Health Insurers Inadvertently Make The Case For Health Care Reform

Our guest blogger is Emma Sandoe, a Health Care Researcher at the Center for American Progress Action Fund.

America's Health Insurance Plans President Karen Ignani

America's Health Insurance Plans President Karen Ignani

Today, Department of Health and Human Services Secretary Kathleen Sebelius released a report that shows premiums in the individual market are expected to skyrocket in Connecticut, Maine, Michigan, Oregon, Rhode Island and Washington. This report comes on the heels of the widely-reported Anthem Blue Cross premiums increase of 39 percent in California.

Responding to this report, Karen Ignagni of the America’s Health Insurance Plans (AHIP) released a statement joining the growing argument that “health insurance premiums are increasing in the individual market because of soaring medical costs and because younger and healthier people are dropping their coverage due to the economy.” This is known as adverse selection and leads to higher cost for the remaining covered individuals.

Ignagni’s insistence that the premium increases are a result of the recession is a compelling argument for health insurance reform, especially in the individual insurance market. Health reform is needed in any economic climate, and the recession only shines some light on the already existing instability of the market.

Health reform will help prevent premium increases during a recession by creating a stable, well-regulated insurance market within the health insurance exchange. First, the market will not be overwhelmed by sicker individuals because exchange will have a broader, healthier risk pool. The individual insurance requirement ensures that healthier individuals have the responsibility of paying for reform, which will lower costs for all individuals.

Under reform, premiums will likely be more affordable and stable. During times of economic decline, many individuals will qualify for federal subsidies to help pay for coverage. This will prevent healthier individuals from dropping their health coverage when facing financial hardship, which in turn, keeps everyone’s premiums stable.

According to the Congressional Budget Office, health care reform should also lower premiums for a good number of Americans. The design of the exchange does this by creating competition within the marketplace, whereas currently “more than 94 percent of insurance markets in the United States are highly concentrated. ”

Finally, as Kathleen Sebelius noted today, under reform insurers will have to report spending and the premiums they receive from individuals. If the administrative costs and profits exceed the Medical Loss Ratio limit, premium dollars will have to be reimbursed to the consumer. So the insurer’s claim of higher health costs would be verified, before they were passed on to consumers.

The administration responded to Ignagni’s claim by insisting that the insurers “want to defeat reform.” Instead, the insurers have laid out the clearest case to date: the recession demands that reform occur.