ANALYSIS: Insurance rate hikes at heart of health-care debate

To critics, a 39 percent hike in health insurance for some Californians foretells skyrocketing rates for the rest of us.
Not so, says the company, arguing the increase only hits a relatively small number of people and the economy is to blame.

But the rhetoric from both sides distorts the reality.

It’s true that hikes like the one by Indianapolis-based
WellPoint Inc. apply only to people who buy individual insurance and are unlikely to spread to the majority
of Americans covered through their employers. But such hikes also hit a huge number of Americans who
mostly went unmentioned in the furor — the 46 million with no insurance at all.

That’s
because for most people who don’t get insurance through their jobs and do not qualify for government
assistance, the only option is buying individual policies like the ones in WellPoint’s Anthem Blue Cross
plan, often with high deductibles.

Raise prices, and people without insurance are even less likely to
buy it — healthy people especially. Meanwhile, older and sicker customers pay more and more, running up high health
bills in a shrinking pool.

That conundrum is at the heart of a disagreement that has frozen Democratic health reform
efforts in Congress. Reform bills would require most of the uninsured to buy coverage, an idea many Americans detest as heavy-handed
government.

But without sharing costs across the broadest cross-section of consumers and prohibiting insurers from
charging people different premiums depending on their health status, the result is a scenario very much like Anthem’s.

"I know the American people get frustrated in debating something like health care because you get a whole bunch
of different claims being made by different groups and different interests," President Barack Obama said earlier this
week in addressing the Anthem hike. "But what is also true is that without some action on the part of Congress, it is
very unlikely that we see any improvement in the current trajectory … The current trajectory is more and more people are
losing health care."

Only about 5 percent of non-elderly Americans have individual insurance, compared with
60 percent who are covered by their employers. The remainder is almost evenly divided between those whose care is shouldered
by government and those without any insurance at all.

The cost of employer-sponsored health insurance at big companies
rose 7 to 10 percent this year, said Tom Billet of Towers Watson, a benefits consulting firm. Preliminary estimates for next
year call for roughly the same increase — much lower than the ones set out by Anthem and other individual insurers.

"The individual market is sort of its own animal, so to speak," he said.

At first glance, WellPoint’s
rate hike affects only a small group — some of the 800,000 people in California who buy its individual coverage. But
it’s also about many more, since just about any American is — or, given the uncertainties of the economy, can be —
a candidate for individual coverage at any time.

Millions in group plans have lost jobs and the insurance they
count on as a benefit. People in individual plans are trying to keep up with escalating premiums. Some without insurance do
so to save money, but as they get older may decide it’s not worth the risk.

WellPoint defended the hike as a response
to the economy. More consumers are tight on money and, as a result, those who are younger and healthier are dropping out or
taking on pass on individual insurance, leaving a pool of less healthy people requiring more costly care. Without younger,
healthier consumers, Anthem said, the remaining customers had to shoulder the costs of their own care.

"The
result is an insured pool that utilizes significantly more services per individual than under better economic times,"
the company wrote in a letter sent to Health and Human Services Secretary Kathleen Sebelius, defending the hike.

"The economic thing makes some sense, no doubt about it," said Gary Claxton, an expert on the private insurance
market at the Kaiser Family Foundation. "If people don’t have as much money they’re not going to be as many people who
can afford to buy insurance … and the ones who are more likely to do that will always be the healthier ones."

But Will Dow, a professor of health economics at the University of California, says the rate hike reflects an individual
insurance market that is fundamentally broken. Anthem has a reputation for cherry-picking healthier consumers and trying to
shake sicker ones, he said.

"Individuals who are in ill health and don’t have access to an employer-provided
health insurance policy are subject to the mercies of this market, which does not work well for sick people," Dow said.

That problem is not limited to California or the economic environment of 2010. In Oregon, multiple insurers have convinced
state health officials that rising costs justified big jumps in rates the last few years. In Maine, Anthem’s request to raise
rates for some people by up to 38 percent last year and 24 percent this year have angered some politicians and consumers.

Lou Herchenroeder, a pastor in Westfield, Ind., who learned in December that the premium on his Anthem policy would
jump 31 percent, is frustrated. He said he’s seen increases like this a few times over the past six years. In fact, he got
into the high-deductible plan two years ago because premiums in his other plan rose too much.

But the cumulative
increases are taking their toll. Herchenroeder said his family is healthy, with no chronic conditions like diabetes or high
blood pressure, although he just had his gall bladder removed. But at 53, he yearns for the days when insurance was a choice
he could afford.

"If I was in my 20s, I wouldn’t have a plan like this," he said. "I’d take my chances."

But the sick don’t really have the option of dropping coverage. Pre-existing conditions allow other insurers, who
otherwise would provide competition, to decline to cover these individuals.

Jeanne Morales of Encino, Calif., was
outraged when United HealthCare Inc. jacked up the premium of the PacifiCare individual plan covering her and her husband.
Back-to-back hikes in October and November raised the couple’s monthly premium from about $1,450 month to $2,432, a combined
increase of 68 percent.

Morales wants to drop the policy, but says there’s no where else to go. She had a partial
hysterectomy to remove a non-cancerous ovarian cyst a month ago. She said her insurance broker told her she has to wait at
least a year to be symptom free before she can even think about finding another individual insurance product.

"That’s
all there is to do. There’s just not any choices," she said. "We have thought about just not carrying insurance
at all, but it’s scary for us."