Part Deux: Is The California Individual & Family Health Insurance Market In Critical Condition?

Having recently watched the "bi-partisan" meeting in Washington and many videos on youtube, I wonder if the problem is "un"-fixable.

Speaker Pelosi, in a recent youtube video answering questions on the meeting, pointed out two things which are absolutely of concern. 1, our health insurance system is employer-based in design and function. 2, there are many more people not covered under the employer-based system who choose to remain on the sideline than those who participate in the non-employer health insurance market.

I won't go through the numbers again since they are covered under part one of this topic below. Suffice to say, nearly two-thirds of those who should participate in the health insurance market in California for individual & family coverage do not. No employer-sponsored health plan, whether fully insured or self-funded, could operate at a participation level of 33% or less. Employer plans require 75% of all eligible employees to participate. I have worked in the past for employers who made it mandatory to buy a health plan through their fsa/cafeteria plan unless one had a valid waiver (so as not to mess up participation).

With rare exception, most every vlog I have seen, including the grilling of Anthem/Wellpoint CEO Braly in Washington, have had a nasty, negative tone. While it is without doubt that people are upset by the rate changes and popular press, there are implications to this notwithstanding the fact that my study below shows that even with the "massive" rate increase, Anthem prices below most of the other California carriers for like coverage (including 2 not-for-profits).

Now here's your "inside scoop" for the day, dear readers. I have it on good authority that a very large health insurance company in California (which shall remain anonymous), in the last six months, approached the state regulatory agency/ies to review the option of cancelling the individual & family market product and bailing out. To be clear as to what is at stake....

IN THE LAST SIX MONTHS, ONE OF THE LARGEST HEALTH INSURANCE COMPANIES IN CALIFORNIA ADDRESSED TO A STATE REGULATORY DEPARTMENT THE POSSIBILITY OF NO LONGER SELLING HEALTH INSURANCE TO INDIVIDUALS & FAMILIES IN CALIFORNIA.

The writing is on the wall across the spectrum of carriers. Sales of new plans are flat. HIPAA plans have been reformated to high deductibles and expensive HMO plans to stem the bleeding in that pool. Programs like Tonik for individuals and BeneFits for small group have experienced less-than-stellar sales.

The only two PPO programs (non-HIPAA) that are selling at all right now are SmartSense by Anthem and VitalShield by Blue Shield. Even in those cases, the sales of new plans is not keeping up with the cancellation of existing subscribers.

Anthem has launched three new product portfolios for IFP in the last six months--Core Guard, Clear Protection, and coming April 1, Premier. I will be curious to see whether or not new enrollments in these plans (lower cost) will overtake defections off of coverage as is the current trend.

Until and unless this trend shifts, the IFP market is going to be chaotic at best. Continuous premium increases will become the norm, and this in turn will drive more people off of coverage which will create a repetitive cycle.

So, Dave, you ask, what is your solution to the problem?

Well, I see two choices.

One, like Speaker Pelosi mentioned, mandate coverage and penalize those who do not participate. Increase participation to as close to 100% as possible, guarantee-issue health insurance coverage with no pre-existing conditions problems and create an incentive (tax or othewise) for people to participate in addition to a penalty.

Two, and this is one I may favor over the first one, kill off all non-employer coverage plans and go to a single payer exchange for coverage (with a mandate or incentive). The exchange could offer compliant private plans from carriers that wish to offer them and/or public plans like Medicare/FEHB or other plans designed under federal mandates. Allow carriers to sell private plans outside of the exchange to those who can qualify and wish to purchase outside of the exchange.

Make the exchange available to those who cannot obtain employer-sponsored coverage and do not wish to or cannot purchase a private plan outside of the exchange. Also, provide that any employer under 20 employees (2-19) who chooses the exchange over the group plan must pay a penalty per employee to the exchange, and any company over 20 employees must either provider group coverage or pay a payroll tax penalty per employee to the exchange.

Post-Summit Health Reform: What a Mess

Everyone agrees our health care system is unsustainable and too often unfair. At the White House health care summit, that was the only common ground between Democrats and Republicans.Many Americans are either left-brain liberals or right-brain conservatives, with the remainder somewhere in the middle. These left- and right-brain types look at the same facts but come to different conclusions—no

The White House Health Care Summit--Democrats: 0 Republicans: 0 -- The Republicans Win

There is politics and there is policy.On the policy front what we saw today was the same exchange of the old talking points we have watched for a longtime. No progress was made toward any kind of health care bill. That is no surprise--this was never going to be the place to fashion any kind of compromise.At the end the President asked the Republicans if it was worth it to spend another month or

Live Blogging During the Health Care Summit

I am blogging live with a number of others at the NewsHour site.

