Private Health Insurance:

Impact of Premium Increases on Number of Covered Individuals Is Uncertain

T-HEHS-99-147: Published: Jun 11, 1999. Publicly Released: Jun 11, 1999.

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William J. Scanlon
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Pursuant to a congressional request, GAO discussed the impact of private health insurance premium increases on the number of covered individuals, focusing on: (1) the trends in employers' decisions to offer insurance and employees' decisions to purchase it; (2) an assessment of recent studies that have estimated the relationship between premium increases and insurance coverage; and (3) conditions or factors that could affect the impact of premium increases on insurance coverage.

GAO noted that: (1) from the late 1980s to the mid-1990s--a period of rising health insurance premiums--the proportion of employees offered coverage rose from about 72 percent to 75 percent, while the share that accepted insurance fell from approximately 88 percent to 80 percent; (2) the extent to which various factors contributed to the fall in the acceptance rate is unclear; (3) it may have resulted from employees being asked to pay a larger share of the premiums or other factors, such as decreases in some workers' real income; (4) Medicaid-eligibility expansions and changes in benefit levels also may have contributed to the fall in the acceptance rate; (5) few studies have attempted to estimate the effects of premium increases on insurance coverage, and no study adequately estimates the coverage loss that might result from new legislative mandates; (6) studies by the Lewin Group, for example, suggest that 300,000 to 400,000 individuals might drop or lose insurance coverage if premiums increased 1 percent; (7) however, these estimates assume across-the-board premium increases; (8) the potential coverage loss might be much lower if mandates primarily affect health maintenance organization premiums and employers and employees can switch to different types of coverage; (9) furthermore, serious data limitations affect the precision of many of these studies' estimates; (10) many factors can affect the impact that health insurance mandates have on the number of individuals covered by private insurance; (11) for example, if new mandates result in changes that individuals consider worthwhile, they may be willing to pay higher premiums; and (12) the extent to which employers pass on premium increases to employees, employees' opportunities to switch to less expensive plans, and changes in economic factors--such as income, or changes in public insurance program eligibility requirements--can also affect the number of individuals with private health insurance.

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