Health premiums could rise 17 pct for young adults

CARLA K. JOHNSON (AP)

CHICAGO — Under the health care overhaul, young adults who buy their own insurance will carry a heavier burden of the medical costs of older Americans — a shift expected to raise insurance premiums for young people when the plan takes full effect.

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.

The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

Consider 24-year-old Nils Higdon. The self-employed percussionist and part-time teacher in Chicago pays $140 each month for health insurance. But he’s healthy and so far hasn’t needed it.

The law relies on Higdon and other young adults to shoulder more of the financial load in new health insurance risk pools. So under the new system, Higdon could expect to pay $300 to $500 a year more. Depending on his income, he might also qualify for tax credits.

At issue is the insurance industry’s practice of charging more for older customers, who are the costliest to insure. The new law restricts how much insurers can raise premium costs based on age alone.

Insurers typically charge six or seven times as much to older customers as to younger ones in states with no restrictions. The new law limits the ratio to 3-to-1, meaning a 50-year-old could be charged only three times as much as a 20-year-old.

The rest will be shouldered by young people in the form of higher premiums.

Higdon wonders how his peers, already scrambling to start careers during a recession, will react to paying more so older people can get cheaper coverage.

“I suppose it all depends on how much more people in my situation, who are already struggling for coverage, are expected to pay,” Higdon says. He’d prefer a single-payer health care system and calls age-based premiums part of the “broken morality” of for-profit health care.

To be sure, there are benefits that balance some of the downsides for young people:

_ In roughly six months, many young adults up to age 26 should be eligible for coverage under their parents’ insurance — if their parents have insurance that provides dependent coverage.

_ Tax credits will be available for individuals making up to four times the federal poverty level, $43,320 for a single person. The credits will vary based on income and premiums costs.

_ Low-income singles without children will be covered for the first time by Medicaid, which some estimate will insure 9 million more young adults.

But on average, people younger than 35 who are buying their own insurance on the individual market would pay $42 a month more, according to an analysis by Rand Health, a research division of the nonpartisan Rand Corp.

The analysis, conducted for The Associated Press, examined the effect of the law’s limits on age-based pricing, not other ways the legislation might affect premiums, said Elizabeth McGlynn of Rand Health.

Jim O’Connor, an actuary with the independent consulting firm Milliman Inc., came up with similar estimates of 10 to 30 percent increases for young males, averaging about 15 percent.

“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.

Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.

Some groups predict even higher increases in premiums for younger individuals — as much as 50 percent, says Landon Gibbs of ShoutAmerica, a Tennessee-based nonprofit aimed at mobilizing young people on health care issues, particularly rising costs.

Gibbs, 27, a former White House aide under President George W. Bush, founded the bipartisan group with former hospital chain executive Clayton McWhorter, now chairman of a private equity firm. McWhorter finances the organization. The group did not oppose health care reform, but stressed issues like how health care inflation threatens the future of Medicare.

“We don’t want to make this a generational war, but we want to make sure young adults are informed,” Gibbs says.

Young people who supported Barack Obama in 2008 may come to resent how health care reform will affect them, Gibbs and others say. Recent polls show support among young voters eroding since they helped elect Obama president.

Jim Schreiber, 24, was once an Obama supporter but now isn’t so sure. The Chicagoan works in a law firm and has his own tea importing business.

He pays $120 a month for health insurance, “probably pure profit for my insurance company,” he says. Without a powerhouse lobbying group, like AARP for older adults, young adults’ voices have been muted, he says. He’s been discouraged by the health care debate.

“It has made me disillusioned with the Democrats,” he said.

Ari Matusiak, 33, a Georgetown University law student, founded Young Invincibles with other Obama campaign volunteers to rally youth support for health care overhaul.

Age rating fails as a wedge issue because the pluses of the new law outweigh the minuses for young adults, Matusiak says.

“And we’re not going to be 26, 27, 33 forever,” Matusiak says. “Guess what? We’re going to be in a different demographic soon enough.”

Nationally representative surveys for the Kaiser Family Foundation have consistently found that young adults are more likely than senior citizens to say they would be willing to pay more so that more Americans could be insured. But whether that generosity will endure isn’t clear.

“The government approach of — we’ll just make someone get health care and pay for someone else — definitely NOT what I want,” says Melissa Kaupke, 28, who is uninsured and works from her Nashville home.

In Chicago, Higdon says he supports the principles of the health care overhaul, even if it means he will pay more as a young man to smooth out premium costs for everyone.

“Hopefully I’ll be old someday, barring some catastrophic event. And the likelihood of me being old is less if I don’t have a good health plan.”

0

Consumers Guide To Health Reform

By Phil Galewitz

KHN Staff Writer

Mar 26, 2010

The health-insurance overhaul package signed into law by President Obama is the most far-reaching health legislation since the creation of the Medicare and Medicaid programs.

The following is a look at the impact of the law, which will extend insurance coverage to 32 million additional Americans by 2019, but which will also have an effect on almost every citizen.

Here’s how you might be affected:

Q: I don’t have health insurance. Will I have to get it, and what happens if I don’t?

A: Under the legislation, most Americans will have to have insurance by 2014 or pay a penalty. The penalty would start at $95, or up to 1 percent of income, whichever is greater, and rise to $695, or 2.5 percent of income, by 2016. This is an individual limit; families have a limit of $2,085. Some people can be exempted from the insurance requirement, called an individual mandate, because of financial hardship or religious beliefs or if they are American Indians, for example.

Q: I want health insurance, but I can’t afford it. What do I do?

A: Depending on your income, you might be eligible for Medicaid, the state-federal program for the poor and disabled, which will be expanded sharply beginning in 2014. Low-income adults, including those without children, will be eligible, as long as their incomes didn’t exceed 133 percent of the federal poverty level, or $14,404 for individuals and $29,326 for a family of four, according to current poverty guidelines.

Q: What if I make too much for Medicaid but still can’t afford coverage?

A: You might be eligible for government subsidies to help you pay for private insurance that would be sold in the new state-based insurance marketplaces, called exchanges, slated to begin operation in 2014.

Premium subsidies will be available for individuals and families with incomes between 133 percent and 400 percent of the poverty level, or $14,404 to $43,320 for individuals and $29,326 to $88,200 for a family of four.

The subsidies will be on a sliding scale. For example, a family of four earning 150 percent of the poverty level, or $33,075 a year, will have to pay 4 percent of its income, or $1,323, on premiums. A family with income of 400 percent of the poverty level will have to pay 9.5 percent, or $8,379.

