Why the Jump in Health Insurance Premiums?

Oct. 14, 2011 -- What's behind the 2011 surge in the cost of job-based health insurance?

Over the past decade, workers' share of family health insurance premiums has gone from under $1,800 to over $4,100 a year, up 131% since 2001. Employers now contribute an average $15,000, up 113%.

That increase has been sneaking steadily upward each year. But last year saw an 8% increase in individual plan premiums and a 9% increase for family plans, according to the Kaiser Family Foundation.

Who's to blame? Many pundits were quick to round up the usual suspect: health care reform. Indeed, several major provisions of the Affordable Care Act took effect in 2011.

Three of these changes affect insurers' costs, according to an analysis by Jon Gabel of the University of Chicago and colleagues at the Towers Watson consulting firm:

• At age 19, kids used to get booted from family plans. Now they can stay on a parent's employer-supported plan until they're 26.
• The vast majority of job-based plans now must pay the full cost of preventive health care. That means no co-pay to offset insurer costs.
• Insurers can no longer set an upper limit on lifetime benefits.

Health Care Reform and Health Insurance Cost

So are the pundits right? Only partly. Gabel and colleagues calculate that:

• Keeping adult kids on parent plans added 0.9% to insurance premiums.
• The ban on lifetime maximum benefits added 0.5% to insurance premiums.
• Free preventive services added 0.4% to insurance premiums.
• Other provisions of the Affordable Care Act had no effect on insurance premiums for 2011.

That means that health care reforms are responsible for 2 points of the 9-point increase in family health insurance premiums.

"At least this year, there is a general consensus that the effect of the Affordable Care Act on health costs is modest," Larry Levitt, senior vice president of the nonprofit Kaiser Family Foundation, tells WebMD (Kaiser Family Foundation is not affiliated with the Kaiser Permanente managed care consortium).

On the plus side, these changes in the U.S. health care system provided benefits to large numbers of people, notes Sara R. Collins, PhD, vice president for affordable health insurance at the Commonwealth Fund.

"These are changes that really needed to be made," Collins tells WebMD. "Kids who go off parents' policies at 19 and can't find a job are very costly to the health system. And obviously people don't want to blow through their benefits if they need something like cancer treatment. The span-of-life benefit affected 38 million people."

America's Health Insurance Plans, the trade group that represents the health insurance industry, puts health reform well down its list of factors driving up premiums.

Why Health Insurance Premiums Went Up

So if it wasn't health care reform, what did cause the spike in health insurance premiums?

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