Health Insurance Rate Hikes

Ironic Postscript: Hours after I wrote this, I received a note from Aetna informing me of another price increase for health insurance.  Until January 2010 my total price for a $5000 deductible health insurance + dental plan  was $148. Starting January 2010, it bumped up to $184. Starting April 2010, the price is $207.  This seems certainly to be a death spiral.

What happens if you delay passing individual mandates on health insurance?

The prices go up, up up! In a Noam N. Levey piece on health care, he notes:

1. Profits for health insurance co. went up 56% in 2008.
2. The major insurers covered 2.7 million FEWER people than the previous year.
3. Health spending as % of GDP went up to 19.3% (it was 13.7%) in 1993.

The individual health insurance market has gone haywire. My own individual health insurance went up 25%, and in California Anthem’s individual policies had increases up to 39% increases.  When I posted an article about it on Facebook, two people chimed in rate increases of 23% and 50%. Robert Reich notes:

WellPoint’s profits rose to $2.7 billion last quarter. Even if you subtract one-time-only financial maneuvers, WellPoint is still fat and happy, which makes Anthem fat and happy. Everyone is fat and happy except Anthem’s policy holders, who are being skewered.

Anthem’s argument is even more questionable when you consider that Anthem has been among the most aggressive opponents of the health-care bills passed by the House and Senate. If Anthem were sincere about why it’s raising its rates, it would be embracing the legislation. The Senate and House bills would add tens of millions of Americans to insurance pools – thereby spreading the costs over more people and avoiding the very problem Anthem says is now forcing it to raise its rates so much.

Even more troubling is the fact that Anthem obviously believes it can raise its rates by as much as 39 percent without losing every one of its remaining customers with average or even somewhat above-average medical needs. The only way it could possibly raise its rates so high and expect to keep its customers would be if Anthem’s customers have no other choice. In other words, Anthem’s strategy makes sense only if Anthem faces little or no competition from other health insurers.

I wouldn’t be surprised if this were the case. Insurers, remember, are exempt from the federal antitrust laws. And WellPoint, Anthem’s parent, is the largest insurer in America.

Caveats are in order. A health insurance spokesman says that the comparisons with when companies were in the middle of recession are not quite fair. Also, average profit margins for the insurance industry are historically low (3% on average).  Rick Newman provides more numbers.

The problem I have with health insurers is not that they make money, but they that they claim the right to refuse customers while at the same time benefitting from tax subsidies for employer plans. A private insurer can reject a person without answering to the public. Health insurers don’t need 100% coverage; their goal is simply to maximize profits (even if their business plan to cover only athletic 22 year old billionaires). What happens when there’s too much cherry picking and the public has to pay the tab? "Privatize the profits, socialize the losses" seems to be the strategy for the health care industry. And it gets worse:

Insurance companies last year continued to try to purge their most costly customers, which are often small businesses with older workers, said Richard Kirsch, national campaign manager for Health Care for America Now.

Another reason for the robust profits, Mr. Kirsch said, is that the companies reduced the percentage of their premiums that they spent on actual medical care and devoted more to administrative costs and profits.

A third factor, he said, is that the insurers continued to attract more customers to public programs like Medicare Advantage, in which the federal government pays private insurers 14 percent more than it pays Medicare to cover the same people.

The report said that the insurance industry’s long-term strategy was to shift responsibility for the care of millions of older, sicker and lower-income customers to taxpayer-supported programs, like Medicaid and the state Children’s Health Insurance Program. Those programs in turn are increasingly hiring the big insurance companies — and paying them — to manage the coverage.

(The full PDF report is worth reading; full of good analysis of facts).

In addition there is a power imbalance here. Multibillion dollar companies can refuse coverage secure in the knowledge they have a huge legal department and generally sympathetic regulators to prevent the individual from complaining or suing them.

The justification for the privatized system was that private insurers will step in and provide private insurance for the public. Over the years, this coverage has been declining and becoming massively more expensive. Therefore, the justification for relying on the private system to fulfill a public concern is becoming more suspect.

My preferred solution (if you take the privatized system as a fait accompli) is individual mandates. Generally people on both political sides agree with that, but disagreed with implementation details (subsidies, tax breaks, etc). Also, libertarian obstructionists have used the failures of the private system as a reason to justify even further use of it. (I’ve written about that here).

That private strategy is also costing taxpayers a lot of money. We as taxpayers have a right to demand oversight for an industry that is increasing costs 5-10% per year (or 25% increases in the individual market). It’s easy to say, let the market offer better services. I’m sorry, but that hasn’t been happening; not only are costs increasing, but the number of companies offering services is decreasing.

Update: Kevin Sack reports on the outrage in California.

Medical costs have typically risen by 5 percent to 10 percent during each of the last five years. Mr. Poizner said he was starting to see significant increases for individual policies sold by some of Anthem’s competitors, and double-digit increases have been reported in other states.

Several insurance analysts said it was possible, but not necessarily likely, that such increases would become common, at least while the economic downturn persists. Insurance brokers in Los Angeles said they had never seen jumps of such magnitude.

“It’s more astonishment than irritation,” a Pasadena broker, John W. Barrett, said of the reaction from his customers. “Irritation was last year and the year before. Now they’re astonished.”