Obama to Uneasy Democrats: Please Walk the Plank for Me But If It Doesn't Work Out Here's Plan B

The President and the Democratic leadership have been pushing hard on the idea that the Democrats should ram their unpopular health care bill through by using reconciliation--no matter how many Democrats in swing districts lose their jobs over it this November.But Laura Meckler had an important story in the Wall Street Journal yesterday that is bound to give many of the nervous moderate Democrats

The President’s Health Care Plan—Not a Game Changer

It is hard to see how the health care plan the President released this morning changes anything.There is nothing new in it save a health insurance rate regulatory board that is an awkward political proposal at best. What powers would it really have and how would it operate in conjunction with the states already charged with insurance company oversight are just two of the first questions it does

Anthem: The Tale of the Tape in California

I was curious about the impact of the now-delayed Anthem Blue Cross rate increase on premium levels. I could only think of one way to find out, so I ran quotes on myself in Gilroy for four comparative coverage plans from the four California health carriers. Kaiser and Blue Shield are not-for-profit, so they should win, right? The results may surprise you!

The rates below include the Anthem rate increase scheduled for March 1, 2010.

1500 Deductible HSA Plan (or closest match)

#1 Anthem Blue Cross Lumenos 1500 HSA...............$243.00
#2 Health Net CA 2500 HSA (closest).................$246.00
#3 Blue Shield CA 1800 HSA (closest)................$311.00
#4 Kaiser 1500 HSA..................................$349.00

3500 Deductible Traditional PPO (or closest)

#1 Health Net Value PPO 4000 (closest)..............$179.00
#2 Anthem Blue Cross 3500 PPO.......................$224.00
#3 Kaiser 3000 Plan (closest).......................$277.00
#4 Blue Shield CA Essentials 3000 (closest).........$352.00

$0 Deductible PPO/HMO RightPlan Clone with Comprehensive Rx (or closest)

#1 Anthem Blue Cross RightPlan 40 PPO...............$358.00
#2 Health Net NetFirst PPO..........................$383.00
#3 Kaiser HMO (closest match).......................$457.00
#4 Blue Shield CA Active Start 35...................$504.00

1500 Deductible HMO Plan

#1 Kaiser 30/1500...................................$365.00
#2 Anthem Blue Cross HMO (w/1500 deductible)........$654.00
#3 Health Net HMO 40................................$670.00
#4 Blue Shield CA Access+ HMO.......................$798.00



I have not included the SmartSense plans, nor the the Core Guard and Clear Protection plans offered by Anthem. However, those three portfolios all price even more favorably against the in-state competition.

Anthem Agrees To Delay Rate Increase in California

On Saturday (2/13) Anthem agreed to hold off on the March 1 rate increases until May 1 at the soonest. This will give time for independent actuaries and auditors to determine if the increase in rates is appropriate.

Anthem to delay insurance rate hike amid criticism

Anthem Answers Sebelius

Anthem President and CEO of Consumer Business, Brian Sassi, addressed his response to Ms. Sebelius regarding her inquiry concerning Anthem rate increases in California.

Click here to read Mr. Sassi's letter

Wellpoint and Their “39%” Rate Increase

Wellpoint is getting killed in the press over a “39%” rate increase for their individual health insurance block in California.HHS Secretary Sebelius has pointed to the Wellpoint individual rate increases demanding an explanation. The President even brought it up in his interview on Sunday. At a time Democrats are fond of calling insurance executives “villains” this story just adds more fuel to

Poizer Asks For Temporary Halt To Anthem Rate Increase

California Insurance Commissioner Steve Poizner has sent a strongly-worded communication to Wellpoint/Anthem requesting that they hold off on the proposed 3/1 rate increase until 5/1 so that an independent actuary retained by the DOI can review Anthem's payout ratios.

Additionally, the Obama Administration has expressed serious concerns about such a large rate increase in California.

A link to Mr. Poizner's letter here.

The Health Care Summit—Who’s Gonna Win the Photo-Op?

Getting Democrats and Republicans to constructively engage on health care is the best way to make progress.To date, the Democrats have blown health care reform once again by being too arrogant in thinking they could just ram their version through.The Republicans have no health care proposal. Their “black book” list of ideas they handed the President in Baltimore is a collection of second and

A Way Out of the Health Care Wilderness?

