If Blue Shield of California gets its way, some of its individual market customers will see rate hikes as high as 59 percent.
You read that right: 59 percent. At the same time, we learned that health expenditures increased by their lowest rate in 2009.
So what gives?
We won’t know for sure until the state performs an actuarial review of the company’s request, but it seems that the problem in California is the same problem faced by customers of Anthem Blue Cross of California and Iowa’s Wellmark last year: The individual market doesn’t work.
Unlike employer-provided plans, which are purchased on the group market, the risk of medical cost in plans sold on the individual market is borne completely by the individual. Within a workplace, the risk that someone will fall ill is countered by the likelihood that other enrollees in the plan will stay healthy. Similarly, plans on the individual market are often subject to aggressive medical underwriting — or calculation of future medical costs based on medical history; plans in the group market are usually underwritten only on the age and sex of plan enrollees.
Health reform — the Affordable Care Act (ACA) — attempts to make this market more affordable for individuals by allowing individuals to pool their risk together in a regulated marketplace called an exchange. In addition to allowing individuals to pool their risk with other individuals, starting in 2014, the exchange will also tightly regulate how insurers deal with their customers.
Under the ACA, insurers will no longer be able to exclude pre-existing conditions, deny coverage, or base their premiums on anything other than age, sex, region the customer lives in, and smoking status. Further, individuals with income up to 400 percent of the federal poverty level ($88,200 for a family of four) will be eligible for assistance with their insurance premiums, on a sliding scale.
Though those affected by Blue Shield’s outrageous rate increase request won’t benefit from these reforms in the short term, the rate increase request illustrates the need for a robust exchange that provides attractive insurance options for individuals and small businesses and also provides a workable market for insurers to operate in.
Posted by Andrew Cannon, Research Associate