Health Insurance Premiums Up 78% Since 2001 While Insurers Report Record Profits
Santa Monica, CA — A report by the Kaiser Family Foundation showing that the average cost of coverage for a family of four is now $12,106 is proof that health reform must include regulation of insurance charges. Governor Schwarzenegger’s proposal to require all Californians to buy health insurance would lead to medical bankruptcies and taxpayer funded profits for health insurers, according to the Foundation for Taxpayer and Consumer Rights (FTCR).
The California legislature began a special session to debate health care reform today.
“The proposals supported by Assembly Speaker Núñez and Governor Schwarzenegger would foist the cost of coverage onto families and taxpayers but allow insurers to charge whatever they choose. With $12,000 annual insurance premiums fueling double-digit insurer profit increases and wasteful overhead costs, any health reform must included regulation of insurer charges,” said Jerry Flanagan of FTCR. “The governor’s plan to require all Californians to buy health insurance would otherwise lead to more medical bankruptcies and taxpayer funded profits for health insurers.”
In 2005, medical bills were responsible for half of all bankruptcies. Of the approximately 1 million Americans who file for bankruptcy each year as a result of illness, three-quarters have insurance; most have college degrees, are working and own their homes.
See new analysis of California health insurer profits, reserves, and administrative costs below.
FTCR has called for state regulation of insurer profits and overhead as is currently required for auto and home insurers under Prop 103.
Health insurance premiums have increased 78% since 2001 compared to a 19% increase in wages and a 17% increase in inflation, according to the Kaiser report.
Cost of Coverage:
– According to the Kaiser Foundation report, families who receive coverage from an employer now pay an average of $3,281 per year not including deductibles and co-pays. Those buying coverage on their own pay an average of $1,037 per month for family PPO coverage and $990 for HMO coverage.
– In addition to continuing dramatic premium increases, individuals and families already face higher out-of-pocket costs in the form of deductibles and physician co-pays. The Kaiser report found the 95% of workers also face additional costs for hospital admissions, such as separate hospital deductibles, co-pays and per diem charges.
– The report also found that the number of workers whose policies provide no out-of-pocket limit increased to 29%. Speaker Núñez’s bill in its current form fails to ban such junk insurance policies, though Gov. Schwarzenegger has said he will prohibit such policies, but has not offered legislative language to do so.
Without caps on out-of-pocket costs, regulators do not have the tools they need to prevent cases like that of Marina Del Rey resident Dana Christensen, who unknowingly bought a junk policy and was left with $450,000 in medical bills when her husband, Doug, died of bone cancer.
– In many policies that do have out-of-pocket caps, not all services count toward the out-of-pocket limit, requiring workers to spend more before insurance coverage kicks in. For example, 32% of workers enrolled in PPOs are in plans that do not count spending on the annual deductible towards the out-of-pocket limit. 79% of workers in PPOs are in plans that do not count prescription drug cost sharing toward the out-of-pocket limit.
The Kaiser report shows that a family of four earning 300% of the federal poverty level, $61,950, already pays more than 5% of family income on health insurance. The bill’s attempt to cap insurance premiums at 5% of income, without regulation of insurer charges, is likely to lead to degraded health coverage for such families or a higher taxpayer burden, or both.
Under AB 8:
– If the cost of coverage exceeds 5% of income, the worker is not required to buy coverage but will be uninsured or under-insured (forced to buy a high-deductible, low-benefit policy). Those who currently receive coverage from their employers may not be able to afford that coverage in the future.
– If a worker earns below 300% of the federal poverty level, the worker’s share of the insurance policy cost is capped at 5% of income and the remaining cost will be paid by taxpayers as well as employers. Yet there is no regulation of how much insurers can charge.
The nation’s largest insurers reported double-digit profit increases for the second quarter of 2007:
– Unitedhealth, the second largest insurer and parent of PacifiCare of California, reported a 22% increase in earnings over 2006. Click here to read more.
According to Weiss Ratings, between 2001 & 2005, HMOs and health insurers nationally have increased their profits by 170%. During that time, California HMOs and health insurers have also transferred a significant amount of their profits to out of state parent companies:
– PacifiCare has transferred $485.3 million.
– Health Net has transferred $534 million
– Aetna has transferred $255 million.
– In total, just 4 companies regulated by the Department of Managed Health Care (DMHC) have transferred $3.2 billion in profit out-of-state since 2002 — enough money to provide full coverage to 1 million Californians for an entire year.
Insurer Overhead & Administrative Costs:
– The 6 largest DMHC regulated health plans spent $1.6 billion on marketing in 2006 — enough money to provide full coverage to 530,000 Californians for an entire year.
– The 6 largest DMHC regulated health plans spent at least $1.16 billion on salaries in 2006 — enough money to provide full coverage to 386,000 Californians for an entire year.
– In addition to salaries, top executives were awarded lavish bonuses. For example, former Blue Cross of California CEO, Leonard Schaeffer received $230 million in cash and stock following WellPoint‘s merger with Anthem Inc.
Health plans have amassed reserves far in excess of state requirements designed to protect patients if the company becomes insolvent. These huge reserves are funded by excessive premiums.
– Kaiser has $9.3 billion in excess reserves, an increase of $8.8 billion since 2002, which is 1026% of the state required minimum.
– Blue Shield has $1.8 billion in excess reserves, an increase of $1.3 billion since 2002, which is 699% of the state required minimum.
– Blue Cross has $1.7 billion in excess reserves, an increase of $1 billion since 2002, which is 548% of the state required minimum.
– PacifiCare has $504 million in excess reserves, an increase of $330 million since 2002, which is 527% of the state required minimum.
– HealthNet has $572 million in excess reserves, an increase of $264 million since 2002, which is 368% of the state required minimum.
Since 2002, the 6 largest DMHC regulated health plans have earned $1.6 billion in investment income on premium payments but have continued to impose double-digit rate increases on consumers.
 Weiss Ratings; calculated from news releases, December 10, 2003-January 30, 2006.
 All profit and overhead figures were reported by the companies in their annual filings to the Department of Managed Health Care — figures do not include dividends paid by DOI regulated companies.
 Health Plan Annual Financial Reports, Schedule K (page 21).
 December 2006 Health Plan Quarterly Reports, report #2, page 5, line 29.
 Ibid. report #2, page 5, line 25.
 WellPoint/Anthem Joint Proxy Statement
 Health Plan Annual Quarterly Reports, page 28.
 Health Plan Quarterly Reports, report #3, page 8, line 19.
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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at www.ConsumerWatchdog.org.