Health-care reform: What will happen to premiums without it?

Feb 19, 2010 11:52 AM

Wondering what will happen to your premiums if health reform efforts fail? Just look to California. Anthem Blue Cross, a subsidiary of the national insurance giant, Wellpoint, is planning to raise its premiums for individual insurance up to 39 percent. The company already raised rates for some plans nearly that much a year ago, and also put consumers on warning that it might do it more often in the future, according to the Los Angeles Times.

And yesterday, the U.S. Department of Health and Human Services issued a report saying that insurance companies in at least six other states are also looking for big premium hikes: up to 24 percent in Connecticut; 23 percent in Maine; 56 percent in Michigan; 20 percent in Oregon; 16 percent in Rhode Island; and 40 percent in Washington. The agency expects such increases to continue in the absence of reform.

So does the National Association of Insurance Commissioners (NAIC). “You're going to see rate increases of 20, 25, 30 percent” for individual health policies in the near term, said Sandy Praeger, Kansas’ insurance commissioner and a committee chairwoman for the NAIC, according to the Associated Press.

The HHS said that the ten largest insurance companies increased their profits 250 percent over the last decade – ten times faster than inflation. And the latest increases are 5 to 10 times the growth rate of national health expenditures.

Wellpoint says that the lagging economy has caused Californians to drop their insurance, leaving a smaller risk pool with sicker people who cost more. But two Congressmen investigating the California increase said the data the company submitted actually shows a 7 percent increase in membership, rather than a drop, according to a Wall Street Journal report. They’ve asked the company to clarify the discrepancy.

It appears that insurance companies will continue to raise premiums or reduce coverage either to increase profits or to keep up with health expenses. The reform proposals deal with both causes of premium hikes, but first consider what will happen without reform.

The HHS report states that 94 percent of most markets are “highly concentrated.” That means that you likely have very little choice of insurance plans where you live. And if you or a family member have a pre-existing condition, you are probably going to be stuck with your existing plan – rate increase after rate increase – whether you like it or not.

If you get your coverage through your job, you’re not immune from premium hikes, either. One estimate found that the cost of a typical employer-sponsored family health plan is likely to triple in ten years, from about $12,500 today to about $30,000. Expect to see the bulk of that come out of your paycheck, while you pay more health costs out of pocket.

How do the health reform proposals help?

You’ll buy your individual plan from a health insurance exchange where all plans will have to meet minimum standards for coverage and spend about 80 to 85 percent of premiums on health care on their customers, instead of on overhead, profits, and executive perks.

If your insurer wants to raise premiums, it will have to justify it. If it tries to gouge consumers, it can be kicked out of the marketplace.

Even if you have a pre-existing condition, you can easily switch to a new plan if you become dissatisfied with the one you have.

Nearly all Americans would be insured, which would eliminate the problem of healthy people leaving the risk pool, which Anthem claims is behind its rate increases. More healthy people in the risk pool helps to lower the costs for all.