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Health Insurance Rates Going Up: Why the Surprise?

Increased rates for California’s Anthem Blue Cross health insurance were approved last week.  Blue Shields health insurance rate increases are expected to be approved shortly, as well.  The Los Angeles Times, reporting on the increase,  quotes shocked, unhappy people complaining about the increase and wondering why it’s happening.  Why is it happening?

The simple answer is that companies must raise prices when their costs go up.  In any industry, if the cost of doing business goes up, the price must go up or the business goes out of business.  Most people understand this.  If drought hits the Midwest effecting the price of wheat, bakeries must charge more for bread because it costs more to make it.  No one’s surprised.  Why are people surprised when health insurance policy rates go up?  I think the factors relating to heath insurance costs are more complex and less known to the public, making these rate hikes less understandable.

One factor less understood by people is the role government regulations play in higher insurance rates.  As illustrated in Health Insurance 101: Costs, insurance policy costs are determined by what medical care the policy covers and the probability of the people applying for that policy to use that medical care.  In March, the Patient Protection and Affordable Care Act was passed, and as a result, health insurers, starting in September, 2010, must allow dependent children up to age 26 to be covered under their parents’ health polices.  Another new health insurance regulation, called for in the act, eliminates any required Medicare co-payment for preventative services such as pap smears, mammograms, some cancer screenings, and immunizations.  It is certainly a nice thing to eliminate co-payments for necessary treatments; but it changes the cost calculation for the insurance companies.  Someone has to pay for this.  The sad thing about eliminating co-payments, is that everyone’s insurance rates must go up to pay for them.  People who don’t need those treatments must help pay for someone else’s.

But wait, more health insurance regulations are coming by way of the California legislature.  AB1825 mandates all health insurance policies to cover maternity services and AB1600 requires insurers to cover treatment for mental health issues.  These bills would bridge the period from now until 2014 when the Patient Protection and Affordable Care Act makes these regulations permanent.  Once again, people who don’t want or need maternity services or mental health treatments are forced to pay for them.  When the rates go up, the Los Angeles Times will once again quote people who are shocked and angry with their insurance companies.  Just don’t be surprised.

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