Why Panic and Greed Are Driving Up Your Health Insurance Costs

Recent reports from the Department of Health and Human Services, among others, show that healthcare spending is continuing to slow down. Good news, right? Well, yes, until you consider that in spite of this, many health insurance companies are raising premiums on their customers—sometimes by double digits.

To add insult to injury, many of those same companies are earning huge profits. Gargantuan, in some cases. Yet they say they need to charge their customers more for health coverage. It doesn’t add up, so we asked an expert to help us figure out what’s going on. Here, our interview with Shana Alex Lavarreda, M.P.P., Ph.D., the director of health insurance studies and a research scientist at the UCLA Center for Health Policy Research, in Los Angeles.

TakePart: Why are many of us paying more for health coverage when healthcare spending has slowed down and many health insurance companies are making huge profits?

Dr. Lavarreda: That’s an excellent question, particularly because the stated reason by the insurance companies is that the immediate medical cost increases are causing the premium increases. This is patently false, as seen in the latest data. However, it makes more sense in the context of the changes that will be occurring as of January 1, 2014 [with the introduction of insurance exchanges by the Affordable Care Act, ACA].

After that day, insurance companies will no longer be able to change their premiums or not offer insurance based on pre-existing conditions. Also, they are anticipating that the newly insured will use a greater amount of health services, due to the pent-up demand of the delayed care while they were uninsured. Therefore, the insurance companies are trying to reduce their own risk of large medical payouts by increasing premiums now, even though current medical costs are falling.

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It’s understandable and predictable, but counterproductive in that it both decreases coverage for the uninsured [now] and increases negative publicity for insurance companies.

And what’s up with insurers posting big profits at the same time they’re asking for more money from their customers? Recently, the health insurance company Wellpoint announced their fourth-quarter profits rose by 38 percent, for a total of $2.7 billion in profits in 2012.

Wellpoint argues that these particular product lines that are seeing the increases are those that have high medical costs and aren’t as profitable as the rest of the company, and so have to be brought up to the same level of profitability. This is the mindset of for-profit health insurance, which runs counter to the public health mindset of giving the greatest number of people the best insurance for the lowest cost to the consumer.

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Whether or not you’re seeing a big jump in your insurance premiums depends a lot on where you live. What can someone do if they live in a state where they’re seeing a big increase?

Just like any marketplace, shopping around might get you a better deal. However, most people don’t have the ability to shop effectively, which traps them with a particular insurance company. This problem is exactly what the new insurance exchanges will fix [when they’re introduced in January 2014]. The exchanges (both state-based and national) will be enrolling people beginning this fall, and that will provide an easy-to-access marketplace that not only gives consumers better information about their choices, but also gives most middle-class families subsidies to afford the coverage.

There are new rules from the Department of Health and Human Services requiring insurers to publicly file rate increases. Is there a place where we can look up what our insurer is doing?

States have their own Departments of Insurance, and it’s up to that department to either be transparent or not with the rate increase requests [made by insurance companies].

In California, we already had some of the strongest consumer protections, and have recently enacted legislation that will implement six out of the seven required ACA new protections. We’re a leader in this field, certainly. But even with our thriving competitive marketplace that already has many options for consumers and lower premiums than many states, due to our high concentration of managed care, we still have nearly seven million uninsured people, the highest population of uninsured in the country.

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Are these increases related to what the insurance companies see as the coming threat of the implementation of insurance exchanges in the fall?

Yes, absolutely. When the exchanges start operating, it will change the business model for every insurance company that used to operate on profit margins generated by rejecting sick people from getting coverage and denying care for their enrollees that need it.

In business terms, this change is already upon them, as the premiums for this year are in part based on the upcoming changes next year. It’s been called “The Day Everything Changes” by some in the industry, and their reactions to that impending change can be seen in the panic underlying the rising premium rates.

To our readers: What do you think about insurance companies raising rates even when they’re already making huge profits? Has your premium gone up a lot recently?

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Lorie A. Parch is a Los Angeles-based writer specializing in health and lifestyle topics.