In addition, if your income is below 400 percent of the poverty level, your out-of-pocket health expenses will be limited.

Q: How will the legislation affect the kind of insurance I can buy? Will it make it easier for me to get coverage, even if I have health problems?

A: If you have a medical condition, the law will make it easier for you to get coverage; insurers will be barred from rejecting applicants based on health status once the exchanges are operating in 2014.

In the meantime, the law will create a temporary high-risk insurance pool for people with medical problems who have been rejected by insurers and have been uninsured at least six months. This will occur this year.

And starting later this year, insurers can no longer exclude coverage for specific medical problems for children with pre-existing conditions, nor can they any longer set lifetime coverage limits for adults and kids.  The Obama administration insists that the law also would bar insurers this year from turning away children with pre-existing conditions. But some insurers and children’s advocates say the law isn’t clear on that point, and the administration has said it will draft clarifying regulations.

In 2014, annual limits on coverage will be banned.

New policies sold on the exchanges will be required to cover a range of benefits, including hospitalizations, doctor visits, prescription drugs, maternity care and certain preventive tests.

Q: How will the legislation affect young adults?

A: If you’re an unmarried adult younger than 26, you can stay on your parent’s insurance coverage as long as you are not offered health coverage at work. This benefit will begin later this year, but will require regulations clearly spelling out eligibility criteria.

In addition, people in their 20s will be given the option of buying a “catastrophic” plan that will have lower premiums. The coverage will largely only kick in after the individual has $6,000 in out-of-pocket expenses.

Q: I own a small business. Will I have to buy insurance for my workers? What help can I get?

A: It depends on the size of your firm. Companies with fewer than 50 workers won’t face any penalties if they don’t didn’t offer insurance.

Companies can get tax credits to help buy insurance if they have 25 or fewer employees and a workforce with an average wage of up to $50,000. Tax credits of up to 35 percent of the cost of premiums will be available this year and will reach 50 percent in 2014. The full credits are for the smallest firms with low-wage workers; the subsidies shrink as companies’ workforces and average wages rise.

Firms with more than 50 employees that do not offer coverage will have to pay a fee of up to $2,000 per full-time employee if any of their workers get government-subsidized insurance coverage in the exchanges. The first 30 workers will be excluded from the assessment.

Q: I’m over 65. How will the legislation affect seniors?

A: The Medicare prescription-drug benefit will be improved substantially. This year, seniors who enter the Part D coverage gap, known as the “doughnut hole,” will get $250 to help pay for their medications.

Beyond that, drug company- discounts on brand-name drugs and federal subsidies and discounts for all drugs will gradually reduce the gap, eliminating it by 2020. That means that seniors, who now pay 100percent of their drug costs once they hit the doughnut hole, will pay 25 percent.

And, as under current law, once seniors spend a certain amount on medications, they will get “catastrophic” coverage and pay only 5percent of the cost of their medications.

Meanwhile, government payments to Medicare Advantage, the private-plan part of Medicare, will be  frozen starting in 2011 , and cut in the following years. If you’re one of the 10 million enrollees, you could lose extra benefits that many of the plans offer, such as free eyeglasses, hearing aids and gym memberships. To cushion the blow to beneficiaries, the cuts to health plans in high-cost areas of the country such as New York City and South Florida — where seniors have enjoyed the richest benefits — will be phased in over as many as seven years.

Beginning this year, the law will make all Medicare preventive services, such as screenings for colon, prostate and breast cancer, free to beneficiaries.

Q: How much is all this going to cost? Will it increase my taxes?

A: The package is estimated to cost $938 billion over a decade. But because of higher taxes and fees and billions of dollars in Medicare payment cuts to providers, the package will narrow the federal budget deficit by $143 billion over 10 years, according to the Congressional Budget Office.

If you have a high income, you face higher taxes. Starting in 2013, individuals will pay a higher Medicare payroll tax of 2.35 percent on earnings of more than $200,000 a year and couples earning more than $250,000, up from the current 1.45 percent. In addition, you will face an additional 3.8 percent tax on unearned income such as dividends and interest over the threshold.

Starting in 2018, the law will also impose a 40 percent excise tax on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceeds $10,200 a year for individuals and $27,500 for families. The tax is often referred to as a “Cadillac” tax.

The law also will raise the threshold for deducting unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent.

The law also will limit the amount of money you can put in a flexible spending account to pay medical expenses to $2,500 starting in 2013. Those using an indoor tanning salon will pay a 10 percent tax starting this year.

Q: What will happen to my premiums?

A: That’s hard to predict and the subject of much debate. People who are sick might face lower premiums than otherwise because insurers won’t be permitted to charge sick people more; healthier people might pay more. Older people could still be charged more than younger people, but the gap couldn’t be as large.

The bigger question is what happens to rising medical costs, which drive up premiums. Even proponents acknowledge that efforts in the legislation to control health costs, such as a new board to oversee Medicare spending, won’t have much of an effect for several years.

In November, a Congressional Budget Office report on how the legislation — which at that point had a tougher Cadillac tax — would affect premiums said big employers would see premiums stay flat or drop 3 percent compared to today’s rates. It also noted that employees with small-group coverage might see their premiums stay the same. And Americans who received subsidies would see their premiums decline by up to 11 percent, according to the CBO.

0

Summary of Health Reform Coverage Provisions

On March 23, President Obama signed the Patient Protection and Affordable Care Act passed by the Senate on December 24, 2009 and by the House of Representatives on March 21, 2010. The House of Representatives also passed the Health Care and Education Reconciliation Act of 2010, which made changes to the Patient Protection and Affordable Care Act and has been sent to the Senate for consideration. References to the legislation here include both the health reform law and the changes made by the House of Representatives that are being considered in the Senate. The following summary explains key health coverage provisions of the legislation.

The legislation passed by the House of Representatives will do the following:

  • Most individuals will be required to have health insurance beginning in 2014.
  • Individuals who do not have access to affordable employer coverage will be able to purchase coverage through a health insurance exchange with premium and cost-sharing credits available to some people to make coverage more affordable. Small businesses will be able to purchase coverage through a separate exchange.
  • Employers will be required to pay penalties for employees who receive tax credits for health insurance through the exchange, with exceptions for small employers.
  • New regulations will be imposed on all health plans that will prevent health insurers from denying coverage to people for any reason, including health status, and from charging higher premiums based on health status and gender.
  • Medicaid will be expanded to 133 percent of the federal poverty level ($14,404 for an individual and $29,327 for a family of four in 2009) for all individuals under age 65.
  • The Congressional Budget Office estimates that the legislation will reduce the number of uninsured by 32 million in 2019 at a net cost of $938 over ten years, while reducing the deficit by $124 billion during this time period.

