Independence Blue increases premiums

Independence Blue Cross’ request to increase health insurance premiums 20% to 58% for some plans available to individuals and families who purchase it on their own underscores why the concept of an individual mandate is so critical to insurers and why finding mechanisms to level out risk pools must accompany any substantial reform efforts, according to one expert.

“As medical costs go up, those individuals who are relatively healthy say to themselves, ‘I’m paying more out in premium than I get back in coverage. I’m going to drop the policy and take my chances,’” says Peter Kongstvedt, MD, principal of P.R. Kongstvedt Company of McLean, Va., and noted health insurance and managed care expert.

“But the extra money paid by the relatively healthy people goes to pay for the medical care received by those who are sicker, and who pay less for their insurance than what their medical care costs,” he adds. “So when healthier people drop out due to cost, the average costs for those who still have the insurance climbs even higher. It’s an economic death spiral.”

According to Independence Blue Cross’ filings with the Pennsylvania Department of Insurance, in one plan, the monthly premium cost for a family with two parents in their 30s would increase 52.8% from $1,069.15 a month to $1,634 a month.

If an individual mandate is in place, then everyone pays in and high costs incurred by the smaller number of sick people are spread out, lowering the average cost. The flip side is what is happening here with fewer and fewer people available to share those high costs, making the average costs far higher, according to Dr. Kongstvedt.

“When a health plan is required to offer coverage but there is no individual mandate for uninsured to have it, it is not much different from saying that auto insurance is required to issue a retroactive comprehensive collision policy to someone the day after they wreck their car,” he says. “You only buy it when you know that your healthcare costs will be higher than the cost of insurance.”