Rush to hike health premiums

JUNE 28, 2010

By PATRICK RYAN

California health-care insurers are pushing for massive premium hikes before the new federal health-care law — which increases federal- and state-government control over health insurance premiums — kicks in.

On June 16 the California Department of Insurance announced that it had ordered an independent review of non-group premium increases for California’s top four health insurers: Aetna, Anthem, Blue Shield of California and Health Net. The order came after Anthem Blue Cross’s cancellation of premium increases of up to 39 percent and after Axene Health Partners found that Anthem violated state law with one of its plans by spending less than 70 percent of premium revenue on medical claims.

Axene also found that Anthem had incorrectly calculated rates, leading it to revise the increases, as reported by the Los Angeles Times. Blue Shield wants to increase premiums 18 percent for its 240,000 policyholders in the individual market, while Aetna desires a 19 percent increase for its 65,000. Gerald Kominski, associate director of the UCLA Center for Health Policy Research, said to the LA Times that “[h]aving to justify the actuarial basis for these rates puts the burden of proof back on the insurer.”

With the Patient Protection and Affordable Care Act’s establishment of state health exchanges, the regulation of premiums will only continue at a higher rate, both federally and at the state level. The U.S. secretary of Health and Human Services now has the duty of implementing a “process for the annual review … of unreasonable increases in premiums for health insurance coverage.” The secretary will define “unreasonable” as he or she sees fit. These measures attempt to confront the climbing costs of health care in the United States, which many decry as excessive at 16 percent of GDP.

Insurance companies are scrambling to raise revenue before the upcoming implementation of the first policies of the PPACA. After September 2010, every adult child can remain a dependent until age 26, and insurance companies cannot place any lifetime claim limits on enrollees. Some California insurers, such as Blue Shield of California, recently raised their premiums for businesses 58 percent to 75 percent. Tom Epstein, vice president of Public Affairs for Blue Shield, said that the company had to raise rates when it “failed to accurately predict” how the recession would affect the insurance market.

Current policies attempting to equalize insurance market access threaten revenue intakes of insurance companies before enforcement of the individual mandate begins in 2014. Companies will also have to spend 80 percent to 85 percent of all premiums on medical losses, as a consequence of the medical loss ratio requirement in the act. As a response to industry premium raises, the government is attempting to control prices, and will continue to do so especially after 2014, with the creation of the American Health Benefit Exchanges.

Massachussetts is the only state to pass a health care reform law similar to the recently-approved federal bill. Premium prices and rate increases, though frequently monitored by the Division of Insurance, continue to rise quickly. During April, the division rejected all premium increases for companies within the Health Connector, except for CeltiCare. To obey the ruling, the businesses had to withdraw their plans and release them again with lower premium rates. A consultant from InsureBlog explained that “[t]he idea of the exchange is to promote competition and introduce lower cost plans. The truth is, there will be fewer plans, less competition and higher premiums. A few states already have their own version of Obamacare and in each of those states there are only a handful of carriers offering a handful of plans and premiums in those states are outrageously high.”

For a 40-year old in Boston, a Silver Plan offers a $1,000 deductible with annual premiums ranging from $4,048 to $5,949. According to a study by The Cato Institute, the 2006 law, known as “Chapter 58,” decreased non-group premiums, which comprise only 4 percent of the private market. Employer-sponsored insurance premiums, however, increased 21 percent to 46 percent over roughly the same period studied, since 2007. As that occurred, the government simultaneously crowded out the private market for lower-income consumers.

According to the study “The Massachusetts Health Plan: Much Pain, Little Gain,” “private insurance coverage fell among certain income groups in Massachusetts relative to other New England states … Private coverage rose for adults overall, but fell by 6.2 percentage points among adults below 150 percent of poverty level.” As the state implemented its employer and individual mandate, it affected group markets negatively, while possibly eliminating private plans for the poor.

California faces somewhat lower average prices from some of its top insurers. For example, Blue Shield of California offers a $900 deductible plan with an annual premium of $1,860 that includes a generic drug plan for 40-year old individual men. Based on longer-term patterns in Massachusetts, it seems that premiums will continue to rise as a result of the passage of the PPACA. In the short term, consumers in California and elsewhere can expect more health insurance companies to hike, or attempt to hike, premiums in advance of implementation of federal health care legislation.