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CMS Actuaries: Private Health Insurance Spending to Keep Growing

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U.S. private health insurer spending on health care could increase about 65% between now and 2020, government researchers say.

Economists and actuaries in the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) have included that projection in a paper published in the Web edition of Health Affairs, an academic journal that focuses on the delivery and financing of health care.

The research team, led by Sean Keehan, an economist at the Office of the Actuary, is estimating that overall national health expenditures increased 3.9% in 2010, to $2.6 trillion, or 17.6% of U.S. gross domestic product (GDP). Health care accounted for the same percentage of U.S. GDP in 2010 as it did in 2009, the researchers found.

The Great Recession held expenditures down in 2010, but provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA) should lead to a higher rate of growth this year, and expenditures could rise about 4.8%, researchers estimate.

U.S. private health insurers spent $822 billion on health care in 2010, up 2.6% from the total in 2009, and they could be on track to spend $850 billion this year, up 3.4% from the 2010 total.

Private health insurers’ spending could increase 4% in 2012, to $884 billion, and climb to about $1.4 trillion in 2020.

Some have suggested that PPACA rate review and minimum medical loss ratio requirements could hurt health insurers’ finances. The authors of Health Affairs paper say net health insurance cost, or the difference between premiums earned and benefits paid, increased 8.1% in 2010, to $144 billion, and may be on track to increase 5.6% this year, to $152 billion. By 2020, the net cost of insurance could increase 78% from the 2011 level, to $271 billion.

The net cost of insurance probably increased so rapidly in 2010 because growth in use of some service, such as elective hospital procedures and physician visits, was slower than insurers had expected when they set their prices, the researchers say.

PPACA and increased employment should increase health insurance enrollment during the transition years between now and 2014, when many PPACA provisions are supposed to take effect, and a PPACA provision expanding young adults’ access to coverage should cut growth in benefits per enrollee to below 3% this year, from 4.7% in 2010, the researchers say.

About 14 million additional people should get coverage in 2014 through a new system of health insurance exchanges that will offer individuals and small employers access to health insurance subsidy tax credits, the researchers say.

Growth in health insurance spending could slow over the next few years, in part because the expectation is “that some employers of low-wage workers will stop offering health coverage (and many of their employees will move to the exchange plans, while others move into Medicaid or become uninsured),” the researchers say.

A “Cadillac plan” tax on high-cost health benefits packages is set to take effect in 2018, and that could also put downward pressure on health insurance premiums, the researchers say.

Other national health expenditure coverage from National Underwriter Life & Health: