The Fallacy Of Insurers Hiking Premiums And Blaming It On The Health Care Law

Despite record profits, CEO pay increases, and ever decreasing medical loss ratio metrics, health insurers around the country are planning on increasing premiums in the small and individual health insurance markets — and they’re pinning the blame on five-month-old health care reform law. The Wall Street Journal’s Janet Adamy has the story:

Many carriers also are seeking additional rate increases that they say they need to cover rising medical costs. As a result, some consumers could face total premium increases of more than 20%. […]

Weeks before the election, insurance companies began telling state regulators it is those very provisions that are forcing them to increase their rates.

Aetna, one of the nation’s largest health insurers, said the extra benefits forced it to seek rate increases for new individual plans of 5.4% to 7.4% in California and 5.5% to 6.8% in Nevada after Sept. 23. Similar steps are planned across the country, according to Aetna.

Regence BlueCross BlueShield of Oregon said the cost of providing additional benefits under the health law will account on average for 3.4 percentage points of a 17.1% premium rise for a small-employer health plan. It asked regulators last month to approve the increase.

In Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates.



While there may be some justification in raising rates in response to rising health care inflation (estimated to be 3.2% in 2010), substantiating an increase that comes in the context of record profits and a long history of issuers fudging the numbers to extract maximum increases is difficult. Pinning the increases on the new regulations is just absurd, particularly since the actuaries have estimated that the new policies would only slightly raise premiums by 1 to 2 percentage points. Here is the Urban Institute’s Linda Blumberg:

Those policies that did not include lifetime or annual limits prior to reform should see no premium impact of these provisions. For plans with lifetime maximums of $2 million or higher, removing the limits entirely will tend to increase premiums by less than 1 percent (with the small group impact being smaller than non-group). And according to America’s Health Insurance Plans, the vast majority of individual market plans have limits of $5 million and above, making it highly unlikely that this change will cause a noticeable impact on non-group premiums. Because small group plans tend to be more comprehensive than non-group plans, a measurable impact in that sector of the market is even less likely. […]

The prohibitions against pre-existing condition exclusion periods for children, including denials of coverage due to such conditions, should have little to no impact in the small group market, which already is required to guarantee issue policies. The federal agencies estimate the effect to be negligible in the group market. Again, the provision will decrease out-of-pocket costs for those who would have had care excluded from reimbursement without the reform. […]

Estimates of the group premium effect of extending coverage for young adults on parents’ policies are provided in another of the Obama administration’s interim final rules. The effect of this provision can be expected to be small in the group market as well, with estimates ranging from .5 to 1.2 percent of premiums, depending upon the participation assumptions made. With regard to non-group coverage, similar issues arise as detailed for the pre-existing condition exclusion period for children. Carriers are expected to charge the specific families enrolling high-cost young adults in non-group plans significantly higher premiums than similar families with healthier adult children, then there will be little to no impact on the general population of insureds.

Any increases above that amount should at the very least trigger regulatory review. After all, it was just four months ago that independent analysts in California discovered that WellPoint “overstated future medical costs” to justify its 39% premium increases in the individual health market and committed numerous other methodological errors.

Insurers are right to argue that rising health care costs are the primary driver of health insurance costs, but in many markets, should do more than hide behind providers. Issuers must their own leverage to negotiate with hospitals and doctors for lower price, instead of simply passing along increasing costs to beneficiaries. But what’s happening now is an industry effort to maximize profits before the marketplace is substantially reformed in 2014. It’s a situation that screams out for a more robust rate review process — something the administration is trying to encourage through state grants.