Individual mandate

All individuals will be required to have health insurance, with some exceptions, beginning in 2014. Those who do not have coverage will be required to pay a yearly financial penalty of the greater of $695 per person (up to a maximum of $2,085 per family), or 2.5 percent of household income, which will be phased-in from 2014-2016.

Exceptions will be given for financial hardship and religious objections; and to American Indians; people who have been uninsured for less than three months; those for whom the lowest cost health plan exceeds 8 percent of income; and if the individual has income below the tax filing threshold ($9,350 for an individual and $18,700 for a married couple in 2009).

Expansion of public programs

Medicaid will be expanded to all individuals under age 65 with incomes up to 133percent of the federal poverty level ($14,404 for an individual and $29,327 for a family of four in 2009) based on modified adjusted gross income. This expansion will create a uniform minimum Medicaid eligibility threshold across states and will eliminate a limitation of the program that prohibits most adults without dependent children from enrolling in the program today (though as under current law, undocumented immigrants will not be eligible for Medicaid). Eligibility for

Medicaid and the Children’s Health Insurance Program (CHIP) for children will continue at their current eligibility levels until 2019. People with incomes above 133 percent of the poverty level who do not have access to employer-sponsored insurance will obtain coverage through the newly created state health insurance exchanges.

  • The federal government will provide 100 percent federal funding for the costs of those who become newly eligible for Medicaid for years 2014 through 2016, 95 percent federal funding for 2017, 94 percent federal funding for 2018, 93 percent federal funding for 2019, and 90 percent federal funding for 2020 and subsequent years.
  • States that have already expanded adult eligibility to 100 percent of the poverty level will receive a phased-in increase in the FMAP for non-pregnant childless adults.
  • Medicaid payments to primary care doctors for primary care services will be increased to 100 percent of Medicare payment rates in 2013 and 2014 with 100 percent federal financing.

American health benefit exchanges

States will create American Health Benefit Exchanges where individuals can purchase insurance and separate exchanges for small employers to purchase insurance. These new marketplaces will provide consumers with information to enable them to choose among plans. Premium and cost-sharing subsidies will be available to make coverage more affordable.

  • Access to exchanges will be limited to U.S. citizens and legal immigrants. Small businesses with up to 100 employees can purchase coverage through the exchange.
  • Although there will not be a public plan option in the exchanges, the Office of Personnel Management, which administers the Federal Employees Health Benefit Program, will contract with private insurers to offer at least two multi-state plans in each exchange, including at least one offered by a non-profit entity. In addition, funds will be made available to establish non-profit, member-run health insurance CO-OPs in each state.
  • Plans in the exchanges will be required to offer benefits that meet a minimum set of standards. Insurers will offer four levels of coverage that vary based on premiums, out-of-pocket costs, and benefits beyond the minimum required plus a catastrophic coverage plan.
  • Premium subsidies will be provided to families with incomes between 133 percent and 400 percent of the poverty level ($29,327 to $88,200 for a family of four in 2009) to help them purchase insurance through the exchanges. These subsidies will be offered on a sliding scale basis and will limit the cost of the premium to between 2 percent of income for those up to 133 percent of the poverty level and 9.5  percent of income for those between 300 percent and 400 percent of the poverty level.
  • Cost-sharing subsidies will also be available to people with incomes between 133 percent and 400 percent of the poverty level to limit out-of-pocket spending.

Changes to private insurance

New insurance market regulations will prevent health insurers from denying coverage to people for any reason, including their health status, and from charging people more based on their health status and gender. These new rules will also require that all new health plans provide comprehensive coverage that includes at least a minimum set of services, caps annual out-of-pocket spending, does not impose cost-sharing for preventive services, and does not impose annual or lifetime limits on coverage.

  • Health plan premiums will be allowed to vary based on age (by a 3 to 1 ratio), geographic area, tobacco use (by a 1.5 to 1 ratio), and the number of family members.
  • Health insurers will be prohibited from imposing lifetime limits on coverage and will be prohibited from rescinding coverage, except in cases of fraud.
  • Increases in health plan premiums will be subject to review.
  • Young adults will be allowed to remain on their parent’s health insurance up to age 26.
  • States will be allowed to form health care choice compacts that enable insurers to sell policies in any state that participates in the compact.
  • Waiting periods for coverage will be limited to 90 days.
  • Existing individual and employer-sponsored insurance plans will be allowed to remain essentially the same, except that they will be required to extend dependent coverage to age 26, eliminate annual and lifetime limits on coverage, prohibit rescissions of coverage, and eliminate waiting periods for coverage of greater than 90 days.

Employer requirements

There is no employer mandate, but employers with more than 50 employees will be assessed a fee of $2,000 per full-time employee (in excess of 30 employees) if they do not offer coverage and if they have at least one employee who receives a premium credit through an exchange. Employers that do offer coverage but have at least one employee who receives a premium credit through an exchange are required to pay the lesser of $3,000 for each employee who receives a premium credit or $2,000 for each full-time employee.

  • Employers that offer coverage will be required to provide a voucher to employees with incomes below 400 percent of the poverty level if their share of the premium cost is between 8 percent and 9.8 percent of income to enable them to enroll in the exchange. Employers that offer a free choice voucher will not be subject to the above penalty.
  • Large employers that offer coverage will be required to automatically enroll employees into the employer’s lowest cost premium plan if the employee does not sign up for employer coverage or does not opt out of coverage.
0

Steps You Can Take Ahead of Changes in Coverage, Taxes

By ANNA WILDE MATHEWS

After years of debate, a health overhaul is finally becoming a reality. Now what?

Many big provisions don’t kick in until 2014, including the mandate for most folks to have health insurance and many new requirements for health-plan designs. Before then, you’ll see a mishmash of other things go into effect at various times—and of course some of the changes depend on the Senate passing the House’s so-called sidecar, or reconciliation, bill of changes.

Here are some ways you can start dealing with the new health-care landscape.

Do your homework. This legislation will almost certainly affect your wallet and your health coverage, so you need to understand it. The Kaiser Family Foundation’s site, kff.org, has a side-by-side bill comparison tool featured on the main page, and you can choose the Senate and reconciliation bills, selecting only the parts you care about.

Much of the bill will be implemented only once federal regulators write rules. One place to look for tools and information in coming months will be the Department of Health and Human Services’ Web site, hhs.gov, along with associated sites like healthreform.gov and medicare.gov.

