Impact of Health Care Reform on Insurance Premiums

Everyone is discussing the CBO Report on the impact of health care reform on health insurance premiums. Overall, the CBO study shows that premiums will not increase for the vast majority of Americans and will reduce costs for many because of the available subsidies for lower income individuals. However, I think the cost of coverage will definitely increase because of the following factors: the premium tax of 2% that will start to be due in 2010, the tax on Cadillac Plans, the decrease in MA reimbursement and the loosening of underwriting requirements. Tax increases will of course be passed along to groups and consumers. Cuts in the MA program will cause price increases on the commercial side for those publicly traded companies that want to maintain their overall profit margins. Finally, loosening the underwriting restrictions without having severe penalties for not having coverage will also cause prudent health insurers to build up their reserves through premium increases in anticipation of increased claims costs starting in 2014. The increases in the cost of coverage will of course mean that spending on subsidies will jump to keep the cost of coverage affordable. Measures to control the cost of health care are going to have to kick in fairly quickly (which is not the prediction) to prevent major financial strain.