I just came across an interview that I will suggest we all may have missed and perhaps charts the way out of this health care reform wilderness we now seem to be in.It was on February 2nd and was between the Washington Post’s Ezra Klein and rising Republican House star Paul Ryan (WI).Ezra asked Ryan about the bipartisan Wyden-Bennett bill as a place for both sides to find common ground. It’s a

Is The California Individual & Family Health Insurance Market In Critical Condition?

With the recent LA Times article and notifications to approximately 800,000 CA residents by Anthem Blue Cross of California, the future of individual & family health insurance coverage is looking bleak. Anthem announced a rate increase for March 1, 2010 ranging between 30-39% on many private health plans.

I received information just yesterday that Aetna has now laid off the IFP staff support for northern California (and I supposed SoCal as well). The last time Aetna laid off people in these positions, they exited the market in California.

First a look at some "interesting" numbers and how they relate to this issue.

California population (2009) - 36,900,000 (probably 37,000,000 by now)

# California residents covered by private health plans - 2,100,000
# California residents on average uninsured - 6,000,000
# California residents covered under Group/Medicaid/Medicare - 28,800,000

Those numbers tell us a lot about what is going on. IFP (Individual & Family Plan) represents an average enrollment of 6% of the total population, and 7% of the total insured population of California. 76% of the total population is covered under an employer-sponsored health plan, Medicaid or Medicare and 93% of the total insured population is covered under an employer-sponsored health plan, Medicaid or Medicare.

Sadly, the uninsured population is nearly three times as large as those who have private health insurance.

Group plans (employer-sponsored) flourish in California. The plans are heavily mandated by benefit and also represent a true actuarial "pool" of risk. Carriers require 75% of all eligible employees to participate, thereby spreading the risk across a large and balanced company population. I have heard over the years that actuarily, group plans tend to run 20% using major benefits, 30% using some benefits and 50% using no benefits in any plan year.

While group plans will certainly experience rate increases due to health care costs, they are often minimized by mandated participation. So long as the actuaries do their job, group tends to be more stable.*

Individual plans have few if any mandates and there is no participation requirement. As such, plans react to utilization of benefits and increases in health care costs on a more radical scale than employer-sponsored group plans.

Also, plan benefit levels are continuously being adjusted to keep the utilization in check. Lower deductibles give way to higher deductibles, first-dollar benefits give way to services under deductibles first, co-insurance splits continue downward (Health Net has plans 50/50),and so on.

When I first started in health insurance in California, then Blue Cross of California (now Anthem) had a very impressive set of PPO plans. $10, $20, $30 and $40 co-pay plans with no deductible, low out-of-pockets and 80%-90% coinsurance levels. They also covered all normal benefits including maternity. The $40 co-pay plan was so inexpensive that it became a loss-leader. The plans were retired around 2000 to make room for plans with lower co-insurance levels, deductibles and higher out-of-pockets. This trend has continued since.

The bottom line is that slowly but surely IFP will become undesireable to consumers and carriers. Carriers will bleed money on accelerating health care costs and consumers will hate the plan designs. Every year the IFP carriers introduce "new" plans, all of which are stripped-down from the preceeding plan designs. Carriers will continue to retire plans that are no longer profitable (see Anthem Share PPO plans and Blue Shield Spectrum PPO plans). At the rate things are going, IFP plans in a few years will be completely catastrophic coverage with little or no preventive care, generic only drug benefits and deductibles in the 10-20,000 range. Oh, and you can pretty much forget about maternity on PPO plans in a few years, too.

HMOs will continue to offer richer and stronger benefits (with access restrictions), however, they will eventually price so high as to be unaffordable for many consumers.

* the exception was the major rate increase in the Lumenos HSA plans a couple of years ago for group. This was due to an actuarial error in terms of anticipated benefit utilization. Lumenos group HSA plans offer free no-cost preventive medicine. The utilization by the traditional 50% who normally don't use benefits in a plan year as almost 100% which totally blew the curve. Rates were increase between 25-39% at the first Lumenos plan anniversary to compensate.

Cal-COBRA under ARRA

I have just received information from multiple sources that the ARRA extension through 2/28 for subsidy to 15 months does now apply to Cal-COBRA as well as federal COBRA.

“Plan B” Has Begun

With word that the House is likely to take up the repeal of the health insurance industry anti-trust exemption it is now clear the Democratic leadership has begun Plan B.It is also clear that this is much more a part of a political Kabuki dance then any substantive effort at even piecemeal health care reform.The House probably has the votes to pass the repeal. The Senate does not. I doubt that