A Big Insurance-Rate Jump in California: Will It Stick?

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Sebelius also released a report Thursday on proposed rate increases in six other states. And three days after launching his new Twitter feed, White House press secretary Robert Gibbs used the tool to link to news coverage about the Anthem Blue Cross kerfuffle. "BIG insurance rate increases and MORE coming," wrote Gibbs, who said that such increases would serve as the "backdrop" for a bipartisan health care summit scheduled for Feb. 25. There, the Democrats will argue that without a massive, federal overhaul of the health care system and insurance market, costs will continue to rise dramatically and unpredictably for consumers. In addition, Representative Henry Waxman, chairman of the House Committee on Energy and Commerce, has launched an investigation into Anthem Blue Cross's parent company, WellPoint, and asked it to provide everything from internal e-mails about rate increases to a complete accounting of expenses and claims data. A congressional hearing on the matter is scheduled for Feb. 24.

The political ramifications of the Anthem Blue Cross story don't end at the Beltway. Steve Poizner, the California insurance commissioner who has been aggressively pursuing Anthem, is running for governor, though he is trailing far behind fellow GOP candidate (and former eBay CEO) Meg Whitman. Poizner says he supports reform of the U.S. health care system but generally opposes the Democratic House and Senate bills. Dave Jones, a Democratic state assemblyman, is running to replace Poizner in the commissioner's office on a platform of changing California law to require health insurers to get state approval before increasing rates.

Still, it's true that the Anthem Blue Cross rate hike is a perfect example of why the current individual insurance market is unsustainable. After all, the justifications the company provides for why its rates have to increase do make sense. In a bad economy, the people most likely to cancel their health insurance are healthy people; this leaves the remaining so-called risk pool less healthy, and therefore more expensive to insure. (Waxman, in a follow-up letter to WellPoint, asked the company to explain why data show that it had more individually insured customers in California in 2009 than in 2008. But it's not just the total number of customers that determines rates in a risk pool — the health of those customers also matters. It's also not surprising that more people are enrolling in individual coverage with the unemployment rate high and people losing job-based insurance.)

Under the Democratic health care reform plans, the individual insurance market would be far less volatile. Insurers would be prohibited from basing rates on health status, and rate increases would be transparent and regulated through national or state-based exchanges. Plus, with an individual mandate, most healthy individuals would be compelled to maintain coverage, diffusing risk throughout a larger pool.

The Anthem Blue Cross story in California is far from unique. According to the Associated Press, Maine, Oregon and Kansas are among states where consumers buying individual policies on the open market may see double-digit rate increases in 2010. Sandy Praeger, the Kansas insurance commissioner and head of the managed-care committee of the National Association of Insurance Commissioners, said she agrees with others that Anthem Blue Cross is probably operating within the law in proposing its California rate hikes. "I thought the explanation made perfect sense," says Praeger. "In this job climate, if people are young and healthy, they're just not going to buy insurance. And the people who do keep it are the ones who need it."

Daveed Kapoor, 30, a healthy, self-employed resident of Los Angeles, is one of California's 700,000 individually insured Anthem Blue Cross customers. Since he bought his policy in 2005, he has seen his premiums rise dramatically. Just last year, his monthly rate jumped from $361 to $495, a 27% increase. Kapoor, who pays his premiums via automatic debit from his bank account, did not receive a notice about the 2009 hike and didn't realize it had happened until reviewing his bank statements several months later. This year's hike — to $665 — may be too much for him to bear. He's considering switching to a plan with less desirable coverage. "Last year, I was really, really angry," says Kapoor. "And this year, I just feel totally helpless."

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