September 2010 Newsletter – Letter from Kelly McGivern

September 23 ushers in the first of many changes from this year’s health care reform bill.  With all of the focus being on increasing access to health care benefits, some are now wondering why their health insurance premium has increased. While there are many positive changes for consumers, including the increase in dependent age, there are also additional costs that accompany them.

Here are some of the benefit requirements that go into effect on September 23:

• Prohibition on lifetime limits
• Restrictions on annual limits
• First-dollar coverage of preventive services
• Extension of dependent coverage up to age 26
• New internal and external appeals processes
• New rules regarding coverage for emergency services
• Prohibition on pre-existing condition exclusions for children

These new benefits, just like other coverage changes to a health insurance policy, will require an increase in the overall premium paid for health care coverage.  The specific impact of these new reforms will vary depending on the type and amount of coverage the policyholder has today.

Rising medical costs drive premium increases

In addition, to costs for new benefits, rising medical costs continue to be a key driver of premium increases. Last month, the AARP released a report saying that retail prices for some of the most widely used brand-name prescription drugs shot up more than 8 percent in 2009, even as inflation plummeted to a record low.  Additionally, a report issued by Forbes Magazine states that while the average American hospital barely breaks even, some are enormous profit centers earning 25 cents or more for every $1 in patient revenue they take in.

Other contributing factors

In addition to medical costs, other major factors that drive increases in health care spending include higher utilization of medical services, the growing needs of an aging population, and the development of new medical technologies.

With the percentage of health insurance premiums going for health plan administrative costs and profits declining for the sixth year in a row, it’s once again medical costs that are driving premium increases. While the new health care reform changes are positive for consumers, we must have a meaningful discussion on reigning in medical costs.  If not, there is little chance in our future of decreasing health insurance premiums.