Not long after 2010 got underway, Anthem Blue Cross created high anxiety among consumers in California’s individual health insurance market by announcing steep rate increases averaging 25 and as high as 39 percent effective March 1. After the California Department of Insurance asked Anthem to run its numbers again, the insurer said it found mathematical errors in its actuarial projections and would refile corrected rates later this year.
Since individuals lack the bargaining power of employers, they tend to get the biggest rate hikes since insurers can essentially offer them on a take it or leave it basis. Small employers with fewer than 50 employees by contrast have at least some negotiating leverage with insurers compared to individuals. But not much more. They offer next path of least resistance for payers to pass on rising medical costs.
And so come double digit rate increases for them, not just from Anthem Blue Cross but also from all of Anthem’s major competitors who along with Anthem make up about 90 percent of the state’s private health insurance market. A Los Angeles Times survey released May 26 found major insurers in California’s small-business market are raising rates 12 to 23 percent in the small group market. Not surprisingly, the increases are producing protests from those small employers who have thus far managed to ride out the recession and remain in business. Some warn the rate hikes will force them to curtail hiring or even close.
The small group market is the bleeding edge of the breakdown of employer-paid health insurance model upon which most working age Americans rely for health coverage. These rate increases will likely prompt more small businesses to cease providing health insurance for their workers, forcing those employees into the already distressed individual market.
Many of those workers will find they cannot qualify for or afford individual coverage, boosting the number of medically uninsured Californians and creating political pressure for more immediate reforms than those contained in the recently enacted federal Patient Protection and Affordability Act. The problem for policymakers is no amount of reform of the insurance mechanism that pays medical treatment and pharmaceutical costs can provide relief as long as those costs keep rising far in excess of the rate of inflation.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email