June 8, 2015 by Tony Novak
With so many individual health insurance carriers around the country asking for 2016 shock rate increases of more than 50%, some even as high as 70%, we have to address the question “Why?”. Some commentators make the issue more complicated than it needs to be. While there are multiple contributors to the spike in medical care, two reasons loom much larger than all the others in this market. It is actually quite easy to understand if you simply compile the news reports on this issue over the past two years.
The individuals who signed up for health insurance through an exchange quickly sought treatment for serious medical conditions. Call it “pent up demand” for medical service. Newspapers carried stories of extreme cases where individuals were scheduled for heart surgery within hours of approval of their Obamacare policy. Hospital waiting rooms became primary sites for enrolling new members into the new insurance plans. Yet tens of thousands of cases were less dramatic. People simply used the services that were offered to them for free. The two most frequent and costliest new types of cases were cancer and heart disease. Doctors and hospitals have proved very effective in recruiting these new cancer and heart disease entrants to the system as new patients and a fresh source of revenue. Obviously an insurance company that collects less than $10,000 in insurance premiums and then quickly pays out claims in excess of $30,000 on the same policyholder is going to run into financial difficulties on this segment of business. The short and simple explanation of the rate is that the new enrollees, mostly lower income enrollees who are exempt from the financial burdens of policy deductibles, are using their new insurance coverage to access expensive care at a frequency that we did not imagine.
The second underlying cause is that there are not enough healthy people willing to spend $10,000 in insurance premiums for a policy that, in their eyes, “doesn’t cover anything” but will be used as a subsidy for unhealthy people. The fact is, after peeling back all the political rhetoric, is that we’ve barely changed the portion of people without health insurance. We still have 30 to 40 million without any coverage and tens of millions more who are under-insured and cannot afford to pay their policy deductibles.
In the “old days” before ACA when an individual found themselves in need of treatment for heart disease or cancer, the easiest path was to find a way to be covered under a small group insurance plan. These were guaranteed issue policies that could be offered by your friends and neighbors. Millions of formerly uninsured people found a way to work their way into an employment deal primarily to get health insurance. Rate increases in excess of 50% were not uncommon in the small group market. Now the opposite is occurring. Small group insurance plans are shedding their unhealthy members back to the individual insurance exchanges.
Those in the individual health insurance industry, including the seasoned writers like myself, can only say “told you so”. The individual marketplace concept was flawed from the start but the policymakers and lawmakers who endorsed it apparently did not know or did not care. But it’s far too late to do anything about that now. We have to focus on the flood of people who will be soon screaming “Help, I can’t afford my health insurance”. But this time, thanks to the “Affordable Care Act”, we’ll actually have fewer affordable tools in out toolbox to use to answer their concerns.