ANALYSIS: Taking the initiative in a struggle against excessive rate increases

Introduction

The biggest applause line Senator Diane Feinstein (D-Calif.) got at a gathering of Democratic Party activists last week came when she endorsed a ballot initiative to give the California Insurance Commissioner power to reject excessive health insurance rate increases.

Consumer advocates there decided to go the ballot initiative route after the insurance industry’s friends in the legislature blocked a bill last year that would do the same thing. Feinstein became the first Californian to sign a petition. Insurance Commissioner Dave Jones became the second. To get the measure before voters in November, the advocates, led by Santa Monica-based Consumer Watchdog, must collect half a million more signatures.

In her San Diego speech before the party faithful, Feinstein pointed out that in the first quarter of this year, the five largest health insurers — UnitedHealth, WellPoint, Aetna, CIGNA and Humana — posted profits of $3.6 billion, 16 percent more than the same period a year earlier. One of the ways those companies were able to achieve such Wall Street-pleasing success was by jacking up the rates on policies bought by individuals and small businesses. While most of these policyholders dug deeper into their pockets to avoid joining the 50 million Americans who are uninsured, many others had no choice but to let their coverage lapse.

As Feinstein noted, thousands of Californians have been forced into the ranks of the uninsured in recent years because of policies being priced beyond the ability of individuals to pay. She said many people in the state had received rate increase notices twice over the past year alone.

According to the California HealthCare Foundation, health insurance premiums in the state increased 153 percent from 2002 to 2011, more than five times the rate of inflation for other goods and services during the same period. As a consequence, a growing number of the state’s residents have been priced out of the health insurance market.

And this is not a situation unique to California. A review of financial statements filed with the Securities and Exchange Commission shows that while the five biggest insurers earned billions in profits last year, the number of people enrolled in what they call “fully insured policies” — primarily employees of small businesses or individuals who have no alternative but to buy coverage on their own — decreased.

That is a continuation of a trend that’s now several years old. The vast majority of the big five’s membership comes from service agreements they have with large employers, not from actually insuring individual Americans. The companies have, in essence, transformed themselves into benefit administrators for big corporations that self-insure and for the Medicare and Medicaid programs. It’s no longer even accurate to refer to those five companies as insurers. They certainly don’t. If you look at their Web sites, you’ll see that they call themselves “health services” companies or the like. You’ll be hard pressed to find the word “insurance” on their sites or in their promotional materials. That’s because the number of people they actually insure continues to dwindle.

While the big five reported covering 3.5 million more Americans at the end of 2011 than at the end of 2010 — from 106.5 million to 110 million — the number of people enrolled in their individual and small business plans actually declined by more than 400,000. The enrollment gains came almost exclusively from their “administrative services only” customers.

The federal Affordable Care Act should reverse that trend when the states get their health care “exchanges” (online marketplaces) up and running by 2014, as required by the law. Starting that same year, insurers can no longer refuse to sell policies to people because they’ve been sick in the past. Additionally, the requirement that all of us must have coverage will become effective.

While the law grants the Secretary of Health and Human Services the ability to question rate hikes of 10 percent or more and to proclaim such increases excessive, it doesn’t give regulators at either the state or federal level to the authority to reject them. Which is why consumer advocates in California are hard at work to get the requisite number of signatures to get the initiative on the ballot. While the state’s insurance commissioner can reject excessive auto insurance rate increases, he doesn’t have the authority, which regulators in several other states have, to block exorbitant health insurance hikes from taking effect.

Feinstein said at the San Diego party conference that a growing body of evidence indicates that California insurers are raising rates in the individual and small group markets even higher than usual this year in anticipation of being required to insure everyone who applies starting in 2014. That, too, is not limited to California. As enrollment statistics reported by the big five earlier this month show, it is a nationwide phenomenon. A former insurance commissioner in Missouri told me recently that agents and brokers have told him that insurers are now rejecting far more individual applicants than usual and hiking premiums much higher than in previous years.

When insurers behave this way, they are demonstrating that they care more about their bottom lines than their policyholders. Which makes it all the more imperative for California voters to sign those petitions and vote for the ballot initiative this fall.