Health insurance rate hikes are par for the course
Los Angeles resident Steven Dornbusch wasn’t surprised when he learned that Anthem Blue Cross was raising premiums by a whopping 39% for many of its California policyholders.
Dornbusch says he’s seen his Blue Cross rate jump six times over the last 38 months, adding up to a premium increase of nearly 107%.
“I’ve never gone eight months without an increase,” says Dornbusch, a 53-year-old artist and handyman.
Though recent insurance company rate hikes have made headlines and stoked public outrage, consumers in the private health insurance market, as well as healthcare experts, know that frequent premium increases are just a sign of business as usual.
“We’ve seen rate increases of this size before,” says Anthony Wright, executive director of Health Access California, a statewide advocacy group. “These are large and unreasonable, but they are not unprecedented.”
In the individual insurance market, rate hikes occur in a few different ways.
Periodic rate hikes hit a large number of customers at once. They can occur quarterly or twice a year; most take place annually at the beginning or in the middle of the calendar year. Insurers typically cite medical costs, inflation and medical loss ratios (the proportion of revenues from health insurance premiums the insurer spends on medical services) as justification for these increases.
Individuals are also singled out based on life changes, such as a recent birthday, which can push them into a new and more expensive age group. The cost to different age groups varies among the different insurers, but according to Carrie McLean, consumer specialist with the online health insurance exchange eHealthInsurance.com, policyholders should generally expect their rates to go up at their 30th and 40th birthdays and then every five years thereafter.
Some insurers also use community ratings, which take into account how many medical services were used within a particular geographic area, to justify a rate increase. If medical claims have been particularly high within a community, rates for individuals within it could rise regardless of their own health.
The laws about how and when insurers can raise rates vary by state. In California, insurers can raise rates as often as they choose, as long as they spend at least 70% of the premiums they collect on medical claims rather than on administrative or other costs. California health plans must also provide customers with 30 days’ notice of a planned rate hike.
Efforts to tighten restrictions are underway at the federal and state levels. President Obama has proposed expanding federal oversight of insurance premium increases as part of his plans to reform healthcare. In California, legislation has been introduced to establish a rate increase review system and prohibit health insurers from raising rates more than once a year.
Individual policyholders remain the most vulnerable to health insurance rate increases. But even if you’re in this boat, there are ways to keep your premium costs down, at least to some degree.
Upon receiving notice of an increase, it’s a good idea to check with your state’s insurance department to make sure your rates are in keeping with those on file and approved by the insurance commission and that your insurer has not made a mistake and put you in the wrong age group, says Cheryl Fish-Parcham, deputy director of health policy with the nonprofit health advocacy group Families USA.
In California, this oversight is split between two government agencies. Contact the Department of Insurance if your policy is a preferred-provider organization (PPO). If you have health maintenance organization (HMO) coverage, the Department of Managed Health Care is the place you should check.
If you feel the most recent rate increase is unreasonable, find out from your state’s insurance commission, which enforces state insurance laws, if there is a forum through which to voice your concern. In some states, rate increases must receive prior approval from the insurance commission before going into effect. Sometimes feedback from the public can influence whether those rate hikes are approved.
In California, insurers operate under a procedure called file and use: They must file rates with the Department of Insurance 30 days before raising them. After the 30-day waiting period, they are clear to use them. Only after the new rates have gone into effect can the California Department of Insurance investigate to make sure they comply with state law.
Many consumers incorrectly assume that they are locked into a one-year contract with their insurer. In fact, policies in the individual insurance market are month to month, leaving open the option to change plans frequently.
Before searching for an alternate plan in the individual insurance market, Wright advises looking for any way to join a group plan — through a spouse, a domestic partner or a parent’s employer or professional association — to avoid going it alone. The group market is less vulnerable to steep rate increases.
If group coverage isn’t an option, look to your current carrier for less expensive coverage. When insurers raise rates, they’ll usually offer alternative plan options, McLean says. Some of these may have a higher deductible or will require you to pay more for prescription drugs in order to lower your monthly premium. The advantage is that a lesser plan with the same carrier means you won’t have to undergo medical underwriting, a process through which your health information is evaluated to determine the level of risk you pose to an insurer.
This is a particularly important consideration for people with a pre-existing condition who may have trouble qualifying for health coverage with a new insurer.
Be very sure you know what a new plan you’re considering does and does not cover. And find out up front what your total costs will be. That means looking beyond the monthly premium and taking into account things such as deductibles and co-payments. McLean advises keeping your deductible — the amount you’ll pay before your insurer begins to pick up the bills — to no more than 5% of your gross annual income.
To find a better plan with another insurer, you can comparison-shop online at sites such as eHealthInsurance.com. Other resources for Californians are the state’s Office of the Patient Advocate (at (866) 466-8900, or https://www.opa.ca.gov) a consumer guide to health plan options, and hospitalbillhelp.org, a website run by Health Access California.
Watch out for insurance policies that apply preexisting exclusions, warns Fish-Parcham. Many people sign on to a plan thinking they’re fully covered only to learn that the very condition for which they most need medical services will not be reimbursed by the insurer.
Mix and match
One way to save money but still preserve needed coverage is to consider the various requirements of each family member and purchase their health insurance accordingly.
“People are really set on having the same plan because they’re in the same family,” McLean says. But, she says, “it doesn’t make sense for a husband and wife who have different needs to have the exact same plan.”
For example, if one member of the family has a preexisting health condition, that can increase the cost of insurance for everyone. Consider looking for less expensive options for family members who have no medical conditions or who visit the doctor infrequently.
If you’ve searched for alternative health insurance coverage and are unable to find anything you can afford, check to see if you’re eligible for a public program.
In California, Medi-Cal offers health insurance to people with low or no income. But people with higher incomes may also be eligible, Wright says, particularly if there is a child in the home. Don’t just assume you won’t qualify.
If your children need coverage, explore your options with your state’s Children’s Health Insurance Program (CHIP). In California, the program is called Healthy Families. Check the website (healthyfamilies.ca.gov) or call (800) 880-5305 to determine your eligibility.
The Foundation for Health Coverage Education (CoverageForAll.org) has a range of resources to help consumers determine which free and low-cost health plans they’re eligible for.
Some plans, known as limited medical plans and discount plans, offer coverage at prices considerably lower than other policies, and they often proliferate during times of economic downturn. Neither of these are good options, our experts warn.
Limited health plans, true to their name, offer very limited benefits. They severely restrict coverage for hospital stays and emergency room and doctor visits. Experts say this is not credible insurance. They recommend staying clear of any plan that places dollar amount caps on specific services, such as $25 per doctor visit or $200 for a day in the hospital.
“We would just call that junk insurance,” Wright says. “It doesn’t provide any of the economic security that you’re paying for.”
Discount plans, which merely offer consumers a percentage off medical services, are not health insurance at all. Even worse, Fish-Parcham says, many have no doctors in your area who accept the discount.
Finally, whatever kind of health plan you are looking into, check with your state’s insurance department to make sure you’re buying a licensed, state-regulated product.