Colorado will get $1 million to use for more extensive review of future rate increases, and the Division of Insurance has proposed hiring more analysts and actuaries to examine the data that is filed each year by the insurance carriers.  The rate proposals will get more scrutiny, which is a good protective measure for consumers.  But insureds could still see hefty rate increases thanks to the ever-increasing cost of health care.  In CA, after months of review, regulators still approved a double digit rate increase for Wellpoint policies (14% average, with individual increases as high as 20%).  If the cost of health care continues to increase at its current pace, health insurance premiums will also continue to climb.  A more thorough review of the extensive data involved in determining health insurance premiums makes sense, but without significant measures to cut the cost of health care, those reviews may find that there is no way around raising premiums year after year, often by noteworthy amounts.

The text of the bill is relatively clear on some of the specifics:   It states that all group and individual health insurance policies…

“…shall insure against the expense of normal pregnancy and childbirth or provide coverage for maternity care therefor and provide coverage for contraception in the same manner as any other sickness, injury, disease, or condition is otherwise covered under the policy or contract.”

I would take that to mean that the policy out-of-pocket costs in terms of deductible, coinsurance, hospital and doctor copays, etc. would have to be met by the patient, and the rest of the costs would be covered by the insurance carrier.

The bill also states that individual policies (but not group policies) are still allowed to exclude pregnancy as a pre-existing condition:

“Individual sickness and accident insurance policies or contracts may exclude coverage for pregnancy and delivery expenses on the grounds that pregnancy was a preexisting condition.  The exclusion for the pregnancy as a preexisting condition under the policy or contract shall not apply for any subsequent pregnancies.”

But does that mean that the insurance carriers have to accept pregnant women and just exclude the pregnancy and delivery from the coverage?  Currently, no individual health insurance carrier in Colorado (or most other states) will accept any expectant parent (mother or father) at all until after the baby is born.  The pregnancy is considered a pre-existing condition, and because new babies can be added to either parent’s existing policy in the month following birth with no underwriting, health insurance carriers have all opted to deem pregnancy as an automatic decline.  As of 2014, this will no longer be the case, but I have heard nothing indicating that there will be any changes to the universal underwriting guideline that states that an expectant parent cannot get a new individual health insurance policy.

In terms of what policies will be affected, the bill states that the new requirements wills apply to policies “issued or renewed on or after the effective date of this act.”  (January 1, 2011).  My interpretation of that would be that new policies issued beginning January 1, 2011 will include maternity coverage, and that as existing policies renew throughout the year, maternity will be added to them.  So for example, the policy that Jay and I have for our family renews each year on November 1.  So I would assume that for the first 10 months of 2011 we will continue to not have maternity coverage, but then as of our renewal date in 2011, maternity will be added to our plan.

Of course my guesses in terms of how this will all work are just that – guesses.  And I have not been able to find anyone who has more concrete details at this point.  We still have several months left in 2009 for regulators and insurance companies to work out the details, and I’m sure we’ll know more by the end of the year.  When you combine this with the new Colorado law banning gender rating on health insurance policies, and the myriad of reforms coming from the federal government, I’d say that health insurance regulators in Denver are going to have their hands full for a while.

I mentioned yesterday that the executive director of the Colorado Consumer Health Initiative, Dede de Percin, pointed out that the recent double digit rate increases submitted for review by Anthem Blue Cross Blue Shield were likely justified, based on the 12% increase in the cost of care for insureds.  I see a lot of connections between that 12% increase in the cost of care and the excessive fear of disease that Maggie Mahar is talking about.  Is it our fear of diseases like cancer that is driving the huge increase in medical costs?  Are the extra costs from one year to the next driven by increasing costs for existing treatments, or by additional treatments and testing that weren’t being done in the prior years?

In order to control health care costs (which is the only way that we’ll ultimately control health insurance premiums), we need to look closely at whether all of the care we’re paying for is really improving the overall health of the American people.  An AARP article notes that prostate cancer is treated more aggressively here in the US than it is in the UK, and yet our  mortality rates are about the same (that article has a lot of interesting details about health care costs in the US, and is well worth a read).

We’ve definitely got a “more is better” attitude when it comes to health care.  If we go to the doctor with an ache or pain, we somehow feel better if the doctor orders a battery of tests to rule out a range of possibilities.  And if a health insurance company is paying for those tests, why not?  The problem is that health insurance companies are paying for care with premium dollars collected from insureds, and as costs go up, so do premiums.  Until we shift our attitude to a “less is more” mentality, we’re going to continue to see an increase in the cost of care, and subsequently in the cost of health insurance.  But it’s not just about money.  Articles like Maggie’s should give us a reason to question excessive screening and testing, simply from a standpoint of having a better quality of life.  The fact that it could drive down health care costs is a bonus.

Many thanks to Jason Shafrin, who hosted this week’s Health Wonk Review, where Maggie’s article was published.

The executive director of the Colorado Consumer Health Initiative, Dede de Percin, noted that “This rate hike sounds outrageous and it is outrageous but it’s probably not a case of gouging. That’s the thing. That’s the real story. The rising cost of health care.”  She also explained that last year, the actual increase in expenses for health insurance carriers in terms of money spent to pay members’ medical claims, increase by 12%.  As long as we continue to have double digit increases in the cost of claims, double digit increases in premiums are pretty much unavoidable.  Consumers express outrage over the large premium increases rather than the increases in the cost of care, simply because they generally aren’t aware of the increases in the cost of care.  But there is no feasible way to bring down the cost of health insurance without addressing the cost of care.

As I noted last month, while Anthem’s rate increase for 2010 was a big one, their premiums are still very much in line with premiums currently being charged by other individual health insurance carriers in Colorado.  My guess is that de Percin’s take on this is probably correct: “… it is outrageous but it’s probably not a case of gouging.”

For students who are graduating in May and June, this will be a huge help.  Technically, under the new law, graduating students in a lot of states could still have been dropped from their parents’ policies upon graduation, and would have had to find their own health insurance or go uninsured until September.

The health insurance companies are still collecting premiums for these young adults, via their parents’ policies.  But for families with group health insurance who have more than one child, the premiums are likely the same regardless of how many children are on the policy.  So a family with younger children who continues to keep an older child on their policy until age 26 is essentially getting “free” health insurance for that older child, since they would be paying the family premiums anyway, in order to insure their younger children.  In addition, continuation of family coverage is an excellent option for young adults with pre-existing conditions.  If they are not able to secure jobs that offer group health insurance benefits, they would have to apply for individual health insurance, and the pre-existing conditions would continue to be an issue until 2014.

Wellpoint, which operates Anthem Blue Cross Blue Shield here in Colorado, Humana, and United Healthcare are three of our most popular health insurance carriers, and we’re glad to see them stepping up and going beyond the letter of the law.  Hopefully other health insurance carriers will follow suit and as many young adults as possible will be able to remain covered on their parents’ policies this summer.

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.