The Health Insurance Noose

Wendell Potter, former CIGNA executive-turned-health-watchdog, told us last fall that, no matter what happens with Congress and its health reform bill, the current rate of premium increases was unsustainable. It was only a matter of time, he said on “Political Graffiti,” until insurance cost more than the average household earns. “Before it costs someone’s entire salary, we’re seeing more and more people go without it because they can’t afford it,” said Mike Tipping of the grassroots group Maine People’s Alliance.

How's my pulse, doc?

Tipping points to Anthem, the insurance company that has a near 100 percent monopoly on health insurance—wants to raise individual rates by as much as 23 percent. (The kicker is that Anthem is currently suing the state of Maine for pushing back against the 32 percent increase the company requested last year.)

Maine has relatively strong consumer protections, Tipping explained, so companies like Anthem “aim big because they know it’s going to get cut back.”

“Also,” Tipping added, “they’re shameless.”

There’s not a lot of variety. Anthem, for example, is a subsidiary of Wellpoint, which incidentally had a fourth-quarter profit of $4.75 billion in 2009.

So why raise rates? Anthem says it’s because of the bad economy, rising health care costs and—perhaps related—more people canceling their individual plans. The company also points out that the increases affect only a small group of people, those who obtain individual policies. The lucky folks with insurance through their employers, whoever they are now, presumably will remain unaffected.

But as companies should, of course, be allowed to make a profit, let’s take a quick look at the evolution of the medical loss ratio: in the early 1990s, health insurance companies spent more than 95 cents out of every premium dollar to paying doctors and hospitals for taking care of their members; today, insurers pay about 81 cents. And state laws often give them even more leeway.

For example, California—currently facing its own hike issues with Anthem—requires only 70 cents go to actual care.

The medical loss ratio, of course, is one way investors measure profitability. Potter points out in his blog that “in a private health insurance industry that collected $817 billion this year, a 14 percentage point difference in the MLR represents $112 billion a year.”

A small business owner in Marietta, Georgia, who saw his insurance go up 35 percent last year, told us he had to reduce his coverage just to be able to afford it.

“Not only do I pay more with my rate raised, my deductible went up a thousand dollars, so that’s another 80 dollars a month,” he said. “I am now in a position that if I were to come down with cancer, my insurance would last until it rose so much I couldn’t pay it. I would go bankrupt. They can’t cancel your insurance but they can raise your rate so much that you have to cancel it.”

- Michele Mitchell