Watch for coverage changes. If you’re uninsured and have health problems, you may become eligible for a special new federal high-risk insurance pool this year. This is likely to be a good deal, so don’t miss out: Watch for more information on hhs.gov and associated sites.

If you have coverage, insurance that was in effect before the bill becomes law is grandfathered in. Still, some provisions in the sidecar bill, like bans on lifetime benefit caps, would apply even to those plans.

That would solve a big problem for people such as Amy Wilhite of Marblehead, Ohio. Her family is insured through her husband’s employer, but her 12-year-old daughter, Taylor, a leukemia survivor, has already gone through more than $1 million of medical care in her life and is approaching a $1.5 million cap. Taylor has been delaying or forgoing some care to stretch out coverage as long as possible.

“We shouldn’t have to pick and choose what we want to do,” Ms. Wilhite said.

This change, as well as rules against insurers’ yanking policies if you get sick, and forcing family policies to generally include kids up to age 26, takes effect six months after the bill becomes law.

Find a doctor. There could be shortages. Including the reconciliation package, the bill is ultimately expected to add around 32 million people to the insured population, with the big influx starting in 2014. Provisions aimed at boosting the supply of primary-care physicians likely won’t kick in fast enough to keep up with the flood of new patients, at least in certain parts of the country. Make sure you are on a doctor’s dance card before he or she stops taking new patients.

Consider long-term-care coverage. One of the underlying bill’s biggest and least-understood provisions is a new voluntary long-term care benefit that would pay cash to people who become disabled. You get the benefit only if you pay premiums into the program for at least five years. You will likely not be able to opt to do this until 2011 at the earliest, but start factoring it into your planning now and watch for information on the hhs.gov sites. Insurers will likely develop supplemental products for the benefit, which isn’t expected to cover round-the-clock care, says John Rother, executive vice president of AARP, the big seniors group.

Plan for new tax rules. One of the earliest is a new 10% levy on indoor tanning services, starting in July, under the sidecar package. For those making more than $200,000, or $250,000 for a couple, the Senate bill means a boost in the Medicare payroll tax beginning in 2013. That same year, the reconciliation bill adds a tax of 3.8% on unearned income, which includes interest and dividends, above those same thresholds.

Also, the sidecar package caps the amount you can put in a tax-free flexible spending account at $2,500 a year in 2013 (it’s 2011 in the original Senate bill). There is currently no legal cap on the amount that people can put in their flexible spending accounts, although many employers impose their own limits.

Prepare for Medicare changes. If you are a beneficiary, the bill has sweeteners for your budget. Under the sidecar package, those who pay for drugs in the doughnut-hole coverage gap are eligible for a $250 rebate in 2010.

In 2011, that group gets a 50% discount on brand-name drugs, and after that the hole will get a little smaller each year, until in 2020 it’s effectively zeroed out. Starting next year, certain preventive care is free.

Retiree Daniel O’Connell of Greenville, S.C., said closing the doughnut hole was “very beneficial to me.” Mr. O’Connell—who lives on a fixed income of about $40,000 a year—hit the coverage gap in August last year, and said he incurred about $1,500 in out-of-pocket costs.

“At a certain point you’re not covered, even though you’re paying the premium,” he said.

Brace for 2014. If you are uninsured, know that starting in 2014, you will likely be required to have insurance or pay a penalty—and you should start planning now for the cost, though many details aren’t yet clear. Medicaid will expand to include more of those with the lowest incomes. For those who make less than around $43,000, or about $88,000 for a family of four, there will be government help to buy a plan. The kff.org site has a calculator that estimates what you might pay. The bill summary on the same site spells out penalties under the sidecar package, which start out at $95 or 1% of income, whichever is greater.

In 2014, insurance will have to meet new requirements that will result in plans that are richer than many available today, particularly in the individual market. These include caps on out-of-pocket costs. If you’re buying a new plan for yourself, these nice extras may come with a cost: higher premiums.

—Amy Dockser Marcus and Louise Radnofsky contributed to this article.

0

Health care: Going from broken to broke

By Shawn Tully, senior editor at largeMarch 12, 2010: 1:37 PM ET

NEW YORK (Fortune) — A few nights ago in the historic Renaissance Grand Hotel in St. Louis, Mo., President Obama reassured a crowd of Senator Claire McCaskill supporters that health-care reform wouldn’t just be good for their health, it would be good for the health of the country: “I said at the beginning of this thing we would not do anything that adds to our deficit,” he said to the clapping audience. “This plan does not do anything to add to this deficit. And that’s how we should be operating.”

What he didn’t discuss was what kind of accounting he was using to generate such applause lines. And the answer to that sheds new light on whether the nearly $900 billion measure really delivers the savings — or, as many fear, does exactly the opposite.

The issue is critical, because America is hurtling towards a debt crisis. On March 5th, the Congressional Budget Office released a report stating that the federal debt will grow far faster than the president is predicting, reaching a staggering 90% of GDP by 2020. That’s comparable to the load now crippling Greece. In a decade, says the CBO, one dollar in six of federal spending would go towards paying interest almost equaling expenditures on Medicare.

President Obama is claiming that his health-care plan will substantially lower future deficits. Naturally, it’s the huge budget shortfalls that cause the debt problem by forcing the U.S. to borrow more and more money to bridge the gap between spending and revenues. For proof, he cites the CBO report from March 11 forecasting that the Senate bill — the basis of the president’s proposal — will pare the deficit by $118 billion over the next decade.

That forecast, however, doesn’t mean that what the CBO counts as lower deficits will lead to less debt, as taxpayers might expect. In fact, it appears that it would require the Treasury to borrow almost 40 cents of every dollar in new spending the bill requires.

How to lower a deficit and raise a debt

It’s not an easy trick to reduce deficits and yet borrow more money. CBO does it because it has to. By law, the CBO is required to use “cash” or “unified budget” accounting. Under that system, the CBO projects all the new revenues and new expenses from the legislation it’s requested to “score.” If the extra revenues exceed the additional outlays, the bill is deemed to reduce deficits. That’s the case with the health-care bill. The rub is that the measure gets a large portion of its revenues from new Social Security and Medicare taxes — plus levies it collects upfront to pay for a long-term care entitlement program.

Counting those taxes as deficit reducers presents two problems. First, the extra revenues are mainly needed to pay for higher benefits in the future. Second, they cannot be used to fund the lavish subsidies, tax credits for small employers, and other spending the bill mandates. “The law is clear,” says Donald Moran, a former Reagan Administration budget official who runs a Washington, DC-based health-care consulting and research firm. “Revenues from those entitlement taxes must go into their trust funds. That money is not available to pay for the spending commitments of the health-care bill.”

