The Healthcare Death Spiral

Last week the LA Times reported that Anthem Blue Cross planned to raise premium rates by 39% for some of its customers.  HHS secretary Kathleen Sebelius demanded to know why. Today they answered:

Financial woes have pushed healthier people to drop coverage or buy cheaper plans, the company argued to Sebelius.

….”While this dynamic always exists, in a challenging economy it becomes more prevalent as individuals who are paying for coverage without a government or employer subsidy must choose to continue coverage or use the money for other necessities,” wrote Brian A. Sassi, president and CEO of the consumer business unit at Wellpoint, Anthem’s parent company.

….WellPoint said the increases relate only to the individual insurance market, less than 10 percent of its California members, and that a minority of its 800,000 individual policy holders will see 39 percent increases. The company said an independent actuarial firm concluded its rates were “sound and necessary.”

That’s pretty much the answer everyone expected. Normal medical inflation was up less than 10% last year, so that doesn’t come close to justifying a 39% rate hike. The only thing that does is getting stuck with a smaller, sicker pool of customers as healthy people decide to pay their mortgages instead of continuing to shell out for health insurance they’re willing to risk living without.

This is, of course, the primary argument for single-payer healthcare, in which everyone is covered and everyone shares costs equally. Failing that, it’s also the argument for an individual mandate. Basically, any system that doesn’t rely on pools of customers (the entire country, an entire age cohort, an entire union, an entire company, etc.) runs the risk that healthy people will opt out, driving prices up for everyone else in an endless spiral. They’ll eventually opt back in, of course, but only when they get sick — and this is, needless to say, not a sustainable business model.

However, as President Obama said on Tuesday, it’s “a preview of coming attractions” if we don’t get our healthcare act together. That’s why the Senate and the House need to get serious about figuring out a compromise and passing healthcare reform. It’s not going to get any easier by waiting.