Health Insurance Companies Try To Strike Back

It's health insurance rate setting time again in Colorado. All but one major Colorado health insurer wants to cease issuing new policies for indivividual kids not covered on someone else's plan (currently about 27,000 children in Colorado have these policies), because the health care reform law requires children to be covered without regard to pre-existing conditions (Anthem, Aetna, Cigna and Humana want to cease covering individual children, Kaiser Permanente is the exception that will continue coverage). Most want rate increases far in excess of the rate of inflation.

Only a small portion of the requested rate increases, however, are attributable to the health care reform bill.

Some carriers are asking for 3 percent to 4 percent increases for the federal laws going into effect Thursday, still well above the warnings of U.S. Health and Human Services Secretary Kathleen Sebelius that such boosts should be 1 percent or 2 percent.

The bulk of the requested increases that Colorado's insurance commissioner will scrutinize under new powers provided by the state legislature reflect increased charges from health care providers.

The following health care reform provisions go into effect on tomorrow:

•Eliminating lifetime limits on how much insurers will pay to cover claims in a policy.

•No more dropping of individuals, or "recision," when an expensive illness results in big claims.

•No co-pays or other cost-sharing for preventive care, such as immunization or mammograms.

•Right to include children up to age 26 on family policies, whether they are dependent or not.

•No more refusal of policies to children with pre-existing conditions.

The first four provisions may increase health insurer costs at the margins, but won't have a big impact systemically, because they don't change the incentives of individuals to seek health insurance coverage very much.

The health insurers are worried about the last provision because they are worried that every sick child will sign up for health insurance, while the high rates they would have to charge to cover that cost will prevent healthy children from signing up for health insurance coverage.

The critical issue at this point is whether health insurers can avoid the requirement that children with pre-existing conditions be allowed to get policies simply by leaving the market for individual children, as opposed to by leaving the health insurance market entirely.

Many parents who have trouble paying for health insurance for the entire family want to cover their children, who are their priority and tend to have low health insurance premiums since children have few health problems, on average. Individual policies can also be attractive when group policies available through workplaces are too expensive.

There are probably only a few hundred kids in Colorado, if that many, whom the insurance companies are trying to avoid providing health insurance to at normal health insurance rates.

Right now, Medicaid and Cover Colorado (which provides subsidized health insurance for people with pre-existing conditions through industry contributions to the high risk pool) are the main options for kids with pre-existing conditions who can't be carried on someone else's health insurance plan.

Health insurance companies already have to provide health insurance to existing policyholders and to families who are part of a group health insurance plan through a parent's employer or post-employment COBRA coverage, even if the family has a sick child (and there are other less common routes to health insurance for sick children as well).

In theory, a requirement that health insurance companies provide health insurance to children who are sure to need more health care than the premium will cover because they are already sick could be catastrophic to health insurance companies. But, whether this would actually happen often enough to seriously hurt an insurance company's bottom line is hard to tell.

Sick children of parents who join group health insurance plans through their employers don't seem to be having that effect, so there is reason to be skeptical that health insurance companies would face as great an impact as they claim.

At root the dispute is rooted in a change in what health insurance companies do. The United States is transitioning from a purely contractual kind of health insurance to one where health insurance companies, where the business model is to make sure that at the time an insurance policy is written that every single contract brings about a predicted profit, to something more like utilities, providing a universal or near universal service and charging whatever rate is neccessary to allocate the costs of covering everyone with only a few criteria that can be considered in setting the rates (something called "commmunity rating"). Health insurance companies are mostly not taking to this new business model very happily.