Healthreform.gov has compiled examples of some insurers hiking their premiums by scary amounts (footnotes omitted):
Anthem Blue Cross of California announced that its individual market premiums would rise by as much as 39 percent in the coming months. … Anthem of Connecticut requested an increase of 24 percent last year, which was rejected by the state. Anthem in Maine had an 18.5-percent premium increase rejected by the state last year as being “excessive and unfairly discriminatory” – but is now requesting a 23-percent increase this year.
In 2009, Blue Cross/Blue Shield of Michigan requested approval for premium increases of 56 percent for plans sold on the individual market. Regency Blue Cross Blue Shield of Oregon requested a 20-percent premium increase…. And rates for some individual health plans in Washington increased by up to 40 percent until Washington State imposed stiffer premium regulations.
The Anthem California story seems like it may be headed towards a happy ending – but not because we have a policy in place to prevent huge premium increases.
Department of Health and Human Services Secretary Kathleen Sebelius and state health officials demanded an explanation from Anthem California as to why they were planning to hike premiums by 39%, and they probably sent out some press releases, too, because the story spread. Then Anthem decided it needed to take a couple of months to reconsider, and they’ll probably decide that the increase doesn’t need to be quite so large.
Ezra Klein points out that we can’t count on this kind of response to every huge premium rate hike – but the Senate healthcare bill contains provision that would discourage this kind of behavior:
The Senate bill contains two separate categories of provisions that would stand between the insured and what Anthem attempted in California. The first are consumer protections that could be invoked if an insurer tried to raise rates precipitously. The second are market reforms that make it less likely for an insurer to try, and less calamitous for individuals if the insurer succeeds.
Let’s start with the consumer protections. Under health-care reform, the Anthem plan — which serves high-risk customers in the individual market — would be in the exchange. If Anthem attempted to jack rates up by 40 percent, a couple of things would happen.
First, Anthem would have to justify the rate increase to the exchange’s administrators and post their justification on their Web site. That’s essentially what the Obama administration forced Anthem to do last week, and it was enough to derail the hike. Second, Anthem would run smack into Section 1311 of the bill, which gives regulators the power to control access to the exchanges based on whether the plan “is in the interests of qualified individuals and qualified employers in the State.” In fact, the bill specifically states that regulators can take “excessive or unjustified premium increases” into account when deciding whether to certify a health-care plan’s continued presence in the exchange.
In other words, Anthem’s plan could be kicked out entirely for this rate hike. That would probably have to happen to only one health insurer for the rest to take notice that precipitous and inexplicable rate hikes are no longer going to be part of the business model.
The second solution that Klein describes is a change in the incentive structure that led to Anthem making this decision in the first place. He explains that the plan for which Anthem wants to raise rates probably has a lot of sick – and therefore expensive – members, and the rate increase is an attempt to either drive them out of the plan or get more money to cover the high costs. This is rational behavior under the current system.
One of the core problems with our current insurance system is that the best way for insurance plans to profit (or even survive) is to attract the healthiest people to their plans and avoid the sickest ones. The market rewards the plans that do the best job cherry-picking members.
Instead of rewarding cherry-picking, we want plans to profit from providing the best value. That’s what the Senate bill aims to do with its risk-adjustment provision. Risk adjustment would give money to insurance plans with sicker members, which would reduce the incentives for insurance companies to avoid or drop those members.
And, of course, there are many other reasons to pass the Senate bill. What’s Congress waiting for?