Individual Premium Increase Brouhaha

There have been several recent news reports regarding proposed premium increases for individual health insurance policies sold by private insurers, mostly notably WellPoint, the Iowa Blue Cross plan and the Michigan Blue Cross Plan.  As might be expected, certain politicians have seized on these reports to excoriate the insurers and attempt to resuscitate health reform.  As also might be expected, the facts are far different from what these politicians would like the public to believe.  (HHS Report) (Iowa Article) (AHIP Statement)

The facts will undoubtedly show, as the insurers have explained, that the per person costs under their individual insurance plans are growing rapidly, which means that premiums have to increase just as fast to keep up with those costs.  An insurer which fails to keep prices in line with claim costs soon finds itself utilizing reserves and then finds itself in receivership, which does no one, least of all the policyholders, any good.  Per person costs are going up because when people lose jobs or feel financially stretched, as occurs in serious recessions like we are enduring, they look at all their expenditures, including those for individual health insurance.  The most likely people to drop their health insurance are the healthy, who are utilizing few services.  The least likely are the unhealthy, particularly those with chronic illnesses, who use a lot of services and need the coverage to help pay for the care they receive.  The outcome is obvious and the math straightforward:  fewer people, with those remaining being higher utilizers.  As premiums rise each year to cover the higher costs of the people left in the pool, more people decide they can’t afford it, again with the healthy people leaving first; and so on until the insurer typically gives up and stops selling that type of coverage altogether.  The spiral down in this recession has been aided by Congress requiring and subsidizing longer COBRA continuation, which is typically only taken up by less healthy employees.  Anyone who understands insurance know this is what is happening, including the politicians, or at least their staffs.

HHS, on behalf of the administration, has led the demagogic charge, along with the usual suspects like Henry Waxman, who think a government-run single payer plan is the answer, which makes a lot of sense since Medicare has done such a good job of controlling its costs, notwithstanding its power to set provider payments by fiat.  HHS misleading refers to insurer profits contrasted with the woes of America’s families in paying for health care.  The figure quoted by HHS is full of one-time profit and loss items, the true and historic profit margin for health plans is at the low end of all American industries.

Finally, nothing in any of the reform bills would likely do much to provide more affordable health insurance to individual purchasers, as we have pointed out in prior posts.  There is no meaningful underlying cost control, certainly in the private sector, in fact the bills would likely shift more cost to private insurers.  In the absence of effective cost controls, medical expenditures will keep rising faster than inflation and premiums will also keep increasing at a substantial pace, continuing to exacerbate the cycle of a smaller and riskier pool of covered persons.  The supposed penalties for not purchasing insurance look less and less significant as the premiums get higher and higher.  Credible actuaries, including those at CMS’ Office of the Actuary, have opined that this is the likely result of current bills.

Individuals need affordable insurance.  They are struggling to get it and nothing our representatives in Congress have passed to date is going to provide it for them.  The way to get it is to eliminate benefit mandates, eliminate any-willing provider statutes, allow utilization management and allow requiring participation in wellness and care management programs.  Rating flexibility is also needed, so that younger, usually healthy people aren’t paying far more in premiums than they can expect to get back in premiums.  Finally, very limited, targeted subsidies for persons who truly can’t afford health insurance could be put in place.  Under this scenario, policies could be priced far lower than they are today, would cover needed and appropriate services and more consumers would be able to afford insurance and would want to buy it.