Are We Getting Bang for our Bucks with PPACA?

It’s been three years since the passage of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) and it is still at the top of the news. Reports revealed in the past few days have caused an uproar over just how much PPACA may cost and whether individuals may have to dig deeper into their pockets to pay higher insurance premiums. From the White House, to Kathleen Sebelius to the Society of Actuaries, there seems to be little agreement on whether costs will significantly increase. What we do know, however, is that health care in the U.S. is expensive. And predicting when that might get better is clearly difficult.

According to a report by the International Federation of Health Plans (IFHP), a group of more than 100 member health insurance companies representing 25 countries, the United States pays significantly more for every category of basic health care services when compared to any other first-world country. The report examined the price of medical procedures, tests, scans and treatments in 12 countries, as well as the costs of six widely-prescribed drugs, revealing a drastic disparity in health care costs.

For example, when comparing the average cost for a hospital day, the average cost varied from $429 in Argentina, $665 in South Africa to $4,287 in the U.S. An office visit could range from $10 in Argentina to an average of $95 in the U.S. The survey also found that the monthly cost of Cymbalta, a widely prescribed drug for depression, ranged from $47 in the France to $176 in the U.S. One of the biggest disparities was for the average cost of caesarian sections, from $1,541 in Argentina to $15,041 in the United States. The percentage of gross domestic product attributable to health care expenditures varied from 8 percent in Chile to 10.1 percent in New Zealand, to 17.6 percent in the United States.

However, it’s important to look at that 17.6 percent in context. A recent report released by the White House on PPACA pointed to the recent slowdown in health care spending.  According to the report, the rate of growth in nationwide real per capita health care expenditures has been on a downward trend since 2002, and especially over the past three years. For each of the three years 2009, 2010 and 2011, National Health Expenditure data show the real rate of annual growth in overall health spending per enrollee was between 3.0 and 3.1 percent; the lowest rates since reporting began in 1960. The report also reviewed the growth of healthcare expenditures as a percentage of GDP and noted that, between 2010 and 2012, “there is evidence that structural shifts in the health care sector are underway,” and expenditures are slowing down. Since 2010, health care expenditures per capita grew at essentially the same rate as GDP per capita, which, according to the report, “is unusual because growth in health spending has tended to outpace overall economic growth for most of the last five decades.”

So what does that mean for the average consumer? Costs are growing more slowly, but when health care premiums are due, are they more or less than they have been? The answer is, that depends. PPACA establishes numerous consumer protections related to the purchase of private health insurance, some of which are already in effect. Health plans are not allowed to deny or limit coverage on the basis of an individual’s health status. And within certain limits, premiums will be allowed to vary by age, geography, family size, and smoking status, but not by individual health status, gender, or other factors. Insurance companies wishing to increase premiums by more than 10 percent may no longer do so without permission. Since the beginning of 2011, most insurers have been allowed to retain no more than 20 percent of consumers’ premiums for profits, marketing, and other administrative costs; any excess must be returned to the consumer.

A new study released by the Society of Actuaries forecasts that a majority of Americans who buy insurance in the individual market will experience premium increases in the double digits. Officials in some states disputed the analysis, saying it was based on flawed data. According to the report, costs may increase by an average of 32 percent nationally by 2017. The projected increases vary widely from state to state,  with as many as 43 states experiencing a double-digit claims cost increase.

So, time will tell. PPACA does encourage broad enrollment by creating accessibility within health insurance exchanges, an individual responsibility to purchase health insurance, and the financial assistance offered to lower-income earners to purchase private plans on an insurance exchange. This increased enrollment makes the pool bigger, which, in turn, fosters stability and affordability and should reduce the incidence of cost-shifting from uncompensated care to the insured.