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Is Health Reform Driving Rate Increases?

February 18th, 2010 – There is been a tremendous amount of publicity about a rate increase announced by Wellpoint’s business unit, Anthem Blue Cross of California.   President Obama’s administration was quick to attack the proposed rate increase of up to 39% on nearly 700,000 individual health insurance customers in California.

“The reform before Congress … would help prevent such hikes from happening,” Obama said today, speaking in Denver Colorado, at a rally for Democratic Senator Michael Bennet. “And if we walk away from it, we know that premiums and out-of-pocket expenses will keep rising in this decade, just as they did in the last decade.”

While demonizing insurance companies may make for good politics, the truth is that health care reform at the state level was responsible for much of the rate increase in California.  More significantly, if the Federal standards for health reform were adapted the rate increase would have been much higher.

While most other states like Colorado have a high risk pool, California requires people that have exhausted COBRA benefits to be able to stay on their plan and requires the individual health insurance market to absorb the customers and the costs. With the recession many healthy people have dropped coverage, compounding the problem and driving up costs.

California’s individual health insurance market is the canary in the coal mine, demonstrating what happens when you make health insurance guarantee issue (if only for people that have exhausted COBRA) and lack meaningful and enforceable mandates for coverage so healthier people share the burden of costs with less well people.

Anthem’s profits per member for individual plans hover around $12.62 per month and are lower than its competitors.  Health insurance companies profit margins are lower than life insurance or property and casualty companies.

Of course, that begs the question, “Why are health insurance premiums so out of control?”  The answer to that lies in where the rest of the health insurance premiums are being spent.  Those dollars go to Hospitals, Drug Companies and in support of a system that compensates providers for ordering tests and treating sick people and not paying them for healing and keeping the public well.

The problem is that these groups have very powerful lobbies and huge influence over America’s Congress, Senate and President.   We need both a government and a health care system that is interested in really making things better rather than just treating the symptoms.

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