A Project of The Annenberg Public Policy Center

The PricewaterhouseCoopers Premium Problem


It makes for a pretty easy day of fact-checking when the very authors of a less-than-thorough analysis of a bill come out and say, you know, that study wasn’t exactly thorough.

And we didn’t pay them to say that.

America’s Health Insurance Plans, the main insurance industry lobby, however, did pay PricewaterhouseCoopers to take a look at certain aspects of the Senate Finance Committee health care bill – certain aspects AHIP doesn’t really like. PwC concluded that the bill would increase health care premiums substantially more than they would rise otherwise. AHIP released the study in what’s widely interpreted as an attack on the legislation, but now PwC cautions that its analysis should be taken with a grain of salt.

The PwC report estimated that the average family premium would cost $25,900 in 2019 if certain provisions of the bill were implemented, $4,000 more than the average premium cost under current law. The report projects the most significant increase to hit the individual market (as opposed to small-group and large-group markets), with premiums increasing 47 percent more than they otherwise would by 2016. PwC acknowledged in its report that it didn’t factor in various provisions, such as premium subsidies, that would lower its estimates. And the company released a statement last night to point that out yet again:

PWC statement: America’s Health Insurance Plans engaged PricewaterhouseCoopers to prepare a report that focused on four components of the Senate Finance Committee proposal:

  • Insurance market reforms and consumer protections that would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement.
  • An excise tax on employer-sponsored high value health plans.
  • Cuts in payment rates in public programs that could increase cost shifting to private sector businesses and consumers.
  • New taxes on health sector entities.

The analysis concluded that collectively the four provisions would raise premiums for private health insurance coverage. As the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis. The report stated on page 1:

“The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated.”

PwC did indeed leave out cost savings to premiums and only factored in aspects of the bill that could raise premiums – at AHIP’s behest, of course. But there’s more to it than that. Even the elements that PwC analyzed might not affect premiums in the way the company assumes. In looking at the impact of the excise tax on so-called "Cadillac" health care plans offered by employers, PwC says it expects employers to stop offering those plans, but it doesn’t factor any such change of behavior into its analysis: "We have estimated the potential impact of the tax on premiums. Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied," the report says.

The nonpartisan Congressional Budget Office, however, did project that employers would stop offering such high-cost plans, or employees wouldn’t pick them, which would cause employers to increase wages instead. That would lead to a rise in government revenues from income and payroll taxes. CBO Director Douglas Elmendorf also told Congress that the measure would decrease health care spending overall.

PwC’s report is out of line with other aspects of CBO’s analysis, too. It estimates that taxes on health care sectors including device manufacturers and brand-name drug importers would "raise annual insurance premiums by 2.5 percent for individual, small group, and large group plans over the 2010 to 2019 period," but CBO says the effect would be "about 1 percent." (Plus, CBO’s figure includes a tax on clinical labs that has been dropped from the bill.)

MIT economist and health care expert Jonathan Gruber released his analysis of the impact on premiums in the individual market, finding the opposite of the industry-funded report: Gruber says premiums in the individual market would go down. He examined the effect of the bill on people of different ages, estimating that a 25-year-old could save from $230 to $685 in 2016 on average, a 60-year-old could save $2,800 to $7,890, and a family of four could save $2,430 to $8,550, depending on whether these individuals qualified for subsidies.

This episode reminds us of another industry-backed report on premiums that we debunked earlier this year. It was based (loosely) on the House health care bill, as introduced, but didn’t factor in subsidies and other aspects of the legislation. Independent reports by the Commonwealth Fund and the Lewin Group, meanwhile, found that costs would go down on average.

The PwC report includes a major concern of AHIP, which has been on board with market changes such as not allowing companies to deny coverage based on preexisting conditions or to greatly vary prices based on health status, provided that an individual mandate is part of the plan. PwC says "the strength of the individual coverage requirement is critical in determining the impact of the other elements."

The mandate was weakened in the Finance Committee bill. Originally, the penalty would be $750 or $950 per individual, depending on income (with a top household maximum of $3,800). Now, the bill calls for a $750 penalty per adult, phased in over five years. Individuals would be exempt from the excise tax if their premium costs would exceed 10 percent of their adjusted gross income (that’s up from 8 percent in the original legislation).

CBO didn’t find that the decreased penalty had much of an effect on getting people to sign up for health insurance. It estimated that the bill would lead to 94 percent of nonelderly Americans having insurance, the same figure CBO gave for the earlier version of the bill. But it also hasn’t examined all of the factors influencing premium costs and says that quantifying a net effect is difficult. "In summary," CBO said "the premiums for policies sold in the proposed insurance exchanges would differ from the premiums that would be paid under current law for a variety of reasons—some of which would tend to make exchange premiums higher than current-law premiums and some of which would tend to make them lower."