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Increased Premiums Hit Sickest the Hardest

from MichUHCAN January 1999 Newsletter

Here we go again: after discussion of widespread reforms quieted, health insurance premiums started rising again. The hardest hit are people who buy individual policies - often those who need care the most.

Peter T. Kilborn reported in the New York Times December 5, page A7) that for the 16 million people under 65 who buy individual policies, rates for many are going up 40 percent or more this year. And, writes Kilborn, the trend is likely to accelerate: "As premiums for individual health coverage rise, the youngest and healthiest of those policies, like people just out of high school and college, decide to do without insurance. That leaves insurance companies with a shrunken pool of customers who are older and less healthy - and whose health care costs cannot be spread across the general population." Which means insurance companies raise premiums to protect their own bottom line.

Part of the reason premiums are higher and rise faster for individual plans is that employers have more bargaining power over rates than one person; so the cost of an individual plan has tended to be higher, even where insurance companies apply "community rating." Community rating means the cost of a serious I (expensive) illness is spread over the whole group ("community") of premium-payers.

But even so the premiums are expensive and the more healthy often opt out. now insurers say they can't make money with community rating; they need to take age and illness into account when pricing individual policies. Thus in some cases increases of 100 percent or more have been reported.

Meanwhile, managed care has pretty much run its course without controlling costs. now, 85 percent of the workforce is in a managed care plan, but still premiums for employer-sponsored insurance are going up 8 to 20 percent. With many managed care companies losing money, prices are expected to keep going up. That puts still more pressure on the easy-to-squeeze individual purchaser.

Failing Band-Aids

As the number of uninsured continues to rise (now over 43 million) along with premiums, band-aids at the federal and state levels have had little effect. The Kennedy-Kassebaum bill to make coverage portable as people change jobs contains no limit on the premium job-switchers can be charged; generally, they're charged more than they can afford. And the patient protections that members of Congress may get back to discussing this year, while well needed, only aid those who can afford insurance.

Meanwhile state efforts aren't much more effective. Kentucky passed a law against taking health status into account when setting the price of individual policies. After more than 40 companies left the market (two remained), legislators reversed the law. Twenty-six states sponsor a high-risk insurance pool for people without employer coverage who, for health reasons, have trouble buying individual plans. even though these states subsidize the coverage, subscribers still pay premiums 25 to 100 percent higher than what employers pay for group plans.