Study: Health overhaul to raise claims cost 32 percent

WASHINGTON (AP) — Insurance companies will

have to pay out an average of 32 percent more for medical claims on

individual

health policies under President Barack Obama's overhaul, the

nation's leading group of financial risk analysts has estimated.

That's likely to increase premiums for at least some Americans buying individual plans.

The report by the Society of Actuaries could turn into a big headache for the Obama administration at a time when many parts

of the country remain skeptical about the Affordable Care Act.

While some states will see medical claims

costs per person decline, the report concluded the overwhelming majority

will see

double-digit increases in their individual health insurance

markets, where people purchase coverage directly from insurers.

The disparities are striking. By 2017, the

estimated increase would be 62 percent for California, about 80 percent

for Ohio,

more than 20 percent for Florida and 67 percent for Maryland. Much

of the reason for the higher claims costs is that sicker

people are expected to join the pool, the report said.

The report did not make similar estimates for employer plans, the mainstay for workers and their families. That's because

the primary impact of Obama's law is on people who don't have coverage through their jobs.

The administration questions the design of

the study, saying it focused only on one piece of the puzzle and ignored

cost relief

strategies in the law such as tax credits to help people afford

premiums and special payments to insurers who attract an outsize

share of the sick. The study also doesn't take into account the

potential price-cutting effect of competition in new state

insurance markets that will go live on Oct. 1, administration

officials said.

At a White House briefing on Tuesday, Health

and Human Services Secretary Kathleen Sebelius said some of what passes

for health

insurance today is so skimpy it can't be compared to the

comprehensive coverage available under the law. "Some of these folks

have very high catastrophic plans that don't pay for anything

unless you get hit by a bus," she said. "They're really mortgage

protection, not health insurance."

A prominent national expert, recently retired Medicare chief actuary Rick Foster, said the report does "a credible job" of

estimating potential enrollment and costs under the law, "without trying to tilt the answers in any particular direction."

"Having said that," Foster added, "actuaries

tend to be financially conservative, so the various assumptions might

be more

inclined to consider what might go wrong than to anticipate that

everything will work beautifully." Actuaries use statistics

and economic theory to make long-range cost projections for

insurance and pension programs sponsored by businesses and government.

The society is headquartered near Chicago.

Kristi Bohn, an actuary who worked on the study, acknowledged it did not attempt to estimate the effect of subsidies, insurer

competition and other factors that could mitigate cost increases. She said the goal was to look at the underlying cost of

medical care.

"Claims cost is the most important driver of health care premiums," she said.

"We don't see ourselves as a political organization," Bohn added. "We are trying to figure out what the situation at hand

is."

On the plus side, the report found the law

will cover more than 32 million currently uninsured Americans when fully

phased

in. And some states — including New York and Massachusetts — will

see double-digit declines in costs for claims in the individual

market.

Uncertainty over costs has been a major

issue since the law passed three years ago, and remains so just months

before a big

push to cover the uninsured gets rolling Oct. 1. Middle-class

households will be able to purchase subsidized private insurance

in new marketplaces, while low-income people will be steered to

Medicaid and other safety net programs. States are free to

accept or reject a Medicaid expansion also offered under the law.

Obama has promised that the new law will bring costs down. That seems a stretch now. While the nation has been enjoying a

lull in health care inflation the past few years, even some former administration advisers say a new round of cost-curbing

legislation will be needed.

Bohn said the study overall presents a mixed picture.

Millions of now-uninsured people will be

covered as the market for directly purchased insurance more than doubles

with the

help of government subsidies. The study found that market will

grow to more than 25 million people. But costs will rise because

spending on sicker people and other high-cost groups will

overwhelm an influx of younger, healthier people into the program.

Some of the higher-cost cases will come from

existing state high-risk insurance pools. Those people will now be able

to get

coverage in the individual insurance market, since insurance

companies will no longer be able to turn them down. Other people

will end up buying their own plans because their employers cancel

coverage. While some of these individuals might save money

for themselves, they will end up raising costs for others.

Part the reason for the wide disparities in

the study is that states have different populations and insurance rules.

In the

relatively small number of states where insurers were already

restricted from charging higher rates to older, sicker people,

the cost impact is less.

"States are starting from different starting points, and they are all getting closer to one another," said Bohn.

The study also did not model the likely

patchwork results from some states accepting the law's Medicaid

expansion while others

reject it. It presented estimates for two hypothetical scenarios

in which all states either accept or reject the expansion.

Larry Levitt, an insurance expert with the nonpartisan Kaiser Family Foundation, reviewed the report and said the actuaries

need to answer more questions.

"I'd generally characterize it as providing useful background information, but I don't think it's complete enough to be treated

as a projection," Levitt said. The conclusion that employers with sicker workers would drop coverage is "speculative," he

said.

Another caveat: The Society of Actuaries

contracted Optum, a subsidiary of UnitedHealth Group, to do the

number-crunching

that drives the report. United also owns the nation's largest

health insurance company. Bohn said the study reflects the professional

conclusions of the society, not Optum or its parent company.

States' change in claims cost in health overhaul

Medical claims costs are the main driver of

health insurance premiums. A study by the Society of Actuaries estimates

the new

federal health care law will raise claims costs nationally by an

average of 32 percent per person in the individual health

insurance market by 2017. That's partly due to sicker people

joining the pool. The study finds wide disparities among states.

The estimates assume every state will expand its Medicaid program.

STATE Percentage change, per-person, per-month

Alabama 60.3%

Alaska 19.2%

Arizona 22.2%

Arkansas 40.9%

California 61.6%

Colorado 39.1%

Connecticut 28.8%

Delaware 29.3%

Washington, D.C. 51.9%

Florida 26.5%

Georgia 27.6%

Hawaii 21.9%

Idaho 62.2%

Illinois 50.8%

Indiana 67.6%

Iowa 9.7%

Kansas 18.9%

Kentucky 34.1%

Louisiana 28.6%

Maine 4.1%

Maryland 66.6%

Massachusetts -12.8%

Michigan 25.8%

Minnesota 18.9%

Mississippi 43.2%

Missouri 58.8%

Montana 20.1%

Nebraska 30.8%

Nevada 29.2%

New Hampshire 36.8%

New Jersey -1.4%

New Mexico 34.9%

New York -13.9%

North Carolina 13.5%

North Dakota 8.4%

Ohio 80.9%

Oklahoma 29.3%

Oregon 14.3%

Pennsylvania 28.0%

Rhode Island -6.6%

South Carolina 36.8%

South Dakota 29.0%

Tennessee 46.4%

Texas 33.8%

Utah 28.4%

Vermont -12.5%

Virginia 28.4%

Washington 13.7%

West Virginia 35.3%

Wisconsin 80.0%

Wyoming 31.6%

National 31.5%

Source: Society of Actuaries