The 39% rate increase that some CA Anthem Blue Cross Blue Shield individual policy holders will see later this year has been the subject of much political debate this month. The Obama administration has used it to drum up more support for the floundering health care reform bills, and HHS Secretary Sebelius has ordered a federal inquiry. Wellpoint has maintained that the rate increases are justified given the claims expenses they incur in the individual market (the premium increases in question are only on individual/family plans, not group coverage).
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.