November 16, 2018

 

Recession Causes Higher Individual Health Insurance Rates in More States

Recently, Anthem Blue Cross–the largest provider of health insurance in California–proposed a significant increase in the price of its individual health insurance policies. The price hike of over 30% was set to take effect several months from now, and drew criticism from the Obama administration. Under current law, health insurance companies are regulated by the states. Health and Human Services Secretary Kathleen Sebelius only had the authority to write a stern public letter criticizing Anthem. In an attempt to resuscitate healthcare reform, Democrats pointed to the WellPoint subsidiary’s actions as a harbinger of what would happen in the health insurance market if their bill fails and the status quo remains.

It remains to be seen whether that tactic will revive support for health insurance reform, but there are indications that individual health insurance plans in several other states are looking to follow suit. In Maine, Anthem Blue Cross health insurance wants to increase its rates by nearly one-fourth; that’s on top of last year’s jump of one-third. Meanwhile, health insurance companies in Oregon have had their requests for 15% rate increases for individual health insurance approved. They, too, had also previously increased prices the year prior.

Many people have demanded an explanation for these price increases, especially during a recessionary period. Standard economic logic would have predict that lower demand from consumers with less money to spend would cause insurers to lower their premiums to attract more businesses. However, the health insurance industry is unique in that regard. In some respects, their costs are relatively fixed. Healthier people are more likely to drop their individual health insurance policies or switch to Health Savings Accounts and high-deductible health insurers plans with lower premiums. The people that keep their comprehensive health insurance in those circumstances tend to be those in worse health. Unhealthier people continue to use medical care. It costs health insurance companies money to fulfill their claims, while they are losing the more profitable individual health insurance consumers that generated income while using relatively small amounts of health care.

As a result, Oregon and Maine insurers–along with individual health insurance providers from California–have to increase their prices to maintain profit margins. Despite job losses, the employer-based group health insurance market has seen less volatility in sales. That, in addition to the larger risk pool that allows health insurers to spread costs, means that their rates have increased as significantly as those for individual health insurance.

What are the state health insurance regulators doing about this? Some states have no authority in the matter; they can negotiate with a health insurance company and plead with them to lower the level of proposed increases, but insurers don’t have to heed them. In these particular states, insurance departments can deny health insurers rate increases. However, individual health insurance companies can appeal the ruling or even sue to have it overturned. Oregon regulators approved several years’ worth of double-digit increases, since 2006 premium cuts caused individual health insurance providers to lose money. Unfortunately, the state insurance department’s reparations had exceptionally bad timing for its residents. In addition, they agreed with health insurance companies that an increase in diagnostic tests and higher service provider costs justified the rate increases.

Maine regulators have not been as charitable towards providers of health insurance. Originally, Anthem Blue Cross wanted last year’s average increase in the rate of individual health insurance to be 18.5%, but the state was able to hold the average consumer’s rate hike down to about 11%. The state is holding two public hearings on the issue later this month. Consumer protection groups are planning to attend in full force.

Proponents of healthcare reform claim that these increases show that the current system is not working, especially states like California or Maine, where a single health insurance company holds a near-monopoly. If there is a dominant individual health insurance provider in a state, it is easier for them to raise their rates without competition. A national health exchange market would attempt to bring prices down by promoting market competition, while subsidies and health insurance mandates are intended to help lower individual health insurance rates by increasing the size of risk pools. Anthem has called for the health insurance reform process to continue, because it has the potential to bring them more customers. Others believe that a better approach to the problem would be to allow insurers to sell policies across state lines, which would also serve to open up the market.