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New Survey: Consumers Who Buy Their Own Health Insurance Report Big Rate Increase Requests

Jun 21, 2010

Wellpoint – a big health insurer sharply criticized by the Obama Administration for seeking to raise rates up to 39 percent for some California policyholders earlier this year – was not unusual in seeking double-digit increases, a new survey finds.

People who buy their own health insurance report the most recent rate increase requests have averaged 20 percent, according to the survey released Monday by the Kaiser Family Foundation. (KHN is a part of the foundation.)

The foundation surveyed just over 1,000 people who don't get insurance from their employer, finding that 77 percent reported an increase with their current or previous insurer. Most paid the increase.  But 16 percent switched to less expensive plans, either to one offered by their insurer or to one from a different insurer. As a result of those who switched, the average increase for all respondents was 13 percent.

More than half said they thought it would be difficult to switch insurers, often because they or someone in their family had a medical condition. Current law allows insurers to reject applicants with medical conditions on the individual market, a practice that will be barred under the new health reform law starting in 2014.

The foundation conducted the survey "to get a more scientific picture of what is happening," Drew Altman, president and CEO of the foundation said in a press briefing. "The increases people are being hit with are truly really big increases."

Insurers Blame Rising Medical Costs

More than 14 million Americans buy their own insurance in the individual market, generally because their jobs don’t provide coverage. Insurers say increases are being driven in part by large increases in the amounts they are paying for medical care.

“We’re seeing price increases of 40 percent to 50 percent from some hospitals across the country,” says AHIP spokesman Robert Zirkelbach. “Data show that premium increases are being driven by the soaring cost of medical care and younger, healthier people choosing to drop their coverage during an economic slowdown.”

Tracking premium increases among individual purchasers is difficult: States vary widely in how they collect and report increases, insurers offer many types of policies and premium increases are based on many variables, many of them policyholder-specific, such as age.  Actuaries also expect higher medical claims the longer a person holds a policy, and premium increases sometimes reflect that.

Other surveys, including data from the lobbying group America’s Health Insurance Plans and insurance sales website Ehealthinsurance, show the average cost of premiums, but don't ask about increases.

The foundation survey asked respondents about the most recent rate increase sought by their insurer; the vast majority of requests occurred since March 2009. The survey has a margin of error of plus or minus four percentage points and was taken between March 19 and April 2. It comes as attention is focused on premium increases and the Obama administration’s efforts to implement provisions of the health overhaul law passed in March.

Other findings include:

-- More than half of respondents reported being the only ones on the policy. Their average  annual premium is  $3,606. A separate survey of employers conducted last year by the foundation showed employer coverage for single workers averaged $4,824, possibly because the benefits are richer.

-- Family coverage averages $7,102 annually among those responding to the survey. That’s less than employer coverage for families, which averaged $13,375 in 2009, according to the separate foundation survey of employers.

-- Respondents with single coverage, purchased on their own, reported their annual deductible averaged $2,498; family plans averaged $5,149. Twenty-six percent reported an annual deductible of $5,000 or more.

Zirkelbach says it’s hard to tell if the foundation survey accurately reflects premium increases because it asked for the "most recent," rather than those covering a specific year.  He says "individual coverage continues to be an affordable option for people who don’t have employer coverage."

Policy analysts say some aspects of the new law could slow premium growth, while others might increase it.

The law does not grant federal authority to reject premium increases. It does, however, call for insurers to justify any deemed “unreasonable.” Regulations  that would define unreasonable are being developed. Federal regulators, working with the states, can also recommend barring insurers with a history of unreasonable increases from the new marketplaces for insurance sales, called exchanges, which are set to open in 2014.

New Law Affects Premiums

Premiums could be affected by other provisions in the law, such as one barring insurers from charging higher premiums based on a person’s health, a rule that begins in 2014. That could mean lower premiums for those with health problems, but higher rates for those who are younger or healthier. 

Insurers must also spend at least 80 percent of their premium revenue on direct medical care for individual policyholders – or pay rebates, starting next year.  Rules about what counts as medical care are still being developed. The requirement could shed more light on what insurers pay out – and how much they keep for administrative costs and profits.

Insurers have warned that some of the immediate effects of the law – such as barring them from rejecting children under 19 for coverage and allowing some young adults to stay on their parents’ policies until age 26 – could add to premium inflation in the short term.

Shane Perrault, a psychologist with a private practice in Silver Spring, Md.,  says he hopes the net result is to slow premium increases overall.

 "The rates go up and up and you just don't get much for it," Perrault, 48, says of his experience in the individual market over the last six years.  When he gets an increase, he shops around, but often has to accept lower benefits to keep his premiums from growing.

"I am hoping that the Obama health care plan will be my savior," Perrault says. "I don't think it could get worse, I am very hopeful."

Cindy Holtzman, who has sold health insurance for more than 14 years in Georgia, says almost all insurance companies increase premiums on the policy anniversary date and some premiums increase again on the policyholder's birthday.

 "The only solution consumers have is to increase their deductible or cancel” their policy, says Holtzman. “Premiums are going up way too fast and way too often."

But some policyholders say they haven’t had much of a problem with premiums.

Tony Morse and his wife have been in the individual market for five years and have kept the same coverage from Blue Cross Blue Shield. Morse, director of  a public relations firm in Minneapolis, Minn.,  says even though their premiums have gone up, they've been satisfied overall.  "We are happy with our coverage. We each tend to have different healthcare needs so we can set up different deductibles to suit our health care costs," he says.

Between this year and last year, his wife's premium increased nine percent, while his went up 13 percent. "Frankly, I didn’t realize how much they went up until I just checked the math. In actual dollars the increase has not been substantial – so we’ve dealt with it," he says.
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