The Obama administration is apparently concerned over the possibility the individual health insurance market will implode before insurers must take all comers and the purchasing exchanges of the Patient Protection and Affordable Care Act kick in at the start of 2014.
In my previous post, I speculated that unsustainable annual premium increases averaging 20 percent in the individual market could push the segment to a tipping point of market failure before 2014 arrives. Health and Human Services Secretary Kathleen Sebelius evidently shares that concern based on remarks she made to the Reuters news service this week. The Reuters dispatch notes Sebelius, a former Kansas insurance commissioner who earlier this year lambasted individual health insurers for imposing steep premium increases, has adopted a more conciliatory tone toward the industry. Perhaps as a former insurance regulator, she now sees the business model of individual insurers — and possibly that of small group writers as well — in a potential life or death struggle leading up to 2014.
Sebelius suggested continued rate increases — which insurers say reflect the pass through effect of rising medical costs and utilization — could trap the individual market in a downward spiral of premium increases followed by policyholder cancellations and nonrenewals and more premium hikes. “If they lose more and more market share as we move toward 2014, it’s not really good for them,” Sebelius said.
As rates go up, individuals who believe they are relatively healthy will be more and more inclined to drop their coverage, especially when monthly premiums begin rival the amount of mortgage payments. This unvirtuous cycle — which I’ve dubbed “adverse deselection” — would leave as policyholders the most medically risky individuals who are likelier to use more and higher cost medical services, prompting more rate increases. Earlier this year, Anthem Blue Cross told California lawmakers this dynamic partly justified the insurer’s request for individual premium increases averaging around 25 percent for 2010, an amount that was subsequently lowered to 14 percent in a revised filing with the California Department of Insurance last month.
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