Tag Archive: individual health insurance market

Academicians question “adverse deselection” in individual market

A post at the journal Health Affairs blog questions what I’ve termed “adverse deselection” —  when healthier people in the individual market decide to take their chances and drop their coverage to save premium dollars in the current economic downturn.  In California, Anthem Blue Cross contends the flight of these better risks left it with costlier insureds in its risk pool — what’s classically known as adverse selection — thus necessitating sharp rate increases to cover higher dollar claims brought by sicker individuals.  The theory is these folks will suck it up and pay the higher premiums in order to stay insured, knowing both that they’ll likely need medical care in the future and that they can’t shop around for lower premiums because no other insurers are likely to accept them due to their preexisting medical conditions.

Jonathan Kolstad, assistant professor of health care management at The Wharton School and Leonard D. Schaeffer of the University of Southern California’s Center for Health Policy and Economics, claim to have developed data casting doubt on that scenario.  “There is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession,” they conclude.

Initially, I thought regardless of whether those dropping their coverage are healthy or not, the recession has likely shrunk the individual market.  Those who need medical services still have to pay the premium to keep their coverage in force.  And when comes down to paying the mortgage or a monthly health insurance premium that in many cases nearly equals the mortgage payment, it’s the latter that’s likely to go unpaid.  But consider another study issued this week by the UCLA Center for Health Policy Research projects California’s individual market actually grew during the recession, covering 8.5 percent of non elderly adult Californians at its start in 2007 to a projected 9.1 percent in 2009.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Big drop in Californians with employer-based coverage

Employment-based medical insurance is declining in the nation’s most populous state, falling from 57.3 percent of adult Californians aged 19 to 65 in 2007 to an estimated 51.3 percent in 2009, the UCLA Center for Health Policy Research reported today. Over this two-year period, the portion of this cohort insured through the individual market rose from 8.5 percent to a projected 9.1 percent.

The key driver in the drop in employer-based coverage is steep job losses.  Employment is a prerequisite for employer-based coverage and has become much harder to come by in California’s recession-wracked economy where unemployment exceeds 12 percent.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Minimum medical loss ratio, individual mandate won’t corral rising premiums

Veteran Sacramento-based journalist and policy wonk Daniel Weintraub, who recently launched his HealthyCal.org Website, deserves a big shout out for pointing out California law requiring health plans and insurers spend at least 70 cents of each premium dollar on medical care for plan members and policyholders can do virtually nothing to hold down premium increases. Moreover, it may even lock in the absolute growth of health plan and insurer profits that many consumer advocates blame for rising premiums.

Simple mathematics explains why.  Seventy percent of medical treatment costs — a quantity that has been outpacing the rate of inflation over the past decade — is still a growing number in absolute terms.  For example, if the cost of providing medical care to plan members and insured policyholders increases from an average of $3,000 annually per plan member or policyholder to $5,000, a health plan or insurer would be required to spend on average at least $3,500 per member versus just $2,100 under the 70 percent minimum loss ratio requirement.  Premiums must naturally rise to absorb the increase.  The 30 percent left over after health plans and insurers meet the minimum medical loss ratio grows into a bigger pot of cash.  The same math would be at work if the minimum medical loss ratio were increased as some policymakers have advocated.

Rising medical treatment costs produce ratcheting upward pressure on both premiums and potentially the profits of health plans and insurers when administrative costs are netted out.  This ratcheting effect also undermines arguments by health plans and insurers that if everyone was required to have coverage — the so-called individual mandate — then coverage would become more affordable and accessible since there would be a much larger pool of people with coverage and paying in premiums to cover the cost of their medical care.

An individual mandate might produce some temporary relief by spreading risk across a bigger pool of people.  But due to the ratcheting effect of rising health care costs, the same underlying mathematics would be at work, simply subjecting a larger number of people to rising premiums while locking in higher absolute profits for health plans and insurers.

An individual mandate does however make sense when viewed from the perspective of the business model of health plans and insurers when that model assumes profit margins in the low single digits such as suggested last week by Anthem Blue Cross President Leslie Margolin in testimony before a California legislative committee.  Low margin businesses (such as grocery chains and airlines, for example) offset their skinny profit margins with big sales volume.  So it’s not surprising that health plans and insurers like the idea of forcing everyone to have coverage.  It would be like the airline industry requiring everyone to purchase at least one round trip ticket per year.  Or requiring everyone to shop at a major grocery chain outlet at least monthly.  It’s no wonder that both free market conservatives and more liberal consumer advocates dislike the individual mandate.  The former because it’s contrary to free market economics and consumer choice and the latter because they fear consumers will end up trapped on the up escalator of rising medical costs that will be passed through to them by health plans and insurers.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California screamin: Anthem Blue Cross rate hike harbinger of individual market meltdown

Individual health insurers have largely avoided adverse selection with stringent underwriting standards aimed at excluding or surcharging those with health histories likely to produce high losses.  Adverse selection threatens the viability of an insurance risk pool.  If too many “adverse” risks enter the pool, its long term viability can be jeopardized since losses can exceed premium dollars coming into the pool.

In California however Anthem Blue Cross is experiencing what might be termed “adverse deselection” in its individual health insurance market segment: the migration of better risks (i.e. healthier policyholders) out of the risk pool, leaving behind poorer (i.e. less healthy policyholders more apt to produce high dollar losses).  Anthem Blue Cross officials told a California legislative committee hearing this week this trend requires those remaining in the pool to pay higher premiums to make up the lost premium dollars that were formerly paid by those who dropped their coverage.

This development has major implications for the nation’s individual market. California has more people in the individual market — estimated at between 8 and 9 percent of individuals under age 65 — than the rest of the nation, where the number averages about 5 percent.  Also, Anthem Blue Cross has the largest share of the California individual market.  If the biggest writer of individual health coverage in the nation’s largest individual health insurance market is having trouble maintaining a viable risk pool, it could well be the harbinger of an impending death spiral in the nation’s individual health insurance market.

I suspect the prospective implosion of the individual market is generating more unspoken concern among the health reform policymakers in Washington than political firestorm Anthem Blue Cross’s rate increase has generated.  Especially as more small employers consider dropping coverage due to their own rate increases, leaving their employees to fend for themselves in the individual market.  The upshot: a big increase in the ranks of the medically uninsured that would provide further impetus for to get a reform bill passed.  But it must collar the underlying rising medical costs driving up premiums that now threaten to take out much of the insurance market starting from the bottom up with the individual and small group segments.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California’s individual market: the tail wagging the health care reform dog

The firestorm over Anthem Blue Cross’s sharp premium increases for individual policies in California has reignited the debate over health insurance reform in Washington that had bogged down amid uncertainly after the holidays.    It demonstrates how one event can alter the course of a major policy debate that seemed suddenly without direction.  It also shows how the individual market — which covers only a small percentage of all Americans but a larger proprotion of Californians — is now the tail wagging the national health care reform dog.

Update 3/7/10:  Los Angeles Times reporter Duke Helfand, who broke the story of the Anthem rate increases a month ago, has a piece in today’s paper co-written by LA Times reporter Mark Z. Barabak laying out the chronology that began early last November of how Anthem’s filing for individual policy rate increases averaging 25 percent breathed new life into the Obama administration’s health care reform agenda.  You can read the story here.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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