California's largest health insurers are raising average rates by about 8% to 14% for hundreds of thousands of consumers with individual coverage, outpacing the costs of overall medical care.
The cost of goods and services associated with medical care grew just 3.6% over the last 12 months nationally, government figures show. But insurance premiums have kept climbing at a faster pace in California.
Insurers defended their rate hikes, saying they are based on their claims experience with the customers they insure and not just the broader rate of medical inflation. They also say that healthier members dropped out of the individual market as premiums rose and the economy worsened in recent years, leaving behind a group of policyholders who have higher average costs.
"We will continue to examine the fundamental issues at the heart of rising healthcare costs, including the prevention of chronic disease, increasing the quality of care and reducing unnecessary health expenses," said Darrel Ng, spokesman for Anthem Blue Cross, the state's largest for-profit health insurer.
Consumer advocates and others are skeptical, however, questioning whether insurers are doing enough to hold down costs. These latest increases follow years of 20% to 30% rate hikes for families that are at the center of a looming fight between the insurance industry and its critics over a proposed ballot measure seeking tougher rate regulation.
"Consumers should be outraged that premiums continue to grow faster than underlying costs," said Gerald Kominski, director of the UCLA Center for Health Policy Research. "There's help on the horizon for millions of Californians from health reform, but things may get worse before they get better."
Anthem has proposed raising premiums 9.6% to 13.8% on average, effective May 1 or July 1, for about 700,000 individual policyholders and their family members. The rate increases are under review by state officials.
Nonprofit Kaiser Permanente increased premiums 9% on average for nearly 300,000 customers last month.
Blue Shield of California, also a nonprofit, is boosting average rates by 7.9% for 265,000 members and by 8.9% for 56,000 members, both effective March 1.
Insurers in California must submit proposed rate hikes for review to determine whether they meet certain state requirements, but state officials don't have the authority to reject rate hikes for being unreasonable. But regulators have been challenging insurers' arithmetic in calculating rates.
Officials at the Department of Managed Health Care persuaded Blue Shield to lower a proposed 14.8% increase to the 8.9% boost. The agency said it disagreed with Blue Shield's projection for future medical expenses. The California Department of Insurance convinced Aetna, based in Hartford, Conn., to lower a 13.7% increase to 9.3% for 50,000 members last month.
"Many of the health insurance carriers have projected significant increases in medical costs and utilization, but those projections have not been borne out by experience," said Janice Rocco, the insurance department's deputy commissioner for health policy. "Therefore the rate is higher than it needs to be."
Rocco said some consumers may receive rebates in August. That would occur based on an upcoming state review of 2011 claims to determine whether insurers met a new federal requirement for spending at least 80% of premiums on medical care for individual policies.
Tom Epstein, a spokesman for Blue Shield, said the company consented to the change in its rates sought by managed health care officials because "we want to keep medical care more affordable for our members." In its filings to regulators, Blue Shield said "the cost of hospital services, physician services and prescription drug coverage for our individual members continues to rise."
In recent years, the rising cost of medical care and rate hikes for health insurance have been a major political issue that prompted congressional approval of President Obama's healthcare overhaul, much of which takes effect in 2014, and calls in California for tougher state regulation of health premiums.
Anthem tried to raise rates by up to 39% in 2010, sparking national outrage and helping Obama win support for his healthcare overhaul. The Woodland Hills company, a unit of WellPoint Inc., was forced to back down and accepted maximum rate increases of 20%. Last year, Anthem raised premiums 9% to 16% on average for individual policyholders.
Starting in October 2010, Blue Shield raised premiums by 23% to 35% on average for about 325,000 policyholders, a result of two separate rate hikes that spanned two years. Blue Shield also began issuing credits to customers if its net income exceeded 2% of revenue. The company said it returned about $450 million to individual policyholders last year as a result, which reduced members' rates by about 7%.
Kerry Abukhalaf, a 37-year-old who owns a small technology services firm with her husband in Alameda, has seen her family's Blue Shield premiums more than double in the last three years to $544 per month. Her latest increase of 9% "is especially hard for ourselves and others we know due to the hard economy right now," she said. "I feel like my family is being penalized for doing the responsible thing and having insurance."
Last month, Blue Shield notified Tom and Dana Richardson, who run a pool-cleaning business in San Diego, that their premium would rise 15% to $1,905 per month. The Richardsons chose to nearly triple their deductible to $11,000 from $4,000 to cut their monthly premium to $1,090.
"It's like a kick in the teeth," said Tom Richardson, who's 63. His wife turns 60 next month. Because of their age and medical history, he said, they can't find a cheaper policy.
These increases would affect many of the 2.2 million Californians who buy individual policies, but not the majority of working Californians who are insured through employer group plans.
Businesses and employees covered by group health insurance are seeing premiums rise too. Nationwide, the annual premium for family coverage through an employer increased 9% last year, according to the Kaiser Family Foundation.
The proposed ballot measure would give the California insurance department the same authority to approve or reject health insurance rate increases that the department now has over property and auto policies. Consumer Watchdog, the Santa Monica group that championed California's Proposition 103 in 1988 that enacted rate controls on auto insurance, is leading the drive to get 505,000 valid signatures by May 1 to qualify the ballot measure for the November election.
Consumer groups have failed to win approval for similar measures in the state Legislature the last five years, encountering intense opposition from the insurance industry and other medical groups.
"In California, nobody can say no to an insurance company, and we're paying the price for it with rate hikes every year," said Doug Heller, executive director of Consumer Watchdog.
The insurance industry says the ballot initiative is unnecessary because health reform has brought extra scrutiny to premiums and company practices.
"Rate regulation might sound appealing," said Steve Shivinsky, a spokesman for Blue Shield. But "it will layer in another complex bureaucratic level of rate review that will gum up the system."