So let’s use the definition of “deficits” that most Americans follow in their own budgets: Any time you increase spending — on buying a two-story colonial or taking a vacation at Club Med — and you need to borrow to pay for it, you’re running a deficit. For families, the best way to measure those deficits is the amount it adds to what they owe on their credit cards, car loans or home equity lines.

Now apply the same standards to the health-care bill. If it really reduces deficits, it should lower the federal debt. It does the opposite. How? First, it doesn’t raise nearly enough revenues to pay for itself. Second, it vastly understates future costs.

Fixing the Doc Fix

Let’s start with the second issue. A law dating from 1987 sets strict limits on total physician payments for Medicare. The main mechanism for restraining costs is a formula that lowers the fees Medicare pays for everything from angioplasties to checkups. But since 2002, Congress has been postponing those cuts and allowing modest increases in reimbursements instead. The official budget assumes that Congress made the cuts every year, and hence starts with a far lower spending number. But that’s fiction. Each year, Congress passes what it calls the “Doc Fix,” which today requires spending about $25 billion a year more than the budget projects.

The House included the “Doc Fix” in the bill it presented in July, but not the Senate. And now it’s reappeared — but in a different piece of legislation. The administration estimates that the Doc Fix will cost $371 billion over 10 years. Yet the CBO doesn’t talk about that cost when it comes to health care — because it can’t. It’s not in the bill it’s scoring.

“The bill has many changes in Medicare, but this is the only one Obama wants to do separately,” says James Capretta, who served in the Office of Management and Budget under President George W. Bush. “It’s an attempt to hold the official cost below $1 trillion, when it’s really far higher.”

Messing with a lock box

The White House is also counting on three sources of revenue that, in fact, cannot be used to pay for the bill’s spending: A new entitlement, Social Security taxes, and higher Medicare levies. The new entitlement is the Community Living Assistance Services and Supports program, or CLASS Act. The CLASS Act is a long-term care plan for people who can’t perform basic daily tasks such as feeding themselves. Over the next 10 years, the CLASS Act mainly collects payroll contributions from new enrollees, and pays only small amounts in benefits.

But the program needs all of that money to cover the costs it will accrue when those new enrollees start needing home-nursing services. In fact, it will almost certainly need a lot more. The American Academy of Actuaries warns that the program will be insolvent by 2021. The HHS actuaries conclude that it faces “significant risk of failure.” In October, Kent Conrad, D-N.D., chairman of the Senate Budget Committee, called the CLASS Act “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”

But remember, the CBO counts new revenues, even if they’re owed later for another purpose, towards “deficit reduction.” Hence, using the CBO report, the administration is, in effect, touting the $70 billion the CLASS Act raises between 2010 and 2019 as money that’s available to spend on subsidies for premiums and coverage for the uninsured.

The higher Medicare and Social Security taxes come from one of the bill’s central features, the “Cadillac Tax” on expensive health-care plans. The levy would prompt companies to provide more modest coverage, giving workers higher wages in lieu of richer benefits. That would lead to higher taxable income, and hence, bigger revenues from Social Security and Medicare taxes. In addition, the Senate bill would raise the Medicare tax rates on high earners, and the president’s new proposal would raise those rates even higher. The bill would raise an extra $52 billion in Social Security taxes, and $113 billion in Medicare taxes over 10 years. (Those numbers are the most recent breakdown available and come from a previous score released by the CBO on December 19th.)

As the president’s February 22nd proposal states, the extra Medicare taxes will all go to the Medicare trust funds, as required under law. Neither that money, nor the revenues from Social Security taxes, can be used to pay for the new health-care spending. In fact, the Social Security windfall is needed to pay future benefits, since retirement payments generally rise in tandem with taxable income. By contrast, the Medicare taxes aren’t required to cover additional future spending, since high earners will pay them and get nothing in return. But their contribution to bolstering the long-term solvency of Medicare — which is underfunded by some $38 trillion — is feeble.

How the math adds up

So how much must the government borrow to pay for reform? That’s the true measure of future deficits. Let’s start with the CBO’s “deficit reduction” estimate of $118 billion.

First, we’ll subtract the Doc Fix of $371 billion, which Obama does not pay for and must be borrowed. That wipes out all of the theoretical decline in the deficit and leaves a shortfall of $253 billion.

Then we’ll subtract the tax revenues that are owed for entitlements, and therefore excluded from paying for the bill: $70 billion from the CLASS Act, $52 billion for Social Security, and $113 billion for Medicare. That subtotal: $235 billion.

So the full amount that must be borrowed by 2019 is $488 billion. (That’s 39% of the total cost, composed of the $875 billion official estimate plus the Doc Fix of $371 billion, for a total of $1.25 trillion.) Add in interest, which is excluded from the official CBO cost, and the total amount approaches $600 billion. So the U.S. will need to borrow an additional $600 billion to pay for a new medical system — one that won’t be up and running until 2014.

Only by using the crazy math of health care can a bill both “lower deficits” and enormously raise debt. America’s struggling households know what real deficit reduction looks like, and this isn’t it. To top of page

0

AHIP President Hopes That’s Light In The Tunnel

WASHINGTON BUREAU — The health insurance industry has agreed to give the Obama administration detailed data on what a health reform bill must do to reduce the skyrocketing cost of health care.

The data will be available “very shortly,” a spokesman for America’s Health Insurance Plans, Washington, said today.

AHIP President Karen Ignagni promised to provide the data Wednesday during AHIP’s annual National Policy Forum.

She made her comments after Health and Human Services Secretary Kathleen Sebelius told health insurers that continued health insurance industry opposition to health reform and continued escalation of premiums will ultimately hurt the industry.

In response, Ignagni said she hoped that providing the data and Sebelius’s appearance will mark the “beginning of a change” in the tone of the health reform debate.

In comments at the conference Tuesday, Ignagni had decried the “vilification rather than problem solving” that now marks the debate over health reform legislation.

In her comments, Sebelius said that opposition to the Democratic legislation “won’t work in the long run for the American people or our healthcare system.”

Her concern, she said, is that if insurers continued to oppose Democrats’ health legislation, premium increases would continue and more small businesses would drop health coverage for their employees.

“You can continue your opposition to reform,” Sebelius said. “If you do, and reform goes down to defeat, we know what will happen.”

In response, Ignagni said after Sebelius’ comments that “insurers have been concerned that the current legislation will make the current system more expensive and not more affordable.”

