Gov. Jared Polis recently announced massive reductions in premiums due to the reinsurance program passed by the legislature this year.
For some areas of Colorado, residents buying health care coverage on the individual market could see reductions of 18% – 40% in their premiums for 2020.
As health plans, we were delighted to see such significant decreases in premiums. For years, we have maintained that a reinsurance program could reduce the cost of premiums for many Coloradans by taking the highest cost claims out of the risk pool.
Why would health insurers want to see premiums go down? Because despite all the finger pointing at health plans for high costs, our profit margins don’t increase with higher premiums.
Health insurance companies are legally required to spend 80-85% of every premium dollar on patient care. When carriers submit annual rates to the Division of Insurance, they have to justify every premium dollar.
The Division of Insurance’s most recent data from 2017, shows that health plans spent 86% of every dollar on patient care, exceeding the mandated threshold.
Your remaining premium dollars were spent on state taxes (2.3%), federal taxes (1.2%), charitable contributions (.5%), lobbying expenses (.0%), advertising and marketing (.4%), staff salaries (4.9%), commissions (2.3%), disease management programs/patient education/other cost containment or quality improvement measures (2.1%) and other (5%). Overall, the report shows a net loss to insurance companies in Colorado for the 2016 plan year.
So why are insurance premiums expensive? High premiums are a direct reflection of higher costs of care.
Those providing services — doctors, hospitals, pharmaceutical companies — have no mandates that would ensure accountability for the cost of healthcare.
The drug list price and the hospital chargemaster prices are whatever the market can bear. The only lid keeping prices down in any way is the insurer’s ability to negotiate lower costs of behalf on those they insure.
A recent report by the Colorado Consumer Health Initiative showed prices for routine procedures in the Denver market vary by more than 800% and Colorado was ranked as the sixth most expensive of 25 states for hospital prices paid.
It’s also why insulin prices doubled from 2012-16 and continue to rise. A June 2019 report from The Center for Improving Value in Health Care shows the median price in Colorado for a knee replacement is $35,170, and 85% of that cost goes to the facility. These prices are not going down.
In short, those who purchase health insurance on the individual market face high premiums and out-of-pocket costs because the price of health care services and pharmaceuticals are high.
If you get your health insurance through your employer (who chooses your coverage and your cost shares), your premiums are high because the prices are high. If you’ve noticed coverage and co-pay changes in Medicaid and Medicare, it’s because the prices are high.
Health insurance companies want to see the costs of care reduced for our members. The reinsurance program helps lower premiums for the 8% of Coloradans who buy individual insurance.
But the high health care costs affect all consumers — employers who provide insurance to their employees as well as those who receive coverage from Medicare or Medicaid.
We will continue to work with the administration to look for ways to bring healthcare costs down. And we are hopeful that the Office of Saving People Money on Health Care will begin to tackle the actual cost of care so Coloradans can get the coverage they need at a price they can afford.
Amanda Massey is Executive Director of the Colorado Association of Health Plans.
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