[Posted by Karl]
In hindsight, it seems odd that HHS Secretary Kathleen Sebelius had such a low-profile role in Democrats’ attempt to take over the US healthcare system. She now seems to be assigned the role of cheerleader, to pump up the party’s left-wing base. That is the main function of her idle talk about reviving the public option (which even Ezra Klein sees as pssibly self-defeating). It is also the main point of her recent attacks on big rate increases proposed by Big Insurance (Democrat strategist Ed Kilgore and The Hill are among those noting the attacks are “aimed at ginning up public support for their healthcare reform efforts”).
Her primary target is Wellpoint’s Anthem Blue Cross unit in California, which seeks a large rate increase in the individual market. Although Sebelius was quick to note that Wellpoint made billions last year, she ignored the fact that Anthem Blue Cross lost money. Paul Krugman gets half-credit for conceding that point:
Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.
Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.
Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.
Now, what WellPoint claims is that it has been forced to raise premiums because of “challenging economic times”: cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral.
Krugman then argues that “California’s death spiral makes nonsense of all the main arguments against comprehensive health reform.” However, Krugman ignores the fact that the woes of Anthem Blue Cross — and similar insurers — rest quite a bit with government in the first instance:
Wellpoint’s rate hikes are the direct result of the Golden State’s insurance regulations—the kind that Democrats want to impose on all 50 states. Under federal Cobra rules, the unemployed are allowed to keep their job-related health benefits for 18 to 36 months. California then goes further and bars Anthem from dropping these customers even after they have exhausted Cobra. California also caps what Anthem can charge these post-Cobra customers.
Most other states direct these customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance—leaving fewer customers to fund a more expensive insurance pool.
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This episode is a preview of the adverse selection that would happen nationwide if ObamaCare passes. The Democratic bills would control what insurers could charge and force them to take all comers, regardless of health status. These burdens were supposed to be made tolerable by requiring all Americans to buy insurance or face a penalty. Yet when this “individual mandate” proved to be unpopular, Congress watered it down so that younger customers would be able to pay the penalty knowing they can wait until they’re sick to pay the more expensive premiums. The only way an insurer can make up for these higher costs is to raise premiums.
Mind you, Big Insurance can blame themselves for their current plight. Their lobby — America’s Health Insurance Plans — was quite content to back ObamaCare, so long as there was no public option and the mandates were high enough to guarantee them higher profits in the future. The vast majority of Americans who are already have insurance — and are generally happy with it — deserve better. Unfortunately, the whining reply of AHIP honcho (and former Big Labor hack) Karen Ignagni suggests they still have not learned that you cannot cut a long-term deal with a crocodile.
–Karl