BlueCross BlueShield of Tennessee supports health care reform that is affordable, sustainable and transparent.  While the Senate Finance Committee’s effort to extend affordable coverage is admirable, its bill has the opposite effect—it raises health care costs and obscures the true, long-term cost of the legislation. 

According to an Oliver Wyman study* commissioned by the Blue Cross Blue Shield Association, the bill’s proposed reforms would cause premiums to rise for both individuals and small groups. In the individual market, premiums could rise by 50 percent and in the small group market by 19 percent after five years of enacting reform.

The study estimates the financial impact on individuals would be $1,500 and $3,300 more annually for families. Additionally, the study predicts that 2.5 million fewer people will get their insurance through small businesses.

While we agree with much of the bill, there are troubling aspects that we believe will negatively affect access and cost.

Weakened Individual Mandate

The Finance Committee’s bill does not include a strong mandate, which is vital to holding down costs if reform includes guaranteed issue coverage and eliminating pre-existing condition clauses. At $200 per year, the proposed penalty for not getting coverage is currently far too small to compel individuals to purchase insurance. A strong mandate is needed to ensure that enough healthy individuals will purchase insurance, which allows risk to be spread among both the healthy and sick. Without a strong mandate, people can continually opt in and out of coverage as their health needs change, which will burden those who keep insurance with higher premiums.

Narrow Age Bands**

Narrowing the age band eliminates premium flexibility in the marketplace. This means that insurers will be forced to unfairly increase the premiums for the youngest adult age group to cover the medical costs of seniors who generally incur greater health care expenses.

Premiums for the youngest third of the population would increase by 69% under a 2 to 1 age band and 35% with a 3 to 1 age band assuming an effective mandate (Oliver Wyman).

This narrow age band will significantly raise premiums for younger adults, who may opt out of coverage they can not afford, thus resulting in a smaller health risk pool—all of which ultimately leads to higher premiums for everyone.

New Taxes

Cadillac Plans

The Finance Committee’s bill includes substantial subsidies to assist individuals in buying coverage. Almost half of the funding for this bill comes from a tax on commercial benefit plans that provide good health care coverage.

• The Senate chooses to call these “Cadillac” plans, apparently to stigmatize those who can afford good coverage or who have good health coverage through their employers.
• The new tax will be imposed on employer-sponsored health plans that have total premiums valued at more than $8,000 for individuals and $21,000 for families.

 Currently, 14 percent of individual polices and 19 percent of family policies would be taxed as ‘Cadillac’ plans.

•  According to the Congressional Joint Committee on Taxation, by the year 2019, numbers affected would reach 37 percent of individuals and 41 percent of families. This is a result of rising medical costs and, in turn, premiums.

Insurer Fees

The bill includes a $6.7 billion excise tax described as an “annual fee on health insurance providers” and is based on market share.

• This tax would make health insurance much less affordable for all Americans, regardless of whether they currently have coverage or are uninsured.
• The Congressional Budget Office (CBO) has estimated that this tax would raise premiums by roughly 1 percent. However, by insurance industry estimates the effect of this tax would be much more significant, raising coverage costs by as much as three times the CBO’s estimate in most instances.
• It is important to note that the effect of these new taxes would be borne principally by individuals in the exchange and by small businesses.
• Imposing a new tax would encourage a vicious cycle, whereby the taxes are ultimately borne by an increasingly narrow group of consumers, including those purchasing coverage through the exchange.

Medicaid

While the CBO estimated the bill to be budget neutral, many reports indicate that it will have severe consequences in the form of unfunded mandates for state Medicaid programs. In Tennessee, it is estimated that in years 2014-2019 additional costs to the state’s budget could total from $735 million to up as much as $3 billion dollars. The prospects of facing these funding needs could mean new and increased taxes for Tennesseans.

BlueCross stands for reform and knows the system needs to be fixed. But we support reform that is responsible, sustainable and transparent--where the true costs now, and in the future are known. See our We Believe Statement here. 

* The Wyman analysis is intended to pick up all of the major components of the Senate Finance Committee bill that increase or decrease costs.  It does not “cherry pick” certain provisions in the bill.  For example, while the model expects higher benefit requirements to increase premiums, the introduction of insurance exchanges are expected to offset part of that increase.

**Age bands are a multiplier of how much the cost of premiums can be applied to the youngest versus the oldest in the individual insurance market. The young are generally healthier and therefore deserve lower rates as they are receiving fewer costly services.