Private Health Insurance:
Impact of Premium Increases on the Number of Covered Individuals Is Uncertain
HEHS-98-203R, Jul 7, 1998
Pursuant to a congressional request, GAO provided information on the relationship between the amount charged for private health insurance and the number of insured individuals, and the basis for a widely cited statistic from the Lewin Group that the number of insured individuals would fall by 400,000 for every 1-percent increase in health insurance premiums, focusing on: (1) trends in employers' decisions to offer insurance and employees' decisions to purchase it; (2) the methodology used by the Lewin Group to support its coverage loss estimate; (3) the methodology used by the Lewin Group to produce its most recent estimates; and (4) conditions or factors that could affect the impact of premium increases on insurance coverage.
GAO noted that: (1) during a period of rising health insurance premiums, the proportion of employees offered coverage rose, while the share that accepted insurance fell; (2) this may be because employers required employees to pay a larger share of the premiums; (3) in November 1997, the Lewin Group used published studies to estimate that 400,000 fewer individuals would have health insurance coverage for every 1-percent increase in insurance premiums; (4) several of these studies had sought to quantify the impact of subsidized insurance premiums on the increase in the number of employers offering insurance; (5) the Lewin Group concluded from these studies that a 1-percent decrease in premiums would likely induce an additional 0.4 percent of employers to offer insurance; (6) it then assumed that an increase in premiums might cause a similar percentage of firms to drop health insurance coverage and cause 400,000 individuals to be without coverage; (7) the findings of more recent studies, however, call into question the basis for the Lewin Group's estimate; (8) the studies clearly show that employers generally continued to offer insurance during a period of rising premiums but that fewer employees decided to purchase coverage; (9) the estimate also assumes equal premium increases for all types of insurance products; (10) if new federal mandates primarily affect health maintenance organizations' premiums, some employees may switch to other types of insurance instead of dropping coverage entirely; (11) thus, the Lewin Group's estimate may not be a good predictor of the coverage loss that might be caused by new federal mandates; (12) in January 1998, the Lewin Group lowered its estimate of potential coverage losses by about 25 percent; (13) the new estimate is based on the Lewin Group's statistical analysis of the relationship between how much employees pay for insurance and the probability that they, their spouses, and their dependent children have employer-sponsored health insurance; (14) because many factors can affect the number of individuals covered by private insurance, it is difficult to predict the impact of an increase in insurance premiums; (15) the extent to which employers pass on premium increases to employees also can affect coverage by influencing employees' purchasing decisions; and (16) changes in other economic factors can affect the number of individuals with private health insurance.