Rate Increases Typical

Late last year, there was a big outcry when Wellpoint raised their premium rates in California by as much as 39 percent. A new survey finds that this double-digit increase is not unusual at all.  It found the average increase averaged around 20 percent.

According to the survey released by Kaiser Family Foundation, which polled just over 1,000 people who receive individual coverage rather than employer-group coverage, around 77 percent reported an increase. Most paid the increase but 16 percent switched to another insurer or a lower cost plan. As a result, the average increase actually realized for all respondents was only 13 percent.

Insurers are blaming rising medical costs. Some hospitals are raising their prices 40 to 50 percent, leaving insurers to either eat the costs or pass it along to customers. It’s not just increased medical costs that’s forcing insurers to raise premium rates. Younger, healthier people are choosing to drop coverage during the economic downturn. For the 14 million private market insurance purchasers without employer coverage, this amounts to greater premiums.

Tracking premium increases among non-employer group purchasers is difficult. Insurers offer a wide range of policies based on many variables such as age and health. While data is collected on actual costs, there is little data collection of actual increases in the year-over-year costs of the same policy, let alone the actual increases realized after switching carriers or coverage levels.

Under the new healthcare law, insurers need to justify increases deemed “unreasonable”, though what constitutes unreasonable is being worked out. Massachusetts law has a similar provision and regulations had previously “disallowed” requested premium increases. A state appeals board reversed the regulations decision as having no legal basis and having ignored “economic realities” of continued increases in underlying medical costs.

Although analysts universally agree that premiums will continue to rise under the new healthcare reform law, there are ranging opinions as to whether the new law will speed or slow the increases. The ultimate answer may also depend on who you are.

Come 2014, the new regulations would also prohibit insurers from charging higher premiums based on one’s health. This may result in lower premiums for those with health problems but will increase premiums for the younger and healthier. Another item adding to higher premiums is adding young adults age 26 and under to their parents’ policy.

The only clear check on premiums charged is the “minimum loss ratio” requirements which stipulate that eighty percent of premium revenue must be spent on health care. Insurers would be forced to pay rebates for anything in excess. Beyond this limitation, continued inflation of the underlying medical costs (doctors, hospitals, pharmaceuticals, etc.) will continue to drive premium increases.