Anthem charges the same premiums regardless of whether a policy is new or has been in force for several years.  A 40 year old, healthy, non-smoking male who purchases a policy this month will be paying the same premiums as a 40 year old healthy non-smoking male who has had an Anthem policy for ten years, assuming they both live in the same zip code and have the same type of policy.  Because of this, it’s relatively easy to compare Anthem’s rates – even after rate increases go into effect – with those of other carriers in Colorado.  The rates being offered to new Anthem clients include the rate increases that went into effect in January.

To get an idea of how Anthem’s prices compare with other carriers, I got quotes for a family of three, living in the Denver metro area, for a high deductible, HSA-qualified policy with 100% coverage after the deductible.  These plans are relatively easy to compare, as they tend to be quite similar from one company to another.  I looked for policies with a $5000 or $6000 family deductible (most companies offer one or the other, but not usually both), or something in the middle of that range if neither exact number was available.

Here’s what I found, from several of the top carriers in the Colorado individual market:

• Cigna = $325 (for a $6000 deductible)
• Anthem Blue Cross = $377 (for a $5000 deductible)
• Humana = $402 (for a $5000 deductible
• Kaiser = $441 (for a $6000 deductible)
• Assurant/Time = $449 (for a $5700 deductible)
• United HealthOne (Golden Rule) = $461 (for a $5800 deductible
• Aetna = $481 (for a $6000 deductible)

Obviously this isn’t comprehensive data.  I only got quotes for one family, using a single zipcode.  Factors like pre-existing conditions, tobacco use, zipcode, and plan design all have an influence on premiums.  But these numbers would seem to indicate that while Anthem’s rate increase may have been large, it seems to be in line with what other carriers are charging in Colorado.  For the little test I conducted, Anthem’s premium was the second-lowest I found, and the only one with a lower premium had an additional thousand dollars in out of pocket exposure.

I’ll be curious to see what the Division of Insurance comes up with when they re-evaluate Anthem’s 2010 rates.  My guess would be that they will approve the rates.  If they don’t, it would stand to reason that they will have to also re-evaluate the most recent rate increases for all of the other carriers in Colorado too.

Wellpoint has been roundly criticized for the proposed rate increases for CA insureds with individual coverage.  The whole situation begs the question: why would they do this if they didn’t have to?  I have to assume that the premiums on their policies will still be in the same ballpark as policies offered by other carriers, even after the rate increases.  Health insurance companies have to compete with each other just as any other private business does.  And for the majority of customers, price is the primary concern.  If a health insurance company sets prices that are dramatically higher than those offered by their competitors, they will quickly find themselves insuring only their current members who are too sick to be accepted by a new carrier, and whose medical expenses are likely outstripping their premiums, even after the rate increases.

In Colorado, we routinely see annual rate increases that vary from 10% to more than 30%.  They’re spread out across all of the major carriers, and over time their prices tend to keep pace with each other.  A company that has a relatively small rate increase one year will likely have a bigger one the next year.  A company with the most competitively priced policy one year is likely to be less competitive the next year.  And people shop around; many of our clients ask us to revisit their policy options every few years.

I will be interested to see more on the Wellpoint story as the rate increases are investigated this spring, but I imagine that it’s not a simple problem or one that has a simple solution.  It’s true that Wellpoint is in business to make money.  But a dramatic, highly publicized rate increase is bad for business, and it’s hard to explain it away as a company simply trying to raise profits.

Jaan’s article was included in the Cavalcade of Risk this week, hosted by David Williams at the Health Business Blog.

The recent debate over the Wellpoint premium increases should be a warning sign that premiums will not be controllable unless we add more healthy people to the insurance pool.  When I read through the President’s proposal, I see lots of things that will be beneficial to the average insured person – especially those of us who buy our own health insurance on the individual market.  No more denials because of pre-existing conditions, no annual or lifetime benefit caps, and plenty of tax subsidies for a lot of families.  But the mandate requiring everyone to carry coverage is still very weak.  I guess it makes sense that it isn’t dramatically changed, given that the President’s proposal is a compromise between the House and Senate bills, but it’s still disappointing.

In the President’s compromise, the annual flat dollar penalty for those who can afford health insurance but choose not to carry it would start at $325 in 2014, and go up to $695 in 2016 (indexed thereafter for inflation).  The alternative penalty (people would be charged whichever amount is higher) is based on an percentage of income, and would start at 1% in 2014 and go up to 2.5% in 2016.  To Obama’s credit, the percentage of income penalty in his proposal is significantly greater than what was proposed in the Senate bill (0.5% in 2014, going up to 2% in 2016).  But I just don’t think this is going to get the job done.

Let’s look at the average American family earning $50,000 a year.  Let’s say they choose not to carry health insurance.  1% of their income would result in a penalty of $500 in 2014.  By 2016, that penalty would equal $1250.  My own family has a “bare bones” health insurance policy that will cost us about $4000 in premiums this year.  We have a high deductible ($5000) HSA qualified plan, and other than some preventive care, all of our expenses go towards our deductible (although we do get some great network-negotiated rates).  It would be tough to find a less expensive policy (in Colorado anyway) without significantly increasing our out of pocket exposure or ending up with lots of holes in our coverage.  So even with a high deductible policy, our premiums are eight times as much as the penalty that would be assessed against the average family for not carrying health insurance, in the first year of the program.

If people know that they won’t be penalized for pre-existing conditions and that health insurance companies will have to accept everyone, a penalty that is just a tiny fraction of the cost of coverage might be the preferred option for a lot of people.  And without a large pool of healthy insureds, I just don’t see a way that premiums won’t increase significantly.  I’m keeping an open mind, but I’m skeptical that we’ll be able to provide all of the proposed consumer benefits with such a lax enforcement of mandatory health insurance.

Last fall, I wrote an article about what happens when health insurance is guaranteed issue but people are not required to maintain coverage.  The large premium increases that Wellpoint is proposing are a good example of what happens when young, healthy people have the option to be uninsured.  The recession has crunched budgets for families all over the country.  For people who are healthy, health insurance might have been one of the first things to go.  People who are sick and currently in need of care will go to much greater lengths to keep their coverage.  And thus begins the vicious cycle.  As more healthy people drop their coverage, there is less money to pay claims for people who are sick.  So premiums increase, leading to more healthy people opting to go uninsured.  The 25% – 39% rate increases happened because healthy people dropped their coverage… but there isn’t yet a guaranteed issue mandate requiring all applicants to be accepted.  Imagine how much worse the rate increase would be if that were the case.

Group health insurance premiums increase every year too, but not as quickly as individual policy premiums.  Group plans are partially (sometimes completely) funded by the employer.  Premiums are automatically deducted from paychecks, and the whole process is somewhat out of the employees’ hands.  There just isn’t as much incentive for a healthy employee on a group plan to go without health insurance as there is for a person who buys her own health insurance.  People who buy their own health insurance must pay the whole bill, every month.   When it’s time for their rate increase, there’s no employer shouldering part of the burden.  The option to continue or drop coverage is there every month when it’s time to pay the premium… and if it comes to a decision between the rent or the health insurance, it’s easy to understand how a healthy person might opt to go uninsured.

Eye-popping premium increases will absolutely become the norm if we end up with a system that requires all health insurance policies to be guaranteed issue, without a strong, enforceable measure requiring everyone to be part of the health insurance pool.

Another issue in this debate is how much health insurance premiums can vary from one employee to the next, working at the same company, and with the exact same coverage.  To get an idea of the discrepancies, I calculated a quote for a small group policy with Anthem Blue Cross Blue Shield (which has very competitive premiums in the Colorado market) for a hypothetical company based in Denver with six employees.  I looked at premiums for single employees as well as employees with families, and used a wide range of ages for the employees.  While Anthem has a wide range of plan designs available, I specifically looked at premiums for a policy with a $500 deductible and 30% coinsurance, with an out of pocket maximum of $3500 in addition to the deductible ($4000 in out of pocket exposure each year).  The policy I looked at only covered generic prescriptions, and did not include any dental, vision, life insurance, or disability coverage.  In other words, it had no bells and whistles and wasn’t even close to what most people would consider a “Cadillac” plan.

For a single, 21 year old employee, this policy would cost $3144/year, well below the threshold for the Cadillac tax.  But a 60 year old single employee with the same policy would be paying $15528/year (the employer would likely be paying a good portion of each employee’s premium, but the tax is calculated based on the total premium, not the portion that is paid by the employee).  This would mean that $7028 of the 60 year old’s premium would be taxed – at 40%.

For families, the disparity in premiums is similar.  Family coverage for a 24 year old at our hypothetical company would cost $13860/year – quite a bit under the threshold for the tax.  But family coverage for a 62 year old would be $34,056/year, and $11056 of that would be taxed (the portion that is over the $23,000 premium limit).

Taxing expensive health insurance policies is an idea with its heart in the right place.  Making individuals and employers more aware of the cost and value of their health insurance policies is a good start towards real comparison shopping.  But setting a flat dollar amount above which a plan will be taxed seems ill-advised.  It doesn’t really do a good job of weeding out health insurance plans that truly have too many bells and whistles, and it wrongly penalizes people who live in areas where health care costs are higher than average, or companies with a disproportionate number of older workers.

Joe Paduda’s article was included in the Health Wonk Review, hosted this week by Jaan Sidorov of the Disease Management Care Blog.

His website has a summary of reforms that are included in the bill the Senate passed last month.  The removal of lifetime limits on health insurance benefits reminds me of Nathan Wilkes and his family, for whom this legislation can’t come soon enough.  The standardization of benefit explanations and medical bills will benefit just about everyone, since wading through paperwork is rarely considered fun.  The removal of pre-existing condition limitations will mean that more people can take the leap into self-employment without being tied to a group health insurance policy (of course, in order for guaranteed issue coverage to really work, everyone has to be in the health insurance pool, not just sick people).

But I’m a bit hung up on item number 7.  Free preventive care – no copays for screenings, check-ups, and vaccinations.  Sounds good, but we all know that nothing is free.  The fees for the services will still be there, we just won’t be paying them at the time of service.  Perhaps premiums will increase to cover more preventive care.  Perhaps taxes will increase so that the government can subsidize care.  Maybe fees for other services will increase in order to offset the cost of preventive care.  However they get around it, we’ll still be paying for it.  My concern is that if all policies have cover preventive care with no copays, that limits choice and flexibility for people who would rather pay lower premiums for their health insurance and pay for their own preventive care (via an HSA or other personal funds).  And what would count as preventive care?

We have sometimes had clients who prefer to pay additional premiums in order to get a health insurance policy with good preventive care.  For them, there are policies in the individual market (like the Anthem Blue Cross Blue Shield Lumenos HSA) that offer great preventive care.  But other clients prefer to have lower premiums and pay for their own preventive care on an as-needed basis, or to utilize services like the 9Health Fair.  Flexibility and options are a major advantage of individual health insurance, but I’m concerned that by mandating preventive care benefits with no copay on all policies, premiums will rise to offset the cost.

In Colorado, a similar law took effect last week, requiring health insurance companies to cover various preventive care at the level of the policy co-insurance.  It will be interesting to see how this law impacts both premium and health in Colorado over the next few years.  Will more people seek out preventive care?  Will we be healthier as a result?  Will our health insurance premiums increase even more than they already do?  We’ll have to wait and see.

In reality, I imagine that such a scenario would actually make our health insurance industry look a lot like our credit card industry.  Where does your credit card payment go? Chances are, it’s not to the state where you live.  In 1978, the Supreme Court ruled that nationally chartered banks only have to abide by the laws in the state where they are incorporated, not in all the states where they conduct business.  This made states without caps on interest rates a favorite incorporation spot for credit card companies – and of course the increased tax revenue meant that the states in question had little motivation to limit the amount of interest a bank could charge.

