Having failed in its bid to hike premiums for individual health insurance policies up to 39%, Anthem Blue Cross announced this week a revised plan to raise them up to 20%. That's still a staggering percentage, and it's a good thing that state Insurance Commissioner Steve Poizner has retained independent actuaries to scrutinize proposed rate increases by all the major health insurers. Even more assurance would be provided in a bill by Assemblyman Dave Jones (D- Sacramento) to give the insurance commissioner greater authority to block excessive health insurance rates, just as it regulates auto and property policies. The Assembly passed the bill last month, and we urge the Senate to follow suit.
But consumers shouldn't lose sight of the underlying problem. Health insurers are seeking ever-higher premiums largely because they're facing ever-higher costs. This is particularly true in the individual market, where the people most likely to sign up for policies are the ones most likely to need treatment. The group market — where insurers sell coverage to employers, unions and other pools of consumers — brings in a broader cross-section of the public, so the cost per person tends to be lower.
Anthem claims that even with its latest proposal, which amounts to a 14% increase on average, it will lose $100 million this year in California's individual insurance market. That's because, it says, its costs went up 5.2% last year in medicines, 6.3% in doctors' services and 5.9% in hospital bills.
We can't vouch for Anthem's numbers, and the 2009 increases don't approach the 14% hike it's seeking. Nevertheless, it's indisputable that medical costs have been growing considerably faster than inflation or the economy for more than a decade. Although the comprehensive healthcare reform law enacted this year will start the process of slowing that growth, there's no easy way to do so. The system needs to change fundamentally, shifting its focus from treating the sick to keeping people healthy. And it has to start rewarding quality and efficiency.
Insurers have a vital role to play in that process because they can pressure healthcare providers to change the way they do business — for example, by coordinating better with other providers to streamline and improve care. Jones' bill (AB 2578) would help make sure that insurers don't reap outsized profits after the federal government starts requiring all adults to buy coverage in 2014. The new healthcare reform law should also help limit insurers' profit-taking by promoting competition through new insurance-buying marketplaces. Ultimately, however, the key to holding down premiums will be to bring the spiraling costs of medical care under control.