Risk Pool to Cesspool

Enormous premium increases of 25 to 40 percent announced by Anthem Blue Cross in California and Anthem Blue Cross and Blue Shield in Ohio, both units of Wellpoint, Inc., a health insurer with 33.7 million members across the country, have drawn newspaper stories and public outrage. In both cases, Anthem has cited soaring healthcare costs as part of the explanation for these premium increases.

But a look at healthcare costs shows that they play only a tiny role in hikes of these magnitudes. The U. S. Department of Labor's Bureau of Labor Statistics shows only modest increases in health costs during the past year. Anthem is attempting to put in place rate increases three to 12 times greater than the increase in medical costs.  "Soaring" describes Anthem's premium increases, not actual healthcare costs.

Component	Rate of Increase (Jan 2009 - Jan 2010)
Medical Care	3.9%
Medical Care Commodities	3.9%
Medical Care Services	3.9%
Professional Services	3.1%
Hospital and Related Services	7.6%

 
"Raising our premiums was not something we wanted to do," Angela F. Braly, Wellpoint president and CEO, said. "But we believe this was the most prudent choice, given the rising cost of care and the problems caused by many younger and healthier policyholders dropping or reducing their coverage during tough economic times."

It is the later point, that younger and healthier policyholders are dropping coverage, that is the key reason for these large increases. When large numbers of healthy individuals either find better rates, or simply take the risk they will not need coverage, the average experience of those still in the group will get worse, increasing utilization and plan costs. This causes even more policyholders to look for alternatives, and those who are healthy will move to a lower cost plan, further increasing costs for those remaining in the plan. After several iterations, those left in the risk pool are paying far higher premiums and are those who are currently sick or who have a pre-existing conditions that make it impossible to find alternative coverage at any price.

So policyholders are at risk not only for their own individual health, for medical inflation, for growth in the utilization of health services, but also for the competence of their insurance carrier in managing the risk pool they are in. Being caught in a risk pool that has become a cesspool, is an expensive, even life-threatening situation.