Steep rate hikes on way for individual health insurance

Whopping rate increases are coming soon for many people with individual health-insurance policies.

Most insurers offering individual policies in the state have asked for and been granted rate increases, effective Oct. 1, according to the state's insurance commissioner.

Regence BlueShield's rate increase — an average 16.5 percent — was one of the highest. It was topped by Asuris Northwest Health, a Regence subsidiary, with an increase of 23.7 percent.

Group Health Cooperative, the fifth-largest insurer of individuals, was considerably lower, asking for an 8.2 percent increase. But its newer program, Group Health Options, asked for a 22 percent increase.

By reducing benefits and making other changes, the plans trimmed increases to 7.8 and 13.8 percent, respectively.

A lot of angry customers are asking why. Fat-cat insurance executives raking in bonuses? Hospitals and docs cranking up prices? Aging boomers insisting on MRIs for every ache? Pricey health-care mandates?

State Insurance Commissioner Mike Kreidler, who reviews rate requests, has some answers, but his lips are sealed somewhat — by law. He can't talk about insurers' costs or profit margins.

His office's consumer hotline is buzzing with complaints, many from the unemployed.

"It's just appalling," said one 60-year-old Seattle woman who received a letter from Regence BlueShield: Her $708-per-month policy will jump to $994 — a 40-plus percent increase.

"This is a terrible hardship for a significant number of people at this age and on fixed incomes," said the woman, an unemployed social-services worker. She asked not to be named because she's worried about losing her policy since a bout with cancer last year.

5-year whammy

Increases may be much steeper for people whose ages end in "5" or "0" — for example, a 55-year-old or a 60-year-old — because insurers can hike rates for each five-year increase in age, said Sandi Peck, a spokeswoman for the insurance commissioner.

"It just makes me sick," said a self-employed hairdresser, 60, whose Regence plan went from $643 to $899 a month. "I drive a 16-year-old car; I've saved money, not taken vacations, to pay health insurance."

Even average increases produced gloom.

A 43-year-old Redmond father said his Regence plan — the least expensive — increased nearly 17 percent. The policy has a $7,000-per-year family deductible.

"Our income doesn't grow at 15 to 20 percent per year," he said. "If we live on a budget, when our medical insurance increases so much, then something else needs to give."

In the case of Regence, Asuris and Group Health Options, each insurer convinced the commissioner that its individual plans were losing money, Peck said. Group Health Options, according to its 2009 annual statement, lost nearly $5.5 million last year.

Regence's individual plans lost $6.5 million last year, and the company is projecting a loss next year even with the rate increase.

Asuris Northwest Health lost $4.2 million last year and is projected to lose $4 million this year, Peck said.

With health costs increasing at four times inflation and unemployment up, insurance regulators were braced for a hit.

"We saw this coming," Peck said.

Kreidler, the insurance commissioner, knows how delicate this matter is.

You couldn't buy individual insurance for love or money in Washington state in the late 1990s, after virtually all insurers pulled the plug. Seemingly consumer-friendly changes let customers buy insurance only when they needed care and drop it later.

When an insurance plan covers mostly sick people who need expensive care, rates go up so high that healthy people drop out. That's the "death spiral" insurers say drove them out in the 1990s.

In 2000, then-Gov. Gary Locke made insurers a deal: Come back, charge pretty much whatever you want, and we won't make individual policies undergo the scrutiny the insurance commissioner's office applies to other rate requests.

A couple years ago, the commissioner got back the power to review rates for individual policies, with limitations. He can't consider cash surpluses held by companies, for example.

And unlike regulators in Oregon, Kreidler can't publicly divulge what an insurer pays for claims, administration or what it keeps in profit or operating margin, unless the company agrees.

Mindful of past

While he's cranked down a few rate increases requested by companies, he's also mindful of the past.

The individual marketplace always has been volatile.

Now, with high unemployment, Kreidler needs to keep insurers in the game until 2014, when the federal health-care overhaul will require everyone to have insurance and insurers to accept anyone who applies.

"We can't make them offer a product that loses money," Peck said. "What Mike Kreidler is trying to do is hold this really fragile market together until 2014."

Some consumers blame the federal overhaul for the increases, but regulators and insurance companies disagree.

The insurance commissioner's office says breakdowns show that the law increased small-group rates by only 2 to 4 percent.

"This is not about reform," agreed Regence state president Jonathan Hensley.

He said the anemic economy is a large factor.

As an example, Hensley said the cash-strapped state stopped buying childhood vaccines, so insurers now help pay.

Other factors include new state requirements for mental-health parity, consolidation of hospitals and higher medical costs.

Increasingly, individual policy holders are seeking more care — and more expensive care, Hensley said.

"The health of the pool has gotten worse over the years."

One explanation: Typically, people who buy individual insurance must take a health-screening questionnaire; insurers then are allowed to reject a certain percentage of people with serious illnesses.

The exception is those who previously had group insurance through their jobs. So, for example, a person with a serious illness could be laid off, continue group insurance through the federal COBRA program, then buy individual insurance without screening.

Hensley said the percentage of those who have come to Regence's individual plans without health screening has doubled over the past five years, and their health expenses are significantly higher.

Meanwhile, he and other insurers say economic pressures have forced some healthy people to drop insurance.

Although people with individual policies make up a large group — nearly 300,000 in this state — they buy policies separately. So they don't have the power of large groups to negotiate for better rates.

"If you're a consumer buying insurance on your own, in this market, you have no leverage," Peck said. "You're already at a disadvantage."

Kreidler said consumers could use a little more financial information about insurers.

The little authority the insurance commissioner has over individual plans is to end next year.

Kreidler said he wants lawmakers to extend that power and give him the authority to release financial figures about insurers.

"We want to increase the transparency," Peck said, "so policyholders can see why their rates are changing."

Carol M. Ostrom: 206-464-2249 or costrom@seattletimes.com

Information in this article, originally published Sept. 6, 2010, was corrected Sept. 7, 2010. A previous version of this story and accompanying chart misstated actual rate increases for Group Health Options and Group Health Cooperative. Group Health Options raised rates by 13.8 percent and Group Health Cooperative increased individual plan rates 7.8 percent July 1. Also: A previous chart said an increase of 17.6 percent was scheduled for KPS Health Plans in October. That increase took effect on May 1, and no other increase is scheduled for this year. The current chart reflects these changes.