Steep increases in insurance costs may leave patients with less money to cover deductibles and copayments for clinical laboratory tests
Next year, consumers and small businesses can expect what one health insurance CEO says will be, “Premium rate shock for 2014.” As this happens, clinical laboratories and pathology groups are likely to find it even more difficult to collect co-pays, deductibles, and out-of-pocket fees from patients who had medical laboratory tests performed.
The premium rate shock remark was made by no less than Mark Bertolini, the CEO of Aetna, Inc. (NYSE: AET). In his speech at an investor conference, he predicted premiums would rise by 20% to 50% next year before the government subsidies are applied. In some markets, rates could double, he added.
Aetna is not alone in seeking steep hikes in health insurance premiums. Blue Shield of California is seeking a rate increase of 12% to 20% for more than 300,000 individuals, The Los Angeles Times reported. These new rates would go into effect in March, the company said.
New York Times Reports on Predictions of Higher Health Premiums
The New York Times also published a story on this development, noting that health insurers nationwide are winning double-digit increases in premiums for some customers. “Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own,” The New York Times reported.
Patient May Pay More Out-of-Pocket for Medical Laboratory Tests
For pathologists and clinical laboratory managers, such increases mean patients may have less money to cover deductibles and co-payments for medical laboratory tests. Labs would then need to invest more time and money in collecting these payments. Also, health premiums are likely to rise sharply for those clinical laboratories that offer health insurance in the small group market.
One reason insurance costs are rising is the requirement under the Affordable Care Act (ACA) that older consumers can be charged no more than three times as much as the youngest consumers, said Robert Laszewski in his blog at Health Policy and Market.
Will Premiums Rise Significantly for Younger Adults?
Currently, the underwriting standard is that older consumers are charged about five times more than young adults. Even though these rate bands were narrowed under the ACA, insurers still expect older Americans to have a greater need for health care than younger Americans do. Thus, premiums for younger Americans may rise dramatically, Laszewski explained.
Laszewski predicts that individuals can expect a 30% to 40% increase in what they pay for health insurance. That cost includes premiums, deductibles, and copayments. He based this estimate on an informal survey of health insurers he conducted late last year.
“For example, expect individual health insurance rates for people in their 20s and early 30s to about double,” he reported. “People in their late 50s and 60s might see net decreases because of the benefit they will get from the rate band compression [mandated by the ACA Act].”
Also, premiums for small groups might rise by 10% to 20%, Laszewski said. “But small groups with lots of young people will be hit disproportionately since each person in the group has to be rated on an individual basis and then all of those covered rolled up into an average rate. Older groups might see rate decreases.”
To offset the cost of health insurance for individuals, the ACA includes government subsidies for consumers who have incomes of less than 400% of the federal poverty level. Those who make $46,000 as individuals or $92,000 for a family of four in 2014 will pay the full cost of insurance next year, Laszewski said.
Federal Taxpayers Will Be on the Hook for Unfunded Premiums
“But consumers who make less than 400% of poverty will have their premiums capped at a percentage of their income,” Laszewski observed. “So, anyone getting a subsidy will be insulated from the very highest premiums. Who will pick up the rest of the premium? Federal taxpayers.”
Last year, The Dark Report reported on how ACA subsidies may increase the government’s financial liability. Paul Mango, a Director with McKinsey & Company in Pittsburgh, Pennsylvania, said that health insurance subsidies will likely cause the government payments to rise over time.
“The formula spelled out in the ACA will increase the risk the federal government bears. It has to do with the spread between the rate of growth of wages and the rate of growth in health spending,” he added. (See “Health Insurers Now Finding Ways to Cut Costs and Shed Risks”, The Dark Report, June 4, 2012.)
Understanding the Negative Spread on Premium Costs
“Let’s assume that health premiums go up at 6% to 8% per year, which is similar to the annual rate of increase that has been true over the past two decades,” said Mango. “During this same period, expectations are that wages might go up 2% to 3% per year. The problem for the government is that, under the ACA, it will forever own the negative spread between wage increases and premium increases.
“Therefore, if there is a 6% spread in any given year, we could have a doubling of the federal government’s obligations over 10 to 12 years just to fund the healthcare subsidies that are not attached to wages,” Mango commented. “That will make the federal government the big new owner of medical risk.”
Clinical Laboratories Need Appropriate Business Strategies
It is significant that two nationally recognized experts like Laszewski and Paul Mango are predicting significant—even dramatic—increases in what employers and consumers must pay for health insurance. To that must be added the higher deductibles, out-of-pocket and co-pay requirements that employers are instituting. It seems clear that “sticker shock” is about to hit many middle-class Americans. As a consequence, clinical laboratories should anticipate higher rates of bad debt from patients who are financially overwhelmed by all the increases in the cost of their healthcare.
—By Joseph Burns