Reducing Health Care Costs for Employers and Employees
As a new study from Hewitt Associates reveals, the cost of health care has been rising by up to double digits for more than a decade. The study also demonstrates that the passage of the Affordable Care Act came at a critical time.
The study confirms our own analysis – that the potential premium impact of the new consumer protections that went into effect last week – from covering adult children on parent’s plans to eliminating lifetime limits, preventing insurance companies from dropping you when you are sick, and eliminating discrimination against children with pre-existing conditions – is roughly 1-2 percent of the more than 8 percent projected increase in the study. And it’s important to remember that any increases will be offset by a number of provisions in the new law that will save money for consumers and employers. The new law will help bend the cost curve of health care for employers and their workers by:
- Reducing Premiums: The Congressional Budget Office estimates that health insurance premiums could decrease by 3 percent for employers and a Business Round Table (BRT)/Hewitt Associates study found that employers that offer and contribute to health insurance coverage for their workers could experience cost savings of as much as $3,000 a person by expanding access to coverage and enacting various cost cutting reforms included in the Act.
- Bringing Costs Down for Small Businesses: The new law provides $40 billion in tax credits to help small businesses purchase coverage for their employees. In 2014, small businesses will be able to purchase private insurance through health Exchanges, which will provide them with the same purchasing power as large businesses.
- Helping Pay for Early Retirees: The law created a new Early Retiree Reinsurance Program that provides employers resources to offset the health care costs they pay for their early retirees who are not yet eligible for Medicare. Employers must use the funding to reduce their health care costs or premiums for all employees Today, more than 2,000 employers are participating in the program.
- Reducing the “Hidden Tax” on Insured Americans: Today, families with insurance pay a hidden tax of up to $1,000 to subsidize care for the uninsured. By making sure insurance covers people who are most at risk, there will be less uncompensated care and the amount of cost shifting among those who have coverage today will be reduced by up to $1 billion in 2013.
- Preventing Bankruptcy: Medical costs contribute to about half of the more than 500,000 personal bankruptcies in the U.S. in 2007. Bankruptcies can be avoided through ensuring insurance companies can’t drop people when they get sick, can’t place a lifetime or unrestricted annual limit on coverage, or discriminate against kids with preexisting conditions.
- Preventing Illness: Reducing preventable illness through new prevention coverage will result in significant savings. For instance, preventing obesity will lower premiums by .05 to .1 percent. Every dollar spent on immunizations could save $5.30 on direct health care costs and $16.50 on total societal costs of disease. Reducing preventable illness can also increase worker productivity – today, increased sickness and lack of coverage security reduce economic output by $260 billion per year.
- Reducing Out of Pocket Costs: Preventive health benefits will also help reduce out of pocket costs. For example, guidelines suggest that a 58-year old woman who is at risk for heart disease should receive a mammogram, a colon cancer screening, a Pap test, a diabetes test, a cholesterol test, and an annual flu shot; under a typical insurance plan, these tests could cost more than $300 out of her own pocket.
Last week, we celebrated the six month anniversary of the law and the day when the worst insurance company practices began to be eliminated. This week, we’ll continue our efforts to implement the new law and deliver the benefits of reform – including the $100 billion the law will reduce the deficit this decade and the trillion dollars in the next decade — to the American people.
Stephanie Cutter is Assistant to the President for Special Projects