The Effects of Large Premium Increases on Individuals, Families, and Small Businesses

Recent announcements of increases in private nongroup insurance premiums for 2010 that were many times the national rate of health care cost growth have attracted attention from the Obama administration, Congress, and the press. Several employer benefit specialists predict smaller but sizable increases in employer-sponsored insurance (ESI) premiums in the near future. Health care cost growth is a factor, but the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary and others project that the rate of cost growth will slow through 2010 as a result of the recession.

In this report, we examine the effects on coverage, costs, and small employer decisions to offer insurance under different scenarios for general increases in individual and ESI premiums. We begin with a baseline scenario for 2010, in which premium increases from the preceding year are driven by rates of cost growth projected by CMS. We then simulate two scenarios in which premiums rise at a significantly faster rate than baseline premium growth: an intermediate scenario in which ESI premiums increase 6 percent for large firms, 10 percent for small firms, and 20 percent in the individual market, and the largest increase scenario, with ESI premiums rising 9 percent for large firms, 20 percent for small firms, and 30 percent in the individual market.