Premium Hike

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It’s a long-acknowledged fact that health-care spending in the United States is taking over a growing share of the economy, and that rising health insurance premiums are leading to more people becoming uninsured. But the announcement of a premium hike by a California insurance provider earlier this month shocked even some jaded observers.

Anthem Blue Cross, a subsidiary of WellPoint, announced in a letter sent to thousands of enrollees with individual health plans that their premiums would increase by as much as 39% over their current level, starting on March 1. Combined with similar or even higher increases last year, this means that some customers will be asked to pay premiums as much as 94% higher than they did a year ago, according to an article in the San Francisco Chronicle. In response to a request from California’s insurance commissioner, Anthem agreed over the weekend to delay its rate increase at least two months. As reported in the Los Angeles Times, the commissioner, Steve Poizner, plans to review Anthem’s finances to ensure that the new rates are in compliance with California law, which requires that 70% of income from premiums be spent on medical benefits. However, the commissioner’s office has little power to force changes in health insurance premiums, and it approved Anthem’s proposed rates in November, as the company pointed out in a press release. Anthem insisted that its premium hike was necessary to keep up with increased medical costs, and that the average increase would be around 25%, with fewer than a quarter of enrollees seeing an increase of more than 35%.

This explanation was not enough, however, for the Obama administration or Secretary of Health and Human Services Kathleen Sebelius. As reported in the New York Times blog Prescriptions, Sebelius noted that the 39% premium increase will be ten times higher than the national rate of health spending growth, and that WellPoint took in $2.7 billion in the last quarter of 2009. Other critics pointed out that the nation’s five largest for-profit health insurance companies saw a 56% increase in profits in 2009 compared with 2008, despite a loss of 2.7 million customers. An insurance industry spokesman countered that 2008 was a recession year with low profits, and that for every dollar spent on health care in the United States, less than a cent goes toward health insurance profits.

What do you think — can such a large premium increase be justified by rising medical costs and the loss of customers? Should regulators have more power to directly limit premium increases? Are government policies to introduce more competition the answer, or does the loss of customers suggest that broader changes are needed to keep more people insured? Does this story change the way you view the health-care reform debate? Leave a comment below!

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