Insurers: Brace for fast and furious costs

NEW YORK (CNNMoney.com) -- As the insurance industry prepares to adjust to reform, two big players say mandated changes that kick in soon could push up premiums faster and greater than before.

"The headline for everyone is that costs will be more. Cost will definitely go up," said Mark Bertolini, president of Aetna (AET, Fortune 500), which covers more than 19 million individuals under its plans.

However, Bertolini declined to say specifically how much premiums would increase other than to say the biggest impact on them would happen in 2014 when the health law is fully implemented.

Consumers who have health coverage through their employers could be paying higher premiums as early as the upcoming fall open enrollment period when near-term coverage changes mandated by law must go into effect.

Among those measures is increasing dependent coverage to age 26.

In 2011, employers will have to provide coverage for dependents of employees who don't have access to other employer-based health care coverage 'till age 26 with the exception of a few states which already mandate this coverage until age 28 or 29.

Insurance experts said this measure could raise costs for companies, depending how many workers they have with dependents this age.

Self-insured companies that provide health coverage directly to their workers could try to offset the costs by raising employees' premiums.

Fully-Insured companies, small to medium-sized employers, tend to purchase health insurance from an insurer such as Aetna.

In this scenario, Bertolini said insurers would offer the extended dependent coverage but the employee would have to pick up the additional cost through higher monthly premiums.

Bill Hoagland, insurer Cigna's vice president of public policy said his company looked at the impact of dependent coverage on Cigna's costs. Cigna (CI, Fortune 500) covers more than 11 million individuals.

"We have estimated that if all other costs were left unchanged by the legislation, then that one measure would increase premiums by 1% to 1.5%", he said.

That increase would be in addition to the annual increases in premiums that consumers have been paying as employers and insurers try to offset the rising cost of health care by shifting more of the their coverage expenses to their workers.

Once the changes are implemented, insurers say the increases are going to be felt immediately.

"Even in the near term, costs are likely to increase over and above the pre-law trend," said Hoagland."I would expect the costs to increase faster in the long-term and greater than the pre-law trend."

Another measure in the law eliminates all life-time caps on insurance coverage. "This provision could raise premiums to a smaller extent," he said.

Many employer-based health insurance plans have lifetime maximum limits on insurance of $1 million or $2 million.

And in 2014, the law bars insurers from rejecting people who have pre-existing conditions. This measure could also pump up premiums, Bertolini said.

Barry Schilmeister, health care consultant with Mercer, a global firm specializing in employee benefits, said these new provisions essentially require employers to expand existing health care coverage to workers.

"When this happens, costs will go up," he said.

Schilmeister said this is all happening at a time when the rate of premium increases been moderating. Over the past 12 months premiums have remained relatively stable, he said.

But based on Mercer's own analysis of the expanded dependent mandate, Schilmeister agreed with Cigna's assessment that dependent coverage could increase premiums by 0.5 to 1.5% above the rate at which premium costs have been rising recently.

However, there are other provisions in the law that could help offset premium increases in the future, Hoagland said.

"Longer term, we and others are hoping that a larger pool of insured consumers will lessen the pressure on premiums for existing customers," he said.

Meanwhile, some states such as California and Colorado have mandated their own changes to insurers' policies -- beyond the federal law -- based on age and gender that could also impact premium rates for consumers in January 2011.

Both states recently passed bills that prohibit insurers from using age and gender to determine premium rates for customers who buy insurance out of pocket, not for those covered by their employers.

For instance Bertolini said insurers consider young women of child-bearing age to cost them more than young men in the same age range. Among the elderly, insurers consider older men to have higher medical costs than older women.

"So in our rating models, we rate those populations differently," he said, meaning that younger women are often charged higher premiums than younger men and older men are charged higher premiums than older women.

"Those states are requiring us to set the same rating factors for both groups. When we do this, it will lower the rates for younger women but push them up for younger men," said Bertolini. Among elderly customers, he said the changes will increase rates for older women and lower them for older men.

"Many people won't understand why this is happening. Some people will think 'Great, health reform is working,'" said Bertolini. Others, he said, will ask why health reform is pushing up their rates when it was supposed to lower them.

Insurers agree that even if costs rise, more people will have access to insurance than ever before.

"Access is a huge step forward. It's criminal that there are any uninsured people in this country, he said. "But ultimately we have to attack costs more quickly."

Hoagland agreed.

"If you look at health reform as a three-legged stool addressing access, cost and quality, all three things have to be addressed," he said. "Reforming all three things, and not just access, will bring down premiums."