What prevents Insurance Companies from tripling premiums now?

With the passage of Health Care Reform, what prevents Insurance companies from raising premiums by say 40% to 50% to account for all the extras they now have to offer?

The ones that don’t.

It depends a bit on what you mean by ‘now’. If you mean when the provisions of the healthcare reform bill kick in, there’s a couple of things: from January 1st 2011, the bill requires that health insurance companies spend 80% of their premium revenue on medical treatments (they will be reviewed each year and have to provide receipts as proof). And from 2014, the bill will make it illegal for health insurers to raise premiums for individuals because of pre-existing conditions, medical history, gender, family or occupation. So next year insurers won’t be allowed to jack up premiums across the board, and 2014 onwards they won’t be allowed to jack up individual premiums either. Also insurers who are judged to be raising their rates unfairly will not be allowed to compete in, or will be kicked out of, the new healthcare exchanges which will be set up in 2014.

If you mean right now, technically there’s nothing to stop them raising their rates as much as they want (that’s one problem this bill solves). However, there’s arguments that it won’t be smart business: firstly they can indeed put up their rates now, but from next January they’ll be required to either spend 80% of it on medical care or refund it to customers, so it won’t be very useful to them. Secondly, if their rates are sky high, they run the risk of not being allowed into the lucrative new healthcare exchanges in 2014, or being undercut by other companies offering better deals in those exchanges.

Neat!! Thank you. In essence, it would be bad business for them as the market place would see them as gouging the consumer, and therefore could move on to more competitive insurers.

There’s a few problems with this answer, under the law as it stands at present. Firstly a lot of people, such as anyone with a pre-existing condition, can’t switch plans because they would be denied coverage anywhere else. Secondly, insurance companies are exempt from anti-trust laws, which means they’re legally allowed to collude and fix their prices. Thirdly, switching health insurance plans is not an easy process - in the present system it’s tough and time-consuming to compare different plans and the risks involved in getting it wrong are high (if you miss some small print and accidentally get a plan that doesn’t cover certain conditions, for instance), so a lot of people just decide it’s safer to stay on their current plan.

The healthcare reform bill will solve the first problem and will implement some measures towards addressing the third. It doesn’t remove the anti-trust exemption, but the House of Representatives passed a measure to repeal the exemption a few weeks ago with strong bipartisan support.

When the exchanges are set up, yes, that’s the idea. Not only that, but the exchanges will be overseen by agencies that have the power to kick out insurance companies that raise their rates too precipitously. The exchanges won’t be set up until 2014 though.

While everything Philosophersays is correct, the real answer to the OP’s specific question is Zakalwe’s. Competition in the insurance industry is actually very cutthroat. It’s not efficient, but any insurance company in a metro area that jacks up rates is going to get swooped in on by all its competitors. (They’re less constrained in some rural areas, where there’s not enough access to providers for other companies to enter.)

The stories you heard about Anthem and other companies raising their rates by 40 or 50% in recent months isn’t in fact insurance company gouging (or maybe it is, but it might not be). Rather, it’s the result of the recession. The “young invincibles” – people in their 20’s, usually, without preexisting conditions – were dropping coverage because it was a way to cut expenses, and then they crossed their fingers that they didn’t get cancer. But insurance is all about spreading the risk – when these young insureds, who because most of them don’t get cancer are where Anthem makes all its profit, left the rolls, the company had many fewer profitable customers to subsidize the older, sicker populations that were actually getting a good deal from their insurance. And so the rates had to go way up to compensate. (Taken to extremes, this is called an insurance death spiral.)

This is exactly why the bill passed last night requires mandated health insurance – by requiring the young invincibles to get coverage, the insurance companies have some profitable customers. Which is even more important now that they’re no longer going to be permitted to refuse coverage to those with preexisting conditions, rescind policies, impose annual or lifetime caps, charge higher premiums for women, etc. All these folks are going to get much more expensive for the companies to cover. (And of course the invincibles are actually getting a great deal – the cost of their coverage will be subsidized, and this way the ones who do get cancer won’t drop dead. And the ones who have slightly high cholesterol, or blood pressure, or whatever, will be able to get that discovered and treated at their regular check-ups instead of waiting until it’s lead to further, more expensive, less treatable complications.)