Most individual state insurance commissioners have fought hard to win consumer protections and regulate how insurance companies do business, but the extent of those protections varies tremendously from one state to another.  Health insurance companies – like most businesses – are focused on the bottom line (as publicly traded companies, they have to be).  If the opportunity arises for them to set up shop in one state and do business in all states, it would be financially foolish of them to pass on that opportunity.  And chances are, the states with the most lenient regulations and the fewest consumer protections would be the favored incorporation spots for health insurance carriers.  States that don’t have high risk pools (and thus don’t charge their insurance carriers a fee to maintain the risk pool) would likely be popular, as would states that have few benefit mandates.

I’m not opposed to the idea of health insurance companies that could operate on a national basis, allowing people to keep their health insurance if they move to another state.  As an example, there are Blue Cross Blue Shield plans in all 50 states, but if one of our Anthem clients moves out of Colorado, she must apply for a new plan in her new state under current regulations.  That is frustrating for the insured, especially if she likes her current plan design or if she has developed a health condition that will make going through new underwriting a difficult process.   It does make sense to allow people to keep their health insurance plans if they move out of state but to an area where they still have good network coverage.  But such a plan would have to be overseen by federal – rather than state – regulations.  Simply opening things up to allowing health insurance companies to base themselves in any state they choose, operate under that state’s laws, and sell health insurance in all states, would take us to the lowest common denominator in terms of consumer protections.

For me, the most compelling argument for a mandate comes from looking at the states that have already enacted guaranteed issue health insurance without requiring everyone to maintain coverage.  The premiums in those states are dramatically higher than premiums in states like Colorado where health insurance is medically underwritten.

I do understand the frustration voiced by people who are saying that they don’t want a mandate because it will amount to putting money into the health insurance industry pockets.  They don’t want to be forced to give their money to a private business, which is especially understandable after all that the nation has gone through over the last year with the banking industry bailouts and the mortgage meltdowns.  An intrinsic part of being American is that we value our freedoms.  And Americans as a group tend to scoff at the idea of the government getting involved with the nitty gritty details of our lives.

But health care reform is different.  Americans overwhelmingly support the idea of guaranteed issue health insurance.  They want the government to get involved on that front, and require that the health insurance carriers provide coverage to all applicants.  This was an idea that was easy for lawmakers to get behind, simply because there was so much support from the public.

When it came to the mandate, however, things got a little stickier.  I believe that lawmakers understood that allowing people to purchase health insurance without medical underwriting, while also allowing them to choose whether or not to obtain coverage, would amount to much higher premiums for the people who choose to have coverage.  Initially they drafted a reasonably strong mandate, but caved in to criticism and weakened the mandate to the point where the fine for not carrying health insurance will only amount to a fraction of the cost of buying a policy.  I think this stemmed from the fact that the idea of a mandate was nowhere near as popular with the American people as the idea of guaranteed issue health insurance.

I often hear people talking about how the government has no right to interfere in their lives and force them to carry health insurance.  And yet many of those same people think that it’s perfectly acceptable for the government to interfere with private business and force the health insurance industry to accept all applicants regardless of health history.

We can’t have it both ways.   We can either continue with a “free market” health insurance system that allows carriers to use medical underwriting and also allows individuals to opt in or out of the health insurance system as they please… or we can move to a system that insures everyone, thus spreading the cost to care for the sick across the entire population (and it’s useful to keep in mind here that none of us really knows when we might be counted among the sick).  But to think that we can have a system that allows sick people to obtain care with reasonable premiums while not collecting any premiums at all from healthy people who opt out, won’t be feasible.

Insurance carriers in Colorado were strongly opposed to HB1355.  The majority of small businesses in Colorado were receiving a discount on premiums based on health status, which HB1355 forbids.  Insurers knew that businesses that were already struggling to pay premiums at a reduced rate might decide to forgo health insurance for their employees after the discount was eliminated.  This is especially true for the most healthy groups, whose members can find health insurance within the medically underwritten (and less expensive) individual market.  Of course the removal of healthy groups from the pool of insureds only serves to drive premiums even higher for the sicker groups who remain insured under the group plans.  It’s true that groups can no longer be rated higher than the base rate because of the specific health of the group, but the base rate can – and likely will – continue to rise.