Her specific concern is that health coverage mandates in the current versions of health reform legislation do not provide enough incentives to buy health insurance are not strong enough.

If enough young, healthy individuals choose not to buy insurance, “the people in the pool will be the oldest ones and the ones with the highest health problems,” Ignagni said.

At the same time, the White House issued a memorandum to all government departments calling for them to use “payment recapture audits” designed to curb waste and fraud, presumably primarily in the Medicare and Medicaid system.

This would give incentives to private auditors to examine government payments and report fraud to the agencies.

This was designed to adopt a key Republican proposal on health reform, curbing fraud and abuse in government programs.

0

Health CEOs: Rates Are Driven By Costs

WASHINGTON—Health insurance premiums are produced by healthcare costs, and those costs must be tackled before rates can be brought under control, health care industry CEOs said today.

They made their point at a White House meeting attended by President Obama, other administration officials and state insurance regulators at the White House.

The executives were responding to a request at the meeting by Kathleen Sebelius, secretary of the Department of Health and Human Services, to post on the Internet the justification for their requests for large rate hikes.

WellPoint Inc., Indianapolis, has been under particular scrutiny after its Anthem Blue Cross subsidiary in California recently announced plans to boost individual insurance premiums in California by as much as 39%.

These requests for high increases are aimed primarily at the small group and individual markets.

In comments made at the meetings and afterwards, the CEOs also cautioned that restraining the cost of health insurance premiums without working to control costs would affect the solvency of the companies.

Angela Braly, chairman, president and CEO of WellPoint, said during the conference call that she had told Obama “that the administration must understand that rates can’t be looked at independently from what the drivers of increases in healthcare costs are.”

“You can’t limit rate increase and not look at underlying costs,” she said. “If you don’t have the right rates, they you will also have problem with the solvency of health insurers” not only now, “but in the future.”

Braly and Stephen Hemsley, president and CEO of UnitedHealth Group Inc., Minnetonka, Minn., argued that these costs are largely created by hospitals, the pharmaceutical industry and the medical device industry, all of which have higher profit margins than the 2.2% profit earned by health insurers last year.

“We think we got those attending the meeting to acknowledge that fact,” Helmsley said in a conference call following the meeting.

Officials from Aetna Inc., Hartford, and CIGNA Corp, Philadelphia, were also at the meeting.

In a letter sent to Sebelius Wednesday, Karen Ignagni, president and CEO of America’s Health Insurance Plans, cited a recent Yahoo! Finance analysis of quarterly financial data, which found the average profit margin in the health insurance industry is 3.4%, in contrast to 11% for the entire health care sector.

At the meeting, Sebelius told the executives “that kind of rate increase is just unacceptable and unsustainable.”

She said the industry is earning “healthy profits,” a point the industry executives disputed.

During a short stay at the meeting, Obama underscored that such rate hikes can’t go on. The president has painted a bleak picture of spiraling costs and eroding coverage if Congress fails to pass his plan.

In their comments during the conference call, Bray and Helmsley took note of the proposed Federal Rate Review Board that the administration wants to set up, which would have the authority to roll back high rate increases.

“Healthcare is very local,” Helmsley said. State regulators are in the best position to “strike the appropriate balance between solvency and actuarially sound rates,” he said.

He added that state regulators are in a better position than government to focus on consumer protection.

But state regulators attending the meeting supported the idea of a Federal Rate Review Board, which they said would aim only at providing authority to state regulators who don’t have a legal mandate to reduce high rate increases.

“State regulators are best positioned to perform rate review and many of us do so with great success,” said Jane L. Cline, NAIC president and West Virginia Insurance Commissioner. “Some, however, have not been given the authority by their state legislatures to review and deny unjustified increases. We believe that a federal backstop could help encourage these legislatures to provide that authority.”

WASHINGTON—Health insurance premiums are produced by healthcare costs, and those costs must be tackled before rates can be brought under control, health care industry CEOs said today.

They made their point at a White House meeting attended by President Obama, other administration officials and state insurance regulators at the White House.

The executives were responding to a request at the meeting by Kathleen Sebelius, secretary of the Department of Health and Human Services, to post on the Internet the justification for their requests for large rate hikes.

WellPoint Inc., Indianapolis, has been under particular scrutiny after its Anthem Blue Cross subsidiary in California recently announced plans to boost individual insurance premiums in California by as much as 39%.

These requests for high increases are aimed primarily at the small group and individual markets.

In comments made at the meetings and afterwards, the CEOs also cautioned that restraining the cost of health insurance premiums without working to control costs would affect the solvency of the companies.

Angela Braly, chairman, president and CEO of WellPoint, said during the conference call that she had told Obama “that the administration must understand that rates can’t be looked at independently from what the drivers of increases in healthcare costs are.”

“You can’t limit rate increase and not look at underlying costs,” she said. “If you don’t have the right rates, they you will also have problem with the solvency of health insurers” not only now, “but in the future.”

Braly and Stephen Hemsley, president and CEO of UnitedHealth Group Inc., Minnetonka, Minn., argued that these costs are largely created by hospitals, the pharmaceutical industry and the medical device industry, all of which have higher profit margins than the 2.2% profit earned by health insurers last year.

“We think we got those attending the meeting to acknowledge that fact,” Helmsley said in a conference call following the meeting.

Officials from Aetna Inc., Hartford, and CIGNA Corp, Philadelphia, were also at the meeting.

In a letter sent to Sebelius Wednesday, Karen Ignagni, president and CEO of America’s Health Insurance Plans, cited a recent Yahoo! Finance analysis of quarterly financial data, which found the average profit margin in the health insurance industry is 3.4%, in contrast to 11% for the entire health care sector.

At the meeting, Sebelius told the executives “that kind of rate increase is just unacceptable and unsustainable.”

She said the industry is earning “healthy profits,” a point the industry executives disputed.

During a short stay at the meeting, Obama underscored that such rate hikes can’t go on. The president has painted a bleak picture of spiraling costs and eroding coverage if Congress fails to pass his plan.

In their comments during the conference call, Bray and Helmsley took note of the proposed Federal Rate Review Board that the administration wants to set up, which would have the authority to roll back high rate increases.

“Healthcare is very local,” Helmsley said. State regulators are in the best position to “strike the appropriate balance between solvency and actuarially sound rates,” he said.

He added that state regulators are in a better position than government to focus on consumer protection.

But state regulators attending the meeting supported the idea of a Federal Rate Review Board, which they said would aim only at providing authority to state regulators who don’t have a legal mandate to reduce high rate increases.

