Not long after 2010 got underway, Anthem Blue Cross created high anxiety among consumers in California’s individual health insurance market by announcing steep rate increases averaging 25 and as high as 39 percent effective March 1. After the California Department of Insurance asked Anthem to run its numbers again, the insurer said it found mathematical errors in its actuarial projections and would refile corrected rates later this year.
Since individuals lack the bargaining power of employers, they tend to get the biggest rate hikes since insurers can essentially offer them on a take it or leave it basis. Small employers with fewer than 50 employees by contrast have at least some negotiating leverage with insurers compared to individuals. But not much more. They offer next path of least resistance for payers to pass on rising medical costs.
And so come double digit rate increases for them, not just from Anthem Blue Cross but also from all of Anthem’s major competitors who along with Anthem make up about 90 percent of the state’s private health insurance market. A Los Angeles Times survey released May 26 found major insurers in California’s small-business market are raising rates 12 to 23 percent in the small group market. Not surprisingly, the increases are producing protests from those small employers who have thus far managed to ride out the recession and remain in business. Some warn the rate hikes will force them to curtail hiring or even close.
The small group market is the bleeding edge of the breakdown of employer-paid health insurance model upon which most working age Americans rely for health coverage. These rate increases will likely prompt more small businesses to cease providing health insurance for their workers, forcing those employees into the already distressed individual market.
Many of those workers will find they cannot qualify for or afford individual coverage, boosting the number of medically uninsured Californians and creating political pressure for more immediate reforms than those contained in the recently enacted federal Patient Protection and Affordability Act. The problem for policymakers is no amount of reform of the insurance mechanism that pays medical treatment and pharmaceutical costs can provide relief as long as those costs keep rising far in excess of the rate of inflation.
The Patient Protection and Affordable Care Act’s Interim High Risk Pool — aimed at making medical coverage available at standard market rates for those with preexisting medical conditions until insurers and health plans are required to accept all applicants regardless of preexisting conditions in 2014 — will likely run out of money before then.
That’s the conclusion of a recently issued paper by the National Institute for Health Care Reform. The paper warns that while 5.6 million to 7 million Americans may qualify for the pool, the $5 billion the Act allocated may be enough to cover only 200,000 people a year. “Policy makers will need to tailor eligibility rules, benefits and premiums to stretch the dollars as far as possible,” the paper recommends.
There are multiple factors that could affect demand for the $5 billion set aside to subsidize Interim High Risk Pool coverage as well as cover administrative costs of operating the pool. Individual market premium rates are trending upward so even the standard rates required to be charged those in the pool (insurers charge nonstandard, surcharged premium rates to individuals with certain controlled preexisting conditions) could as this blog previously noted end up roughly equal to current nonstandard rates. In a struggling economy, those higher premiums would reduce the incentive for people to sign up for coverage.
The other unknown is how the states ultimately implement the Interim High Risk Pool and how the 35 states that have high risk pools in place coordinate (or don’t) their pool rules with those of the new, temporary federal program. Some states have already indicated they will be opting out of the federal program, which means the feds will designate a nonprofit organization in those states to administer the Interim High Risk Pool there.
In those states as well as states that have indicated they intend to integrate their high risk pools with the federal program, there could be disparities between the new pool and existing state high risk pools that could create incentives for individuals to go uninsured (individuals must be uninsured for at least six months to qualify for coverage via the Interim High Risk Pool) in order to obtain more generous, lower cost coverage than their state high risk pools offer. That would accelerate the drawdown of the $5 billion set aside for the program.
The state Legislative Analyst’s Office has issued a report on how the Patient Protection and Affordable Care Act will affect California, which decades ago was the birthplace of the notion that a superior health care payment scheme is prepaid health maintenance rather than post-care health insurance. The Golden State and more specifically Kaiser Permanente pioneered the health maintenance organization (HMO) as an alternative to indemnity “major medical” insurance designed to cover hospitalizations and other major unforseen health care costs.
The rapid rise in health care costs over the past decade has turned the principle that preventative care costs less than “insured” care on its head. Since about 2003, California HMO premiums have ironically gone up faster than those for indemnity-based catastropic and preferred provider organization (PPO) plans, sending more people into the latter category and paying higher deductibles and cost shares than previously.
The LAO report suggests the HMO’s health maintenance objective has been stymied by a fragmentation of services and a lack of care coordination among providers and treating diseases but not necessarily focusing on improving the overall health of patients. Another cost driver identified in the LAO report is financial incentives that reward the quantity of services provided rather than the quality of that care. Services more accurately described not so much as health maintenance but sick care.
I believe America’s health insurance crisis is fundamentally due to the growing commercialization of health care and pharmaceuticals combined with a post-industrial service economy in which many people spend most of their sleep deprived waking hours commuting to and working at sedentary jobs. Too little time for exercise, sleep and nutritious “slow” food exacts a major toll on the nation’s overall health status. This is a socio-economic problem that no amount of health reform can solve.
The Obama administration and Congress can rightly claim to have made history by enacting health care reform after multiple failed attempts dating back to the administration of Frankin Delano Roosevelt. But unless Americans change how they work and live and value their health, it will be a hollow accomplishment. Health care costs will continue to go up as Americans get older and sicker, less fit and fatter. If current trends continue, by the time most of the reform provisions take effect in 2014, it will become actuarially evident that no system of paying for health care — pre or post reform — can be affordable. The health insurance crisis will be subsumed by a overarching health crisis.