variation in hospital prices across states and localities. Among the states examined by this study,
Another AHIP study n12 highlights the exorbitant fees that some out-of-network physicians are charging for services. This study found that some physicians who choose not to participate in health insurance networks are charging patients fees that are 10 times - and in some cases, close to 100 times -
.
.
.
In addition to showing how much patients who seek out-of-network care are being charged by some physicians, these findings also illustrate the value of the physician networks that are established by health plans to ensure that patients have affordable access to a wide choice of high quality health care providers, and that consumers receive savings when they visit contracted providers who have agreed to lower rates.
Similar concerns are raised by data n13 on hospital prices recently released by the
Provider consolidation is a significant factor contributing to growth in underlying medical costs. A recent study n14 from the
In an effort to help inform the public about the impact of rising medical costs, AHIP has developed a new iPad app n15 that consolidates fifty years of federal health care spending data into a series of easy-to-use, interactive charts. Users of this app can view historical and projected health care spending data at the national level, state-by-state, on a per capita basis, or as a percent of GDP. The app also provides a detailed breakdown of how much the nation is spending on different aspects of the health care system, such as hospital care, physician services, prescription drugs, and health plan administrative costs, and how each of these components contributes to health care cost growth.
III. Bringing Down Health Care Costs Our members are very pro-active in advocating solutions to rein in the costs of health care. AHIP's Board of Directors recently approved a statement recommending a series of strategies to bring down costs and make health care coverage more affordable. These strategies complement the innovative delivery system and payment reform initiatives health plans are spearheading all across the country.
Our Board has recommended three strategies for reducing health care costs:
1. Tackling Barriers to Transparency: We call for the elimination of barriers that prevent stakeholders from understanding how markets are (or are not) working. Increased transparency - with a concurrent focus on quality - will give consumers and purchasers a clearer perspective on the drivers that are contributing to higher health care costs in their community, as well as an understanding of how dynamics such as provider consolidation affect the costs they pay.
2. Facilitating Benefit Modernization: Recognizing that a range of legal, regulatory, or operational barriers often prevent health plan innovations from being adopted in local communities, we believe that cost containment strategies must modernize these "rules of the road" to ensure that innovative plan designs - aimed at decreasing costs while ensuring safe, high quality care - can thrive. This includes re-evaluating scope of practice requirements, accelerating the use of health information technology, promoting preventive care and wellness programs, promoting laws or regulations that support innovative delivery structures, and eliminating excessive network requirements that prevent plans from forming lower cost, high quality networks.
3. Advancing Bold, Structural Reforms: Strategies to address rising health care costs need to include fundamental, structural changes in the health care system. Further, action needs to be grounded where health care is delivered today - at the state and local levels. A state-federal shared savings, or "gain-sharing," initiative could be implemented that would allow states to keep a portion of any health care cost savings they generate. This would direct hundreds of billions in needed incentives to cash-strapped states, while at the same time bending the total cost curve and having a productive impact on the economy as a whole, as well as family, corporate, and government budgets.
Building upon the strategies in our Board statement, we have proposed a policy agenda, recently published n16 by the
On another front, AHIP recently joined a diverse stakeholder group, the
Our report proposes a set of integrated, system-wide approaches involving both the public and private sectors that will significantly curb the growth in health care spending and enhance the delivery of care. Specifically, we outline a seven-part vision for a transformed health care system: (1) health care that is affordable and financially sustainable for consumers, purchasers, and taxpayers; (2) patients who are informed, empowered, and engaged in their care; (3) patient care that is evidence-based and safe; (4) a delivery system that is accountable for health outcomes and resource use; (5) an environment that fosters a culture of continuous improvement and learning; (6) innovations that are evaluated for effectiveness before being widely and rapidly adopted; and (7) reliable information that can be used to monitor quality, cost, and population health.
The
. Transforming the current payment paradigm. We encourage the accelerated adoption of payment approaches that demonstrate their effectiveness in improving both quality and cost. These value-based payment approaches include a range of models that include incentives for patient safety, bundled payments, accountable care organizations, and global payments.
. Paying for care that is proven to work. We recommend that public programs and the private sector reduce payments for services that prove to be less effective or of lesser value than alternative therapies.
. Incentives for greater consumer engagement in care. We encourage the use of high-value services and providers through tiered cost-sharing and related financial incentives. The goal of such tiered cost-sharing is to create financial incentives for consumers to make better use of their discretionary care choices, leading to savings from improved adherence to preventive measures and evidence-based care, lower utilization of unnecessary services, and the use of more efficient, higher-quality providers.
. Improving health care infrastructure. We call for reforms aimed at strengthening the foundational infrastructure of America's health care system so that cost- and quality-related innovations can be implemented more effectively. Specific initiatives include:
o Accelerating research on treatment effectiveness to give patients and providers more information on which to base health care decisions;
o Speeding the adoption and the use of electronic health records and health information exchanges to improve care for patients;
o Ensuring that there is an adequate and diverse health care workforce;
o Reducing and resolving medical malpractice disputes;
o Promoting greater transparency in health care costs; and
o Encouraging competitive markets.
. Incentives for states to partner with public and private stakeholders to transform the health care system. We propose a gain-sharing system that would enable states to receive fiscal rewards for successfully meeting cost- and quality-related goals. States would have flexibility to use different combinations of strategies that fit their specific cultures and political environments, ranging from working with private and public payers to collaboratively implement major payment reforms, to modifying scope of practice restrictions, to providing incentives for improvements in care coordination to promote quality and patient safety.
IV. Conclusion
Thank you again for considering our perspectives on these important issues. Our members remain strongly committed to working with
n1
n2 Gabel, J. et al. (2012). More Than Half Of Individual Health Plans Offer Coverage That Falls Short Of What Can Be Sold Through Exchanges As Of 2014, Health Affairs 31 No. 6
n3
n4
n5
n6 CBO letter to Sen.
n7 Carlson, Chris. "Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans." Oliver Wyman.
n8 Carlson, Chris. "Annual Tax on Insurers Allocated by State." Oliver Wyman.
n9 See JCT Letter to Senator
n10
n11 AJMC.com, Trends in Inpatient Hospital Prices, 2008 to 2010,
n12 AHIP, Survey of Charges Billed by Out-of-Network Providers: A Hidden Threat to Affordability,
n13 CMS Press Release, Administration Offers Consumers An Unprecedented Look At Hospital Charges,
n14
n15 http://ahip.org/Issues/US-HC-Spending101-App.aspx
n16 AJMC.com, Health Plan Innovations in Delivery System Reforms,
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Read this original document at: http://docs.house.gov/meetings/IF/IF02/20130520/100868/HHRG-113-IF02-Wstate-DurhamD-20130520.pdf
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