“State regulators are best positioned to perform rate review and many of us do so with great success,” said Jane L. Cline, NAIC president and West Virginia Insurance Commissioner. “Some, however, have not been given the authority by their state legislatures to review and deny unjustified increases. We believe that a federal backstop could help encourage these legislatures to provide that authority.”

0

HEALTH LEADERS CRITICIZE OBAMA PLAN TO CREATE FEDERAL AUTHORITY OVER HEALTH INSURANCE RATES

Kaiser Health News –

Feb. 23: State insurance regulators said President Barack Obama goes too far with his proposal Monday to give the federal government new power to reject health insurance rate increases.

Three veteran state insurance commissioners said in interviews that states are in a better position to judge insurers’ premium proposals. But two of the commissioners, Sandy Praeger of Kansas and Kim Holland of Oklahoma, said they’d welcome federal advisory help. Pennsylvania’s commissioner, Joel Ario, said the federal government could also help set standards for states to use in reviewing insurance rates.

States regulate health insurance, although they vary widely on the minimum level of coverage they require of insurers and financial solvency requirements. More than half the states allow insurers to implement rate increases without first obtaining state approval.

Ario said if states and the federal government try to share the responsibility it could pose a problem because it would be unclear who has the ultimate authority. “It could end up as a ‘who’s on first and what’s on second’ problem,” he said.

He was appointed by Democratic Gov. Edward Rendell. Holland, a Democrat, and Praeger, a Republican and former president of the National Association of Insurance Commissioners, were both elected.

Obama’s proposal to create a Health Insurance Rate Authority was included in his 11-page health plan that attempts to merge the health bills passed by the House and Senate last year and restart legislative efforts to pass overhaul legislation. His proposal said the authority would “provide needed oversight at the federal level and help states determine how rate review will be enforced and monitor insurance market behavior.”

Under the plan, “if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable,” the proposal said.

Obama’s plan lacked details about how the federal rate authority would work, or for how long. Under the House and Senate health bills, individual health insurance would be sold through exchanges, marketplaces that would set standards for plans and oversee rates. The president’s plan sided with the Senate version that calls for state-based exchanges instead of one large national exchange as in the House bill. The exchanges would not start until 2013.

The new federal authority goes beyond what’s contained in either the Senate or House bills. In the past two weeks, Obama administration officials have tried to build public outrage over recent insurance rate hikes in the individual health insurance market, especially a 39 percent increase sought by Anthem Blue Cross of California, the largest for-profit health insurer in that state. Last week, the insurer agreed to postpone the increases until May 1.

Efforts to pass legislation stalled a month ago after the Democrats lost their filibuster-proof majority in the Senate with the election of Massachusetts Sen. Scott Brown, a Republican.

America’s Health Insurance Plans, the health insurers’ major lobbying group, said Monday the White House is spending too much time focusing on premium increases in the individual insurance market, which affects seven percent of those with private coverage. The group said blocking rate increases doesn’t do anything to resolve their underlying cause: rising medical costs and increased use of medical services.

The Blue Cross and Blue Shield Association said, “This new agency, which creates a highly politicized federal review process, would divorce premium review from the state regulators’ responsibility of assuring that health plans have enough funds to pay future policyholder claims, potentially leading to multi-plan insolvencies across the country.”

Praeger and Holland said creating a federal rate authority would not deal with the problems driving higher premiums. “If you want to keep costs under control, it’s not about managing health care premiums,” Praeger said, “it’s about managing the underlying health care costs.”

Holland defended state regulation of insurance. “Health insurance is very localized and states already have a number of tools to monitor rates,” she said. “Overall, I think state regulators do a good job.”

0

In California, Exhibit A in Debate on Insurance

New York Times February 16, 2010

LOS ANGELES — When Bernhard Punzet opened the dreaded envelope from Anthem Blue Cross one recent Saturday, it ruined his weekend.

Although he had no known medical problems, the company was raising the premium on his individual health insurance policy by 34 percent, to $254 a month. The policy for his partner, who is 12 years older, would rise 36 percent, to $369.

“Ten percent I could have rationalized,” said Mr. Punzet, 34, a financial controller for a Los Angeles recruiting firm. “But a 34 percent increase? I don’t even have any data points for that, nothing to compare it to. I’ve never seen anything go up 34 percent.”

With health care negotiations stalled in Washington, the Obama administration is seizing on the seething fury felt by Mr. Punzet and nearly 700,000 other Anthem customers in California who have received notices of increases that average 25 percent. About a quarter of them are seeing leaps of 35 percent to 39 percent, the company said, at least four times the rate of medical inflation.

At a moment when the health care debate seemed drained of urgency, the rate increases have permitted Mr. Obama to remind Americans of what is at stake, not just for the uninsured but for those whose coverage is threatened by unregulated hyperinflation.

The spike in Anthem’s premiums, Mr. Obama warned last week, were “just a preview of coming attractions” if the country failed to overhaul its health insurance system.

But if Anthem was the whipping boy the White House needed, the confrontation has also reinforced an emerging shift of focus in Washington from the need for universal coverage to the need for serious cost control. And it brought into clear relief the deep rift between the administration and the insurance industry concerning a central question: whether such unsustainable pricing is driven by the bloodless economics of risk or a corporate culture of greed.

Recognizing a no-lose proposition when they see one, politicians in Sacramento and Washington chastised Anthem relentlessly last week, and hearings are scheduled in both capitals. On Saturday, Anthem’s parent company, WellPoint Inc. of Indianapolis, agreed to a request from California’s insurance commissioner to delay the increases by two months, to May 1, so he could determine whether they comply with loss-ratio regulations.

Health and Human Services Secretary Kathleen Sebelius challenged the company to justify its “extraordinary” rate increases and, when it did in a five-page letter, volleyed that she was not satisfied. She expressed indignation that some of Anthem’s increases would be up to 15 times the rate of inflation, and that WellPoint had earned $2.7 billion in the fourth quarter of 2009.

“Too many Americans are at the whim of private, for-profit insurance companies who are raking in billions in profits each year,” Ms. Sebelius wrote on the White House blog.

She did not mention that most of WellPoint’s fourth-quarter surge came from the one-time sale of a business unit or that Anthem lost money on the individual market in California last year, as company officials assert. California’s insurance commissioner, Steve Poizner, said Saturday that he had a “healthy skepticism” about the claim.

Although Anthem, the state’s largest for-profit insurer, has seemed outmaneuvered by the White House so far, it has tried to transform its defensive position into a teachable moment.

