FACT CHECK: False promises and facts on health insurance premiums

Introduction

Both the Republican National Committee and the Obama administration are making misleading claims about health insurance premium costs. An RNC ad falsely implies that the federal health care law is responsible for all of the $1,300 average increase in family coverage premiums last year. But at the same time, the Obama administration makes the misleading claim that families “could save up to $2,300″ on health care costs per year in the future by buying insurance through exchanges called for by the law.

Let’s start with the RNC ad, which was launched last week. It takes Obama to task for promising to lower the typical family’s premiums by $2,500, an optimistic claim we have questioned several times, ever since the soon-to-be president first made the promise on the campaign trail. But, the RNC says, “it didn’t happen.” That’s true, and it’s unknown whether it will ever happen.

Then, the RNC implies that the health care law is to blame for all of the increase in premiums from 2010 to 2011. The ad says, “The average cost of a family policy is up $1,300.” That’s the total increase in the average employer-sponsored premium for family plans from 2010 to 2011, according to the Kaiser Family Foundation’s annual survey. And that’s the total cost for both employers and employees — not $1,300 out of pocket for the average family. In fact, the Kaiser Family Foundation report said that the increase in what workers contribute wasn’t “a statistically significant increase over the 2010 values.”

Standard economic theory holds that even if the employers picked up the vast majority of the bump in premium costs, they passed that expense on to employees in the form of lower wages. So it’s fair to argue that families bear the full $1,300 cost increase one way or another. But was the health care law to blame for the rise in premiums? We looked into premium increases last October, and experts told us more generous coverage requirements in the law caused premiums to go up by 1 percent to 3 percent. All told, premiums went up 9 percent, the bulk of which was due to rising health care costs.

$2,300 possibility

Premiums have been rising for decades, and while Obama’s promise — that a health care overhaul “could save families $2,500 in the coming years — $2,500 per family” — may lead some to believe he is saying that the dollar cost today will go down, that’s not the case. Instead, Obama’s promise is to slow the growth of costs, so that they would be less than they would be without the health care law. That’s true for a claim that was published on the White House blog last week. It says: “Families who purchase private health insurance through state-based exchanges could save up to $2,300 on their health care each year.”

As always with such claims, we must ask, $2,300 — compared with what? And what about that phrase “up to”? That’s usually a clue that many will see less than the maximum savings. And the “could” suggests this is merely a theoretical possibility.

There’s no information on the White House blog page as to how the administration calculates that figure. You’d have to dig pretty deep to find a January 2011 report that says families could save that much “in 2014 compared to individual market coverage with the same level of benefits without the law.” That’s a mouthful of caveats.

The administration report points to a Congressional Budget Office analysis of the impact of the health care law on premium costs. The CBO said that average premiums on the individual market would be 7 percent to 10 percent lower in 2016 — compared with what they would be without the law — because of a reduction in costs to the insurer for covering the same group of customers. Another 7 percent to 10 percent decrease in premium costs would come from a change in the type of people enrolling, namely more healthy — and therefore, less expensive — people who will get coverage because of the individual mandate, or because they’ll receive subsidies. So, the administration figures if it gets the full 20 percent in savings, “families purchasing insurance through Exchanges could save as much as $2,300 per year and individuals could save up to $800 in 2014 compared to individual market coverage with the same level of benefits without the law.”

But the catch is the “same level of benefits” line. The CBO actually said that all told, average premiums on the individual market would go up because of the law. (Many would end up paying less out of pocket for premiums because of federal subsidies.) In addition to the savings we explained above, there’s a 27 percent to 30 percent increase because of a boost in benefits provided by these plans. The administration makes a quick mention of this, saying that an increase in premiums would be offset by savings due to more comprehensive coverage. Its report says: “It is important to note that this benefit enhancement is a choice, not a requirement.” But that’s not completely true.

The CBO said that some of the increase in benefits would be due to the law’s minimum benefit requirements, and some would be due to individuals choosing more comprehensive plans, since they had the help of subsidies.

CBO, November 2009: In particular, the average insurance policy in this market would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to the structure of subsidies.

There’s no breakdown given for how much of the better benefits — and corresponding increase in costs — is due to the law versus consumer choice.

Families counting on a $2,300 savings thanks to the exchanges may be disappointed come 2014. First, some families who were paying sky-high rates may well see some level of savings, and others, who were buying bare-bones plans, will likely see a premium hike. Second, this figure touted by the White House is savings compared with what premiums would have cost otherwise — so it’s not $2,300 in savings from what families are spending now. And third, increased costs due to better benefits may or may not be offset by lower out-of-pocket health care costs, depending on the family. The White House, after all, did say “could.”

– Lori Robertson