Tuesday, September 21, 2010

Why Health Insurance Premiums Rise

Mystery solved. HHS Sec. Sebelius let's us in on a secret as to why health insurance premiums are on the rise.

"It has to do with their market place. And frankly there is some justification in saying that one of the issues that has hit companies in the economy - again particularly in the individual market where people are out purchasing on their own - is that healthy folks drop their coverage when the economic squeeze occurs. If you are sicker of have a sicker family member you don't have that luxury, so you're keeping it. So their own risk experience is becoming more expensive. So what we have to do is get healthier people back into the marketplace."

As Bill Clinton said, "It's the economy, stupid".

Pure rocket surgery.

Apparently Sebelius left Washington without TOHHS (Teleprompter Of Health & Human Services) in tow . . .

Health insurance premiums, like all competitive products, are self regulated by market forces. I have witnessed carriers enter the market with rates, approved by the state, that were well below the market.

Those carriers did not last long.

Either they were forced to raise rates considerably, or bow out of the market. One local player has tempered their low rates with a bait and switch approach by showcasing very low rates that change dramatically once the application goes through underwriting. They also have a high rejection rate in excess of 50%.

While it does happen, sometimes a health insurance company has rates that are too high for the market. In Georgia, Blue Cross tends to be on the high side when similar plans are spreadsheeted. The result is a loss of business they would otherwise write if their rates were more in line with competitors.

I see no evidence that rate regulation has any real impact on the value of the product to the consumer, but obviously folks in government have to say something to justify their position, even if it flies in the face of logic.

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