When health insurers notify members that rates are going up – often in the punishing double-digits – they typically blame rising medical costs.
They say the problem really isn't theirs; it's all the other pieces of the health-care puzzle that drive up costs that must be passed on to customers. This triggers a backlash of frustration and bad publicity.
On Wednesday, Blue Shield of California called off rate increases for the rest of the year for its 340,000 individual and family policyholders.
"We hoped if we could take the rate increases off the table, we could focus on the rising cost of medical care," said Tom Epstein, a vice president and spokesman for Blue Shield of California, based in San Francisco.
But the problem of passing along costs to consumers isn't going away.
Anthem Blue Cross, Aetna and PacifiCare all have pending increases. And in recent months, the nonprofit Blue Shield raised rates by as much as 86.5 percent for some members.
Insurers say their costs grow in part because of new medical technologies and the rising price of pharmaceutical products and medical equipment.
The consolidation of hospitals and doctors into large networks also makes it hard to keep prices low, as do waste, fraud and malpractice, they say. The system also lacks incentives for hospitals and doctors to curb costs. For example, they can charge twice by repeating tests and procedures, and by readmitting patients.
Insurers also say they lose money with policies people buy on their own, as opposed to group coverage from employers. Because the individual policies are more expensive, healthier people tend to avoid them, leaving insurers with a sicker pool.
Poor reimbursement from government programs such as Medi-Cal also forces insurers to raise private insurance prices to make up the slack, they say.
Finally, as people get older and fatter, they gobble up more health care resources.
"When you're looking at growth in premiums, the largest engine of that growth are those medical costs," said Charles Bacchi, executive vice president of the California Association of Health Plans, which represents health insurers. He said critics who claim that insurers raise prices to increase profits and pad executive salaries are wrong, and that insurers' average profit margin has remained at 3 to 5 percent for years.
But consumers, whose rate increases far outstrip inflation year after year, aren't buying it.
If Blue Shield's latest rate increase had gone forward, Patrick Killelea of Menlo Park would have faced a one-year, cumulative increase of 73 percent in his family's premium. Instead, it will be 49 percent.
He's having a tough time feeling happy about that.
"Whatever they can get away with without too much negative publicly, they're going to do," said Killelea, 45, who fears his family will be priced out of coverage.
Some critics say the rate increases look suspiciously like an attempt to pack them in before 2014, when most Americans will be required under the new federal health care law to buy coverage.
"In 2014, the government is going to help subsidize folks who can't afford their health insurance," said Robert Jetter, a senior advocate with America's Health Team, a nonprofit that helps people find affordable coverage. "Well, no one's going to be able to afford their health insurance in 2014 because the costs are going to be prohibitive."
But the increases were happening before the health legislation passed a year ago, said Marian Mulkey, a director at the California HealthCare Foundation Oakland health philanthropy.
Consumers' premiums depend on age, coverage and the cost of care in their area, Mulkey said.
Glenn Melnick, a health economist at the University of Southern California, sympathizes with many of the insurers' arguments.
He blamed rising costs mainly on higher prices charged by hospitals and doctors, which account for the largest portion of health care spending. He said costs are particularly high in Northern California, where a few hospital networks and doctor groups dominate the market.
That market is less competitive, so costs are higher than in Southern California, he said.
After Berkeley resident Don Klose had a minor outpatient procedure at John Muir Medical Center in Walnut Creek last year, he tried to find out why his insurance company, Health Net, was billed nearly $27,000.
Klose, 69, paid only $250 for the procedure. But he wanted to know where the money went and how much the insurer paid the hospital and doctors. "I have no clue because it's all cloaked – or at least it is to the common people out here," said Klose, who never got a response.
Consumer advocates question whether policyholders will be able to afford their premiums if rates continue to rise at this pace.
"With almost any other product short of milk, people would stop buying it," said Doug Heller, executive director of Consumer Watchdog, which supports legislation to regulate health premiums. "But you can't stop buying health insurance, which is a growing weight on the shoulders of California consumers that is becoming unbearable."
E-mail Victoria Colliver at [email protected].