Critics are questioning why insurers keep bringing up HB1355, as the trend in national health care reform these days is towards guaranteed issue health insurance without underwriting – which is what HB 1355 was all about.  But while HB1355 was beneficial to groups with unhealthy members, the majority of small groups in Colorado had a discount before HB1355 took effect.  And if those groups are unable to afford their new, higher rates, they can opt to cancel their coverage – which leads to higher prices for groups that remain covered.  On a national level, as far as individual health insurance is concerned, HB1355 should be considered a warning sign.  Getting rid of medical underwriting is the right, and fair, thing to do.  But not if people can come and go as they please in the insurance system.  We’ve seen what the impact will be on premiums if guaranteed issue coverage takes effect without a strong mandate requiring people to carry health insurance.  I think this is why insurers are still bringing up HB1355.  It’s impacting all small groups in Colorado now – there’s no more putting it off.  And significant rate hikes for healthy groups should serve as a warning for what we’ll likely see in the individual market if reform passes without a way to make sure that everyone is part of the insurance pool.

Wellpoint actuaries – the people who are responsible for setting premiums – have crunched the numbers and come up with their best estimates as to how premiums would be impacted in the 14 states where Wellpoint operates.  Colorado is one of those states, and for the first time we’re able to see a detailed analysis of what would likely happen to premiums for people here, both the old and the young, the sick and the healthy.  All health insurance providers operating in Colorado have to follow the same rules as far as state mandates and regulations, and they all have to compete with each other.  So it’s reasonable to assume that the data is also indicative of what would happen to premiums on policies offered by most of the health insurance carriers in Colorado.

With the current proposed legislation, it looks like we would see a huge premium increase for young, healthy people in the individual market in Colorado (about 140%).  For average age policyholders in average health, premiums would likely increase by 52%.  Older, sicker individuals would get a break though, and would see a premium decrease of about 22%.

The bulk of the increase in premiums stems from the fact that the requirement that everyone carry health insurance has been greatly eroded over the last several weeks.  If the penalty for not having health insurance is dramatically less than the cost of coverage, it makes sense that healthy people who are trying to save money might opt for the penalty instead of the premiums.  And if health insurance is guaranteed issue anyway, why wouldn’t they?  If they started to feel sick, they could sign up for health insurance at that point, knowing that their pre-existing conditions would be covered.  The obvious result would be ever-increasing loss ratios for health insurance companies, followed by even higher premiums to try to make up the difference.  Higher premiums would mean more healthy people – who otherwise would still like to have health insurance coverage – being forced to drop their policies.  There is no possible way that guaranteed issue health insurance is sustainable unless everyone is required to be in the health insurance system.

The penalty for opting to not carry health insurance is currently proposed to start at $200/year in 2014, and would gradually increase to $750/year in 2017.  This is not even close to what health insurance actually costs, which means that people who are healthy might very well choose to pay the penalty rather than buy health insurance.   Another problem with the proposed method for enforcing the mandate is that is would work via the tax system.  That leaves millions of Americans – those who don’t file taxes, or who have no tax liability – outside of the mandate-enforcement system.  If we truly want to make sure that all Americans are insured, we need to have a better way of enforcing the mandate.  We need penalties that are approximately equal to the cost of premiums, an enforcement system that is more broad than the IRS (perhaps a combination of schools, the DMV, hospitals and clinics, and any government office), and increased subsidies for lower income families.

Health insurance for everyone, regardless of pre-existing conditions, is possible.  But it’s not possible if the system is essentially set up to encourage only unhealthy people to buy health insurance.  Insurance works by spreading risk.  We need to make sure that young, healthy people are paying into the insurance pool in order to offset the claims made by older, sicker individuals.  Without a strong, widely enforced mandate, guaranteed issue health insurance isn’t a  sustainable proposal.