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Anthem -- Shifting Costs to Individual Policyholders

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Today's Wall Street Journal editorial about Anthem's individual health insurance rate increases in California proves the point I made in my last post. Anthem is shifting costs from its group insurance plans to its individual insurance holders.

The WSJ editorial is clearly the result of information that Anthem supplied to the WSJ editorial board. In it, Anthem claims that it is forced to increase the rates for its individual plans because the state of California requires it to provide COBRA coverage (not unique to California) and because California mandates an 18 month extension to COBRA (CalCOBRA). This may be true, but COBRA is an extension of group insurance. If COBRA makes group insurance costlier, than the increases should be in group insurance, not on individual policies.

The article then goes on to claim that California forces Anthem to continue coverage even after COBRA has expired. That is patently untrue. However, I'll assume that it's just a mistake in wording, and that the reference here is the mandate to provide a "HIPAA" or "Guaranteed Issue" option for those seeking insurance after their COBRA runs out, something I wrote about here.

The article then claims that Anthem lost $58M last year on these Guaranteed Issue plans. That may be (although I'm skeptical), but even if it were true, let's analyze how much Anthem will be gaining through its recent rate increases:

The same WSJ editorial informs us that Anthem raised insurance rates by up to 39% on 700,000 individual customers. Other sources say the average increase was 25%. I'll make an assumption that this 25% increase amounts to at least $1,000 per year per policy holder. That's a very conservative estimate. Based on that, Anthem will be collecting an extra $700M in premiums this year from individual policy holders. Is it claiming that this is to make up for a $58M loss?

Anthem claims on its website that it has over 6.8 million California members. If 700,000 are on individual plans, then 6.1 million are on group plans. So a 25% increase in individual insurance rates can subsidize a 2.9% reduction in group rates. Or at least can mitigate the inflation in health care costs for group plans by that amount. For the record, large group insurance rates rose by about 10% a year in the past couple of years.

The other claim Anthem is making is that the recession has caused more people to drop their individual plans, making the cost of these policies higher. In fact, the opposite seems to be true. Anthem has decided to raise premiums on its individual plans in order to push individual policy holders out. It's doing that by shifting costs from its large group plans to its small group and individual plans.

Why is Anthem doing this? Why is it forcing individuals to subsidize large group plans? I don't know. But I do know the solution. The current mandate is that Anthem use at least 70% of the premiums it collects to pay for medical services. That mandate needs to be more specific. Anthem (and all other health insurance companies) needs to use at least 70% of the premiums it collects from individual policy holders to pay for individual policy holder medical care. It cannot shift the cost of medical care from groups to individuals. Yes, groups may have more lobbying power (in the form of corporate lobbying), but if individuals are forced to drop their health insurance we'll all pay the price.