A Taste of Health Care Reform

Robert Book / February 19, 2010

Anthem Blue Cross, the California subsidiary of Wellpoint, one of the nation’s largest health insurers, recently announced steep premium increases for its individual (i.e., not employment-based) insurance customers.  The political response to these premium increases – of up to 39% for almost 700,000 customers – was swift and blunt.  Health and Human Services (HHS) Secretary Kathleen Sebelius ordered a federal investigation into how Anthem could “justify” the increases, Rep. Henry Waxman (D-CA) scheduled a hearing, MoveOn.org launched a petition drive, and President Obama himself jumped at the opportunity to claim this as justification for the Democrat health reform effort, calling it “a portrait of the future if we don’t do something now.” Today, HHS released a report citing similar premium increases in several other states.

On the contrary – it’s a portrait of the future for the entire United States if either the House or Senate Democrats’ health bill becomes law.  The Wall Street Journal points out that while Wellpoint as a whole is profitable, it has been losing money in this particular market, and these steep premium increases are the direct result of California’s state insurance regulations.  Regulations require that insurance companies offer individual “conversion policies” to former employees who have exhausted their COBRA continuation coverage rights. This may be a good idea in principle, but California takes it a step further and sets the premiums to be charged for such coverage by statute.  And, since those electing to take advantage of this option are disproportionately those with higher than average health care costs (often due to pre-existing conditions), the statutory rates aren’t sufficient to cover the costs of providing care for those patients.  To stay in business – and indeed, to meet financial solvency regulations also imposed by the state – insurance companies have to get the money someplace, and the only place left is to increase premiums for customers not covered by the statute. Essentially, several of California’s regulations have combined to, in effect, require these steep premium increases. (more…)