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As her health insurance rate climbs, disabled woman's income can't keep up

Paula Homan's story illustrates why we have to do a better job spreading healthcare costs across the entire spectrum of the population.

February 22, 2011|David Lazarus

You can understand why Health Net is raising Paula Homan's monthly insurance rate by 37%, to $1,090 from $795. She just turned 60 and, statistically speaking, will be more prone to needing costly medical treatment.

Health Net and all other private insurers would quickly go out of business if they didn't charge rates commensurate with higher risk.

But Homan's story isn't simply about someone being slapped with higher rates as she gets older. It also illustrates why we have to do a better job spreading healthcare costs across the entire spectrum of the population.

I'm talking mandates. I'm talking a public option. But we'll get back to that in a moment.

First, a closer look at this one example of the millions of people who have seen double-digit increases in individual insurance premiums in recent months.

Homan received severe head injuries when a car driven by an unlicensed, uninsured woman struck her car in Hermosa Beach on Dec. 19, 1980. Homan, a graduate student in fine arts at USC at the time of the crash, was in a coma for six weeks.

When she emerged from the coma, her short-term memory was significantly impaired and she had difficulty walking. In 1986, the city of Hermosa Beach agreed to pay $800,000 to settle a lawsuit filed by Homan's family related to the placement of traffic signals where the accident occurred.

Under the terms of the settlement, half the money was used to buy an annuity for Homan's long-term care. The rest covered her immediate medical and legal costs.

The value of the annuity started at about $2,300 a month. With adjustments for inflation over the years, it now pays about $4,800 monthly.

But Homan's father, Bob Homan, 83, told me the annuity has never covered more than the cost of the live-in caretaker his daughter requires plus routine expenses. He and his 82-year-old wife have always had to pay for their daughter's insurance — now more than $13,000 a year — out of their own pocket.

The problem is that even though the annuity covers Homan's day-to-day costs, it places her at an income level too high for any form of state support. The family is on its own.

"It's strange," Bob Homan said. "If you're destitute, you can get help with coverage. But if you're in the middle class, you can't — unless your medical bills drive you to destitution."

He's a retired aerospace executive. He and his wife have a home in Manhattan Beach and aren't starving. But the thousands of dollars they have to pay annually for their daughter's insurance strain their finances at a time when they should be able to enjoy a little peace of mind.

It's also worth noting that the amount of Homan's annuity has more than doubled since the settlement with Hermosa Beach a quarter-century ago, whereas the cost of her insurance has risen by the same amount in the last four years alone.

Clearly, increases in Homan's insurance premiums are outpacing her income. Without her family's support, she'd either have to get by without coverage or without a caretaker. She wouldn't be able to afford both.

Bob Homan isn't looking for sympathy. He just wants others to know that the healthcare system, even when it's ostensibly working as it was set up to do, doesn't work the way it should.

"This is bigger than just us," he said. "This is a problem that an awful lot of people face who may not have the same resources we do."

Again, I don't blame Health Net and other insurers for keeping a close watch on their bottom line. Any business would be foolish not to match prices with the cost of providing a service.

Brad Kieffer, a Health Net spokesman, said the company raises rates at five-year intervals as people grow older.

"This is based on sound actuarial formulas," he said. "The greater the age, the greater the utilization of expensive medical treatments."

This is the downside of offering health insurance as a for-profit business. Just as people begin to really need coverage, they get hit with steadily rising premiums.

Most Americans — about 60% — receive health insurance through their employer and are buffered (somewhat) from price hikes because of the size of their risk pool. But millions more buy coverage in the individual insurance market, and they've seen their premiums skyrocket as insurers pass along rising medical expenses.

That's why, if we're determined to stick with our predominantly private-sector-based insurance system, mandates are a crucial component. The healthcare reform law passed last year requires almost everyone to have insurance. It provides subsidies for people who can't afford coverage.

With mandates, Homan and everyone else with individual insurance policies would probably experience much smaller increases in annual premiums because insurers' risk would be spread across far more people. Their coverage would be more like what workers receive from employers.

But mandates are under attack in court. Some states insist the federal government has no power to make people buy something that they may not want.

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