The nation’s insurance companies are blaming the weak economy and high medical costs for hiking their rates for individual and family plans. In bad economic times, more people drop their policies or choose cheaper coverage, so insurers are making less money from this market segment.
In today’s New York Times op-ed column, “California Death Spiral,” Paul Krugman describes the why behind the increases in simple terms. “Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums.”
Of course, sick people or those who use their health plan often (called “high utilizers” in the insurance business) tend to keep their coverage out of absolute necessity and pay the higher premiums until they no longer can.
To lower the amount we pay for health care, everyone in the risk pool needs to participate — which is the reason Congress mandated coverage in its national health plan.
Although many other insurers are instituting huge increases, the focus this week has been on Anthem Blue Cross in California, which plans to raise its rates for individual and family policies as high as 39 percent. Because of a public outcry, the company has decided to wait until at least May 1.
According to a report by health and human services secretary, Kathleen Sebelius, Blue Cross Blue Shield of Michigan even tried to get a 56 percent increase last year on policies it sells to individuals.
Health insurers’ core business, which is covering large and medium-sized companies, has also decreased because of layoffs and downsizing. In addition, there has been a longstanding trend for larger firms to self-insure and use a health insurance company only as the claims administrator.
Because the majority of people in this country get their health insurance through their employers, they are unaware of how badly the system is collapsing and may perceive it as healthy and safe.
The Obama administration has responded by asserting that “insurers generally seem to make plenty of money, especially the commercial companies that still manage to reward their executives handsomely and keep their shareholders happy with increasing earnings,” according to the article “Bleak Economy Pushing Health Insurers to Raise Rates, Analysts Say,” in today’s Washington Post Business Section. The administration further says the insurers are asking for increases that “far outpace the overall rise in underlying medical expenses.”
WellPoint’s Blue Cross executives are scheduled for hearings before Congress next week to explain the proposed increases.
The surge in health care premium costs should embolden legislators to put the public option back into the reform bill and create a system that will provide affordable health care coverage to as many ctizens as possible.