PNHP

Premium increases portend an ominous future under ACA

California health insurers to raise average rates 8% to 14%

By Chad Terhune
Los Angeles Times, February 23, 2012

California’s largest health insurers are raising average rates by about 8% to 14% for hundreds of thousands of consumers with individual coverage, outpacing the costs of overall medical care.

Anthem has proposed raising premiums 9.6% to 13.8% on average, effective May 1 or July 1, for about 700,000 individual policyholders and their family members.

Nonprofit Kaiser Permanente increased premiums 9% on average for nearly 300,000 customers last month.

Blue Shield of California, also a nonprofit, is boosting average rates by 7.9% for 265,000 members and by 8.9% for 56,000 members, both effective March 1.

The cost of goods and services associated with medical care grew just 3.6% over the last 12 months nationally, government figures show. But insurance premiums have kept climbing at a faster pace in California.

Insurers defended their rate hikes, saying they are based on their claims experience with the customers they insure and not just the broader rate of medical inflation. They also say that healthier members dropped out of the individual market as premiums rose and the economy worsened in recent years, leaving behind a group of policyholders who have higher average costs.

http://www.latimes.com/business/la-fi-0223-health-insurance-rate-hikes-20120223,0,7634380.story

Comment: 

By Don McCanne, MD

Why should individual health insurance premiums continue to increase at a rate much greater than the cost of goods and services associated with medical care?

One of the most important reasons is that health insurance is now so expensive that many individuals who consider themselves to be healthy are choosing to go without coverage. Those who have health care needs make greater efforts to retain their insurance, thereby concentrating high-cost individuals within the insurance risk pools. This is known as adverse selection.

As the insurance premiums continue to increase, a greater number of healthier individuals will find the premium costs to be intolerable and will drop out, driving premiums up even higher – a phenomenon known as the death spiral of insurance premiums.

One purpose of the Affordable Care Act (ACA) was to correct such dysfunctions of the private insurance industry. Can we really expect adverse selection with skyrocketing insurance premiums to go away once the Act is fully implemented?

Keep in mind that in the individual market insurers have been using one of the most effective tools to reduce adverse selection. They have refused to cover individuals with greater health care needs, filling their risk pools with healthier individuals – favorable selection. That is now going away. They are going to be required to insure all applicants. That will surely drive up the premiums for the populations expected to be served by the state insurance exchanges.

Under ACA, it is also predicted that 23 million individuals will remain uninsured. A very large percentage of these individuals, who otherwise likely would have participated in the insurance exchanges, will not because of the unaffordable premiums – unaffordable even with the subsidies. Some will remain uninsured based on affordability exemptions in ACA, but some will simply not comply and be subject to penalties which the government may or may not be able to collect. These will be healthier individuals since those with needs will make greater efforts to obtain coverage. More adverse selection.

So once we’ve established the state insurance exchanges, what can we expect? Very high premiums due to adverse selection. A mediocre benefit package based on state small group plans. Very low actuarial values which shift the costs of health care to the very individuals who have greater needs. In other words, UNAFFORDABLE UNDER-INSURANCE will be the new standard in America.

We’re a better country than that. Let’s fix Medicare and provide it for everyone.

Premium increases portend an ominous future under ACA

California health insurers to raise average rates 8% to 14%

By Chad Terhune
Los Angeles Times, February 23, 2012
California’s largest health insurers are raising average rates by about 8% to 14% for hundreds of thousands of consumers with individual coverage, outpacing the costs of overall medical care.
Anthem has proposed raising premiums 9.6% to 13.8% on average, effective May 1 or July 1, for about 700,000 individual policyholders and their family members.
Nonprofit Kaiser Permanente increased premiums 9% on average for nearly 300,000 customers last month.
Blue Shield of California, also a nonprofit, is boosting average rates by 7.9% for 265,000 members and by 8.9% for 56,000 members, both effective March 1.
The cost of goods and services associated with medical care grew just 3.6% over the last 12 months nationally, government figures show. But insurance premiums have kept climbing at a faster pace in California.
Insurers defended their rate hikes, saying they are based on their claims experience with the customers they insure and not just the broader rate of medical inflation. They also say that healthier members dropped out of the individual market as premiums rose and the economy worsened in recent years, leaving behind a group of policyholders who have higher average costs.
http://www.latimes.com/business/la-fi-0223-health-insurance-rate-hikes-20120223,0,7634380.story

Why should individual health insurance premiums continue to increase at a rate much greater than the cost of goods and services associated with medical care?
One of the most important reasons is that health insurance is now so expensive that many individuals who consider themselves to be healthy are choosing to go without coverage. Those who have health care needs make greater efforts to retain their insurance, thereby concentrating high-cost individuals within the insurance risk pools. This is known as adverse selection.
As the insurance premiums continue to increase, a greater number of healthier individuals will find the premium costs to be intolerable and will drop out, driving premiums up even higher – a phenomenon known as the death spiral of insurance premiums.
One purpose of the Affordable Care Act (ACA) was to correct such dysfunctions of the private insurance industry. Can we really expect adverse selection with skyrocketing insurance premiums to go away once the Act is fully implemented?
Keep in mind that in the individual market insurers have been using one of the most effective tools to reduce adverse selection. They have refused to cover individuals with greater health care needs, filling their risk pools with healthier individuals – favorable selection. That is now going away. They are going to be required to insure all applicants. That will surely drive up the premiums for the populations expected to be served by the state insurance exchanges.
Under ACA, it is also predicted that 23 million individuals will remain uninsured. A very large percentage of these individuals, who otherwise likely would have participated in the insurance exchanges, will not because of the unaffordable premiums – unaffordable even with the subsidies. Some will remain uninsured based on affordability exemptions in ACA, but some will simply not comply and be subject to penalties which the government may or may not be able to collect. These will be healthier individuals since those with needs will make greater efforts to obtain coverage. More adverse selection.
So once we’ve established the state insurance exchanges, what can we expect? Very high premiums due to adverse selection. A mediocre benefit package based on state small group plans. Very low actuarial values which shift the costs of health care to the very individuals who have greater needs. In other words, UNAFFORDABLE UNDER-INSURANCE will be the new standard in America.
We’re a better country than that. Let’s fix Medicare and provide it for everyone.