Lisa Simpson
Feb 23,2010
In: Finance

Swelling Health Insurance Premiums

Swelling health insurance premiums

Premiums for health insurance are swelling and the Republicans are apprehensive that this will lead to another thrust for reform.

Nearly 800,000 individuals who purchase insurance on the individual market (not getting it via the employer) from firms like Anthem Blue Cross (subsidiary of WellPoint) were told that there would be a startling spike by nearly 39%.
Profit making is not behind this increase explained WellPoint. It said that it is facing a death spiral. Private health insurance firms can only operate if policies can be sold to healthy as well as sick persons. If a sizeable number of healthy persons decide to take a chance and not opt for insurance the risk pool shrinks compelling the insurance firms to increase the premiums. This causes more healthy persons to opt out of insuring and the pool shrinks further causing a classic death spiral for the insurance companies.

Thus insurance firms like WellPoint said that they have been compelled to increase the premiums because of “challenging economic times.”

The residents of California reeling under foreclosures and unemployment are shying away from policies or moving on to less comprehensive plans. Those remaining are the ones current on high medical expenses. The result is disastrous for the insurance firms.

WellPoint thus argues that the increase in premium rates is not their fault. They said, “Other individual market insurers are facing the same dynamics and are being forced to take similar actions.”

Some experts however claim that that the costs of health care would drop drastically if insurance firms were allowed to sell their policies crossing state borders. But California’s market is huge and within it there is enough competition compared to other states. The truth is that the insurance firms compete with each other in the field of refusing coverage to persons who need it the most. Competition has not stopped the death spiral. Thus why should a national market improve matters?

Another group feels that the health insurance companies suffer because of unnecessary interference by the government. The idea is to kick off inter state operations throwing aside state rules and regulations. The internal market of California is noted for its lax regulations in comparison to say – New York. Despite this the market is punctured and collapsed.
Another call has been given for minimalist health-reforms that would put a ban on discrimination based on current conditions and put a stop there. The idea is popular but it is not viable as all health economists know. It would lead to increased premiums for the healthy and cause bigger death spirals. None of these ideas would work.