Are California health insurance rate increases a sign of things to come?

Maryalene LaPonsie | November 24, 2010

Let's say you are unemployed…not much of a stretch in this economy. That also probably makes you uninsured. Now, let's say that you are diagnosed with cancer. Again, not a stretch since the American Cancer Society reports an estimated 1.5 billion people will be faced with a new case of cancer in 2010.

So you are unemployed, uninsured and about to fight for your life. The good news is that cancer treatments have come a long way in recent years. The bad news is that those treatments can be out-of-this-world expensive.

Don't expect any insurance help either. Individual health insurance plans certainly aren't going to extend coverage to someone recently diagnosed with cancer. Even if you get a new job with group insurance, that plan can probably avoid making any payments on your treatments for at least a year. Meanwhile, you rack up hundreds of thousands in hospital and doctor bills.

I'm from the government, and I'm here to help

In the past, uninsured individuals who were critically ill had to resort to family and friends for help. Community spaghetti dinners, collection canisters on the gas station counter and outright appeals were the standard for those seeking costly health care treatments.

While many still have to resort to these fundraising methods, the government is giving those with pre-existing conditions new options. One of the main components of the health reform legislation is a prohibition on denials for medical coverage because of pre-existing conditions. Children receive that protection in 2010, but adults will have to wait until 2014 before they are guaranteed health insurance coverage.

In the meantime, the government has mandated that each state offer high-risk pools to provide temporary health insurance until the health reform provisions are fully implemented. These plans guarantee coverage for those who are uninsurable elsewhere. The Affordable Care Act, which is the health reform law, doesn't stipulate a specific date when the plans must be up and running. However, most states are expected to have their high-risk pool open for applicants by September 2010.

The case of the California high risk pool

The concept of guaranteed health insurance for those with pre-existing conditions sounds great in theory. Its implementation may be a whole different story. Many states, including California, have their own previously established high-risk pools.

In the California program, subscribers have the option of signing up through Anthem Blue Cross or Blue Shield of California. A state law passed in 2000 capped rates for the plans, but in what can only be described as a moment of legislative madness, the bill allowed insurance companies to create the formulas that set the amount for the caps.

Each company used different formulas that, it turns out, weren't very accurate at predicting fund costs. As a result, the state stepped in and asked an outside actuary to review and suggest a uniform formula that will apply to both companies.

Premiums went up...way up

In January 2010, the companies quietly implemented the new formula, and some families saw their premiums skyrocket. The Los Angeles Times reports that some policyholders now pay $25,000 a year to participate in the high-risk pool.

While $25,000 in insurance premiums is better than $250,000 in medical bills, the high-risk pools only work if people can afford them. If you are living off unemployment benefits, keeping the lights on and food on the table can be hard if you have to fork over more than $2,000 a month in premiums for your health plan.

Time will tell whether enrollees in the new national high-risk pool will suffer the same fate. Congress ponied up $5 billion to help with the cost of the temporary health insurance plans, but that pot of money is expected to run dry well before 2014 according to calculations by the National Institute for Health Care Reform. And then what? Annual premiums of $25,000 for all?

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