US health insurance premiums for individual, group or other policies rose 7 percent in 2009 compared to the previous year, even as the number of those people with coverage fell, according to a report released on Thursday. Individual premium revenues rose 15 percent while group premiums, which involve mostly employers, rose nearly 3 percent, according to the report from the National Association of Insurance Commissioners (NAIC), an organization whose prominence has grown following passage of the new U.S. health reform law.
The report was based on company annual financial filings to the NAIC. It was not a complete depiction of the privately insured market, the organization cautioned, because not all health insurers must file with such state departments.
“The takeaway message probably is that as we’re working to implement this new insurance reform, healthcare costs continue to go up, which does drive up the cost of insurance,” Kansas Insurance Commissioner Sandy Praeger, who chairs the NAIC Health Insurance and Managed Care committee, said in an interview.
“Premiums don’t just go up without the evidence demonstrating that healthcare costs are going up,” Praeger said. “Departments look at premium increases. The companies have to be able to justify those increases based on claims experience, that’s the bottom line.”
Premium increases by health insurers have been criticized during the debate over healthcare reform, and Praeger acknowledged that insurance commissioners are taking closer looks at the premium requests from companies.
Earlier this year, California regulators approved a smaller rate request by WellPoint Inc after finding errors in the insurer’s original rate proposal.
The NAIC report found that the number of covered lives fell 7 percent in 2009. Layoffs caused by the weak economy that led to fewer people with employer-based coverage was likely a main culprit for the decline, Praeger said.
People who lose their jobs and yet continue to buy healthcare coverage probably do so expecting to need the coverage because of their health situations, Praeger said, meaning they will be likely to consume more health services — making them more expensive to cover. Meanwhile, healthy and young workers who lose their jobs avoid buying coverage after being laid off, she said.
“The risk pool, the number of people who stay insured during this down economic time, are people who know they need it,” Praeger said. “That drives up the cost of the health care for that pool and that will have an impact on the premium.”
Another possible factor for rising premiums, she said, could have been that insurers were seeking to build up their reserves in case of a pandemic involving the H1N1 flu, a catastrophe that never came. According to the report, the top 10 health insurers captured 45.5 percent of the market, based on premiums. A key ratio typically used to define the percent of premiums spent on medical costs increased to 84.1 percent in 2009 from 83.2 percent the prior year, according to the report. The new reform law is requiring that insurers meet a certain threshold for such spending — known as the medical loss ratio.
The NAIC is expected to soon release closely watched recommendations to the U.S. government about what types of medical costs should be included in the ratios.
The higher medical loss ratios found in the report are a “good thing because they’re going to have to meet those new standards going forward,” Praeger said.