In statements and letters, Anthem and WellPoint have explained what the industry calls a recessionary death spiral: as unemployment and declining wages prompt healthy people to drop their insurance, the remaining risk pool becomes sicker and more expensive to insure, which in turn forces up prices and pushes more people out of the market.

A study released this week found that the five largest health insurance companies collectively lost 2.7 million customers last year, including 1.4 million by WellPoint. Yet they reported record profits of $12.2 billion.

The death spiral “highlights why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors,” Anthem, which is based in Los Angeles, said in a statement.

To many in recession-racked California, however, the Obama administration’s populist rhetoric has sounded pitch perfect.

“As a trial lawyer, I’d make it Exhibit A,” said Joshua C. Needle, 57, of Santa Monica, whose premium is rising 33 percent. “I have no problem with profits, but they’re maximizing profits without any concern that they have a captive audience.”

Mr. Needle, like many of the 13 million Americans who buy insurance individually rather than through employers, cannot shop for a better deal because he has medical conditions like high cholesterol and glaucoma that would probably disqualify him with other carriers.

Once accepted by an insurer, consumers cannot be dropped for medical reasons. But in California, where Anthem controls more than half of the individual market, regulators have little power to prevent insurers from raising individual rates as high as the market will bear. That often forces consumers to move to less-generous policies with higher deductibles in order to hold down their costs.

Mr. Poizner, who is running for governor in the Republican primary, has hired actuaries to study whether Anthem is spending at least 70 percent of premium revenues on claims, as required by state regulations. WellPoint officials said they were confident that Anthem exceeded the threshold.

In the health care bills that have passed each chamber, but not been reconciled, Congressional Democrats would attack the cost of premiums in several ways. Everyone would be required to have health insurance, spreading risk among larger pools. Health insurance marketplaces, or exchanges, would force insurers to compete more transparently. Insurers would be prohibited from denying or canceling coverage because of medical conditions, and would be forced to spend at least 80 percent of premiums on claims.

Paradoxically, since WellPoint has lobbied vigorously against the legislation, the company argued last week that its “unfortunate but necessary” rate increases demonstrated the need for a major fix.

But the company found fault with the Democrats’ proposals, particularly what it sees as soft enforcement of a health insurance mandate that would allow millions of people to remain uninsured. Only if everyone is covered, the insurance industry argues, can it spread its risks sufficiently to stop rejecting those with pre-existing conditions.

“The reform being discussed in Washington will not do anything to address the underlying increases in costs,” said Brian A. Sassi, president of consumer business for WellPoint.

Medical costs have typically risen by 5 percent to 10 percent during each of the last five years. Mr. Poizner said he was starting to see significant increases for individual policies sold by some of Anthem’s competitors, and double-digit increases have been reported in other states.

Several insurance analysts said it was possible, but not necessarily likely, that such increases would become common, at least while the economic downturn persists. Insurance brokers in Los Angeles said they had never seen jumps of such magnitude.

“It’s more astonishment than irritation,” a Pasadena broker, John W. Barrett, said of the reaction from his customers. “Irritation was last year and the year before. Now they’re astonished.”

0

Sebelius, WellPoint Continue Battle Over California Rates

Published 2/12/2010

WellPoint Inc. (NYSE:WLP) says the cost of providing individual health insurance in California is soaring, but a federal regulator says the company should be using its national profits to hold down premium increases.

Anthem Blue Cross of California, a unit of WellPoint, Indianapolis, recently announced that it would be increasing premiums for some California individual health insurance customers by as much as 39%. The increases are set to take effect March 1.

California Insurance Commissioner Steve Poizner asked Anthem to postpone the increase, to give an independent actuary time to verify whether the increase is justified.

Kathleen Sebelius, the U.S. secretary of Health and Human Services and former Kansas insurance commissioner, wrote to ask Anthem Blue Cross executives for an explanation of the increase, and she suggested that the proposed increase shows why the United States health reform.

Now WellPoint and Sebelius have fired off new letters.

Brian Sassi, president of the consumer business unit at WellPoint, writes to Sebelius that WellPoint’s profit margins in California are a little lower the profit margins of competitors in the state.

Anthem earned $12.62 per member per month in 2008, compared with an average of $1.845 per member per month at one nonprofit competitor and $13.22 per member per month at another.

Only about 10% of Anthem’s health insurance customers in California are individual health insurance policyholders, and the proposed 39% increase that is getting most of the media attention affects a relatively small percentage of individual policyholders who insist on sticking with their current policies and will be changing age categories, Sassi writes.

“The rate changes excluding the impact of age-category changes range from a 20.4% decrease to a 34.9% increase,” Sassi writes.

Many individual insurance policyholders can reduce the effects of the proposed premiums increases by changing products, Sassi adds.

WellPoint welcomes the California Department of Insurance review of the rate increases and believes it can show why the increases are actuarially sound and necessary, Sassi writes.

“Rate increases reflect the increasing underlying medical costs in the delivery system, which are unsustainable,” Sassi writes.

Overall health insurance rates are increasing because of factors such as increases in provider prices and the aging of the population, but other factors are accounting for the rapid increases in the California individual health insurance market, Sassi writes.

When the economy is bad, only the sickest individuals choose to keep paying for individual health coverage, and that means the insureds remaining in the pool use more services, Sassi writes.

Meanwhile, Sassi writes, the healthier insureds who are keeping their coverage are migrating toward the cheaper, higher deductible policies, and that makes the risk profile of the insureds who are sticking with the lower-deductible policies look even worse.

“Other individual market health insurers are facing the same dynamics and are being forced to take similar actions,” Sassi warns.

To prevent antiselection in the individual health insurance market, WellPoint believes that Congress must require all Americans to have some kind of health coverage, provide subsidies for people who have serious trouble paying for coverage, and impose significant penalties on individuals who go without coverage, Sassi writes.

Sebelius does not discuss the state of the California insurance health insurance market in her reply, but she notes that WellPoint as a whole reported $2.7 billion in net income for the fourth quarter of 2009.

“It remains difficult to understand how a company that made $2.7 billion in the last quarter of 2009 alone can justify massive increases that will leave consumers with nothing but bad options: pay more for coverage, cut back on benefits or join the ranks of the uninsured,” Sebelius writes. “High health care costs alone cannot account for a premium increase that is 10 times higher than national health spending growth.”

The Anthem decision to raise rates demonstrates the need for reforming the health insurance system, Sebelius writes.

“Reform will end the worst insurance company practices and put doctors and patients — not insurance companies — in charge of medical decisions,” Sebelius writes. “If we fail to implement reform, insurance companies will continue to prosper while families will continue to struggle

0