Brouhaha erupts over PwC private health insurance report

PricewaterhouseCoopers (PwC) has found itself at the center of a controversy over its estimates of cost increases in private health insurance premiums if certain provisions of the heath care reform bill passed by the Senate Finance Committee become law.  PwC was engaged to conduct the study, "Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage," by the American Health Insurance Plans (AHIP).  Critics have questioned the methodology used by PwC, saying it does not take into consideration some of the cost containment measures in the bill and potential behavioral responses that could affect premium increases. 

AHIP president and CEO Karen Ignagni told ABC News, "One of the most important things that should be done is for PricewaterhouseCoopers, a world class firm, to speak for itself about methodology."

PwC defends its analysis and conclusions in a statement provided to AccountingWEB, citing the specific parameters of the study, saying that "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 study 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."

By 2019, the study says, after analysis of these four provisions, the cost of single coverage is expected to increase by $1,500 more than it would under the current system and the cost of family coverage is expected to increase by $4,000 more than it would under the current system.  This amounts to an additional 18 percent increase in premiums by 2019. The overall 18 percent increase is a composite of increases by market segment as follows:

* 49% increase for the non-group (individual) market;
* 28% increase for small employers (those firms with fewer than 50 employees);
* 11% increase for large employers with insured coverage; and,
* 9% increase for self-insured employers.

The highest increase would be for individuals covered by private insurance.

In its discussion of a "Strong Workable Coverage Requirement," the study acknowledges it methodology as it does elsewhere in the report.  "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."  The analysis of the coverage requirement shows the potential impact on premiums for individuals without a broad coverage requirement."

PwC says that impacts identified in the study assume payment of tax on high-value plans, cost-shifting of cuts to public programs, and full pass-through of industry taxes. 

The PwC study also states that it factored in the excise tax but not any anticipated behavioral changes:  "We have estimated the potential impact of the tax on premiums," the study says.  "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied."

In an earlier study based on AHIP data, PwC estimated that structural reforms, such as improved wellness and prevention, disease management, value based payment reform, improvements in health information technology, comparative effectiveness, and malpractice reform, could mitigate growth in healthcare costs by between 0.5 and 1.0 percent per year after an initial investment period.  See PricewaterhouseCoopers "A Review of AHIP Savings Estimates" in Appendix to AHIP, "A Shared Responsibility," 2008.