Health Premiums Rise and Insurers Drop Guarantees Amidst Regulatory Uncertainty

What happens to a highly regulated industry in which government actively changes the rules of the game on an ongoing basis? Well, matters get a bit uncertain, to say the least. And with the federal government "improving" America's health care with a massive state intervention, details to be determined later, health insurance companies are betting that the only thing they can know for certain is that costs are going up. That means insurance companies are shortening or dropping rate guarantees so that they can adjust premiums as needed — and not downward, you can be sure.

Over at Forbes, Merrill Matthews of the Institute for Policy Innovation writes:

Now comes the most ominous sign yet health insurance premiums are going way up: Most health insurers in the individual market have stopped guaranteeing a person's premiums for a year.  And as one commentator quipped: they aren't doing it because they expect to be lowering people's premiums.

Traditionally in the individual market, where people buy their own (i.e., non-group) health coverage, applicants sign a contract and the insurance company guarantees that premium for a year.  I'm told that about 12 percent of individual applicants would write a check for the year's premium, rather than being billed monthly.

No more.  Health insurers started sending out notices in January informing insurance brokers and agents that the companies will no longer guarantee that premium rate.  From now on it's month to month.

Matthews cites an Aetna notice to brokers, discontinuing 12-month guarantees as of January 15, 2013. That notice has generated quite a bit of buzz, but it wasn't the only one. Blue Shield of California dumped its rate guarantee two years ago, citing regulatory uncertainty as a reason. At the time, insurance broker Dean Forman told the Sacramento Business Journal:

"I don't know of any other business in the world that's mandated by the government to give more and not charge more. If you read between the lines, I believe (insurers) are very concerned about these mandates and the viability of the whole individual market, going forward."

Anthem Blue Cross of California reduced its rate guarantee from one year to six months in 2011. In his Forbes piece, IPI's Matthews continues:

As one health insurance broker told me, "Any health insurance actuary would be fired for trying to set a premium for a whole year because no one knows how much it's going to cost."

Why the uncertainty?  Because Democrats crafting ObamaCare ignored virtually every actuarial principle.  ObamaCare requires insurers to accept anyone who applies; they can't charge more for major medical conditions; and they require insurance to cover lots of things that many people wouldn't choose for themselves.

Is there really regulatory uncertainty? Well, this past September, the National Retail Federation begged Congress for some idea of what to expect from the Affordable Care Act. On the NRF's blog, Neil Trautwein, Vice President of Health Care, wrote:

My testimony centered on retailers' desire to receive more definitive guidance – from the administration and its agencies – in advance of the crucial transition year of 2014. Unless temporary guidance hardened into notice-and-comment finality by the first quarter of 2013, I warned, employers and retailers would be hard pressed to make the transition to the new markets in 2014.

Serious attrition from the number of employer-sponsored plans is a real and distinct possibility, and one that should not be underestimated or overlooked. In this vacuum of regulatory uncertainty and unease, employers may have to restrict, reduce or even eliminate their health care plans (a no-win situation for employers and employees alike). Workforce size – in a job-hungry economy – may also suffer as jobs become more expensive as the costs of coverage increases.

Rate guarantees aside, health insurance premiums are going up, and quickly. In September, ABC News's Jake Tapper noted that two separate studies had found premiums rising at an accelerating pace.

During Obama's term, between 2009 to 2012, premiums have climbed $2,370 for the average family with an employer-provided plan – a rate faster than the during the previous four years under President George W. Bush, according to Kaiser.

Tapper also quoted Obama administration officials backtracking from an earlier claim that they would lower premiums and instead saying that had promised only slower growth in costs.

Note that rates were going up before Obama, too. The current president didn't invent rising healthcare costs. But it's clear that his signature legislation has both insurance companies and their customers confused over everything except the certainty of continuously rising costs and the uncertainty of just how the law will shake out.