Obama Administration Clashes With Insurers Over Controlling Costs

Better coverage. Health insurance premiums lower than they would have been otherwise. Millions of Americans eligible for rebates in just a little over a year.

Those are some of the benefits the Obama administration continued to tout Tuesday, following up on Monday’s release of new rules to enforce the health law’s requirement that insurers spend at least 80 percent of their revenue on medical care or pay rebates to consumers.

But even as administration officials embark on a broad expansion of federal oversight of the health insurance industry, they’re up against this reality: Average Americans want premiums to go down, not just go up more slowly. And there’s no single magic bullet – not even the spending rules – that will do that.

Seemingly every premium increase is now blamed on the new law. In Tuesday’s press briefing, the administration again went on the offensive, saying that the law is responsible for only a small percentage of next year’s premium increases. Various studies, from consulting firms Mercer and Hewitt, have shown that the law is responsible for 1 to 2 percent of next year’s insurance premium increases. 

HHS officials displayed charts showing that premiums for coverage offered by employers rose at a faster rate than the overall economy since at least 1998; coverage bought by individuals – and held onto for more than a year – rose an average of 16 percent annually from 2003 to 2007. Some current premium increase requests from insurers selling policies in the individual market have hit double digits, according to data from seven states.

Industry analysts “every year have a different excuse” for rising premiums, such as drug prices, outpatient care or changes in Medicare, said Sherry Glied, assistant secretary for planning and evaluation at HHS. “This year, it’s the Affordable Care Act. It’s really important to put it in context.”

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, did not quibble with the administration’s historical data on rising premiums. But, he said, premiums mainly reflect underlying health care costs – and he says the law and the administration are doing little to tackle those.

“Medical costs have been rising at unsustainable rates,” said Zirkelbach. “There are a number of things in the law that focus on premiums,” including the 80 percent spending rule, “but now is the time to focus on underlying costs. The reform law really dropped the ball when it came to getting those costs under control.”

Administration officials disagree. The law, they say, will affect some underlying costs, mainly by getting more people covered. That will reduce the need for hospitals and others to raise their prices to offset losses from caring for uninsured patients, they say. Cost increases are also partly due to growing “administrative costs and marketing costs,” the very things targeted by the new spending requirements, HHS Secretary Kathleen Sebelius said Monday in announcing the rules.