Health insurance rate hikes: Is it just for a few, or you?

February 15, 2010 at 12:00a.m.

By ADAM GELLER

To critics, a 39 percent increase in health insurance for some Californians foretells skyrocketing rates for the rest of us. Not so, says the company, arguing the increase only hits a relatively small number of people and the economy is to blame.

But the rhetoric from both sides distorts the reality.

It’s true that increases like the one by WellPoint Inc. apply only to people who buy individual insurance and are unlikely to spread to the majority of Americans covered through their employers. But such increases also hit a huge number of Americans who mostly went unmentioned in the furor — the 46 million with no insurance at all.

That’s because for most people who don’t get insurance through their jobs and do not qualify for government assistance, the only option is buying individual policies such as the ones in WellPoint’s Anthem Blue Cross plan, often with high deductibles.

Raise prices, and people without insurance are even less likely to buy it — healthy people especially. Meanwhile, older and sicker customers pay more and more, running up high health bills in a shrinking pool.

That conundrum is at the heart of a disagreement that has frozen Democratic health-reform efforts in Congress. Reform bills would require most of the uninsured to buy coverage, an idea many Americans detest as heavy-handed government.

But without sharing costs across the broadest cross-section of consumers and prohibiting insurers from charging people different premiums depending on their health status, the result is a scenario very much like Anthem’s.

“I know the American people get frustrated in debating something like health care because you get a whole bunch of different claims being made by different groups and different interests,” President Barack Obama said recently in addressing the Anthem increase. “But what is also true is that without some action on the part of Congress, it is very unlikely that we see any improvement in the current trajectory. ... The current trajectory is more and more people are losing health care.”

Only about 5 percent of nonelderly Americans have individual insurance, compared with 60 percent who are covered by their employers. The remainder is almost evenly divided between those whose care is shouldered by government and those without any insurance at all.

The cost of employer-sponsored health insurance at big companies rose 7 percent to 10 percent this year, said Tom Billet of Towers Watson, a benefits-consulting firm. Preliminary estimates for next year call for roughly the same increase — much lower than the ones set out by Anthem and other individual insurers.

At first glance, WellPoint’s rate increase affects only a small group — some of the 800,000 people in California who buy its individual coverage. But it’s also about many more, since just about any American is — or, given the uncertainties of the economy, can be — a candidate for individual coverage at any time.

Millions in group plans have lost jobs and the insurance they count on as a benefit. People in individual plans are trying to keep up with escalating premiums. Some without insurance do so to save money, but as they get older may decide it’s not worth the risk.

WellPoint defended the increase as a response to the economy. More consumers are tight on money and, as a result, those who are younger and healthier are dropping out or taking on pass on individual insurance, leaving a pool of less-healthy people requiring more costly care. Without younger, healthier consumers, Anthem said, the remaining customers had to shoulder the costs of their own care.

But Will Dow, a professor of health economics at the University of California, says the rate increase reflects an individual insurance market that is fundamentally broken. Anthem has a reputation for cherry-picking healthier consumers and trying to shake sicker ones, he said.

That problem is not limited to California or the economic environment of 2010. The sick don’t really have the option of dropping coverage. Pre-existing conditions allow other insurers, who otherwise would provide competition, to decline to cover these individuals.