Of course, those young invincibles could just pay the fine ($695 or 2.5% of income, whichever is higher) and not get insurance unless they get seriously ill/injured. Since the insurance companies won’t be able to exclude those with pre-existing conditions, and since the fine is much lower than the cost of health insurance, this would be the sensible thing for any young, healthy person to do.

Any young healthy person with low income and without employer-subsidized insurance, you mean.

It’s not just cancer; it’s breaking your legs skiing or similar expensive injuries - the sort of thing that “young invincibles” are more likely to get up to. Insurance is a bet. Betting all your marbles that you won’t need a doctor is financially risky. The bad thing about running up a $100,000 debt is the risk that you can afford to pay it, the hard way.

If you’re in a group policy, the premiums were set at the time the contract was signed, so the insurance company can’t change the rates until the contract is up. If the contract expires between now and 1/1/11 the insurance companies will naturally try to increase the rates, but the group holder will also have the option to shop around for a better price.

After that of course, they’ll still raise rates, but it will be more along the cost of doing business than any wholesale gouging.

What do you mean “now?” Humana just raised our PPO to 50% more this year. Another 50% and I’m canceling and just going to go with catastrophic insurance until I can find something better. There’s a real limit on what consumers can spend for healthcare services. When it becomes unafforable, they leave, and just treat the ER as their free healthcare. The insurance industry knows this and knows at what price point people start fleeing.

These are the very issues this bill addresses - price increases, ER as ‘free’ healthcare, etc. Not to mention the “extras” are offset by mandating required insurance, thus adding more people (especially younger people) to the risk pool.

They are still paying out of pocket for doctor’s visits and anything thats unexpected that young people get (which is a very long list). I dont know why you would piss away at least $700 when you can get insured or at least explore some basic plans with some kind of benefit. Lower income people will qualify for federal assistance too.

If they broke their leg, then they could just buy some insurance (or get a relative/friend to buy it for them) over the phone or the net while waiting for the ambulance/before calling it. Hell, someone could make a smartphone app that is set up with your information/type of plan you want, to apply for you, so it is push button receive insurance.

Is the fine that much lower than the cost of health insurance? Even for someone with an income of $30,000, the fine is already up to $750.

And don’t forget, there are subsidies for low-income people to pay for their premiums.

Not to mention, its a good idea to be insured. When Illinois mandated auto insurance, not too many people said “Oh well, I’ll just pay the $200 ticket.” They got insurance. Eventually, there’s a change of people’s expectations when presented with either a fine or doing something that can benefit them.

I don’t know how it works in in IL, but here in CA you can’t register your car w/o proof of insurance. That’s a pretty big incentive to get insurance.

Look at the banks, when the knew the new regulations were to come in they cut off every other person’s line of credit and raised the interest rates and fees before the law became effective.

People with no choice lose out, people who can choose won’t lose out because because they can move insurers to the ones that don’t raise their rates. Collusion while illegal is possible over a few weeks, as long as the prices are a result of feeling out the market rather than careful planning (which is collusion)

There will be a lot of growing pains. Like when states first started requiring auto insurance, many insurance companies offered one or two days insurance, just long enough to get the license or car plates. Then the state caught on to this and banned it. Now there are car insurers that offer such big deductables that they will almost never have to pay out and since they charge so little the auto owner can afford it.

Remember too 2014 is so long in the future, companies will have lots of time to come up with creative accounting to avoid things as well as challanges to this law and revisions. You don’t need to repeal this law, just pass additonal laws that rendert his moot

I think there’s a lot of anger right now and people are tacitly assuming that these young healthy people would pour money down the drain if only to do justice to their ire. In reality anyone would do a quick analysis and realize it’s practically a discount on insurance, albeit a forced one. Like, “Ok, insurance is $2000, but I get insurance. If I don’t get it I have to pay $700 and get absolutely nothing, so I’m getting insurance for $1300 extra”. Plenty of people will decide getting nothing for $700 is better than coughing up the full insurance premium, but nobody but the angriest tea-bagger is going to gleefully do it to spite the mandate.

Is this supposed to be serious or some kind of a joke? We don’t have same-day insurance now and this law doesn’t require it. Why would anybody offer same hour insurance?

Not to mention that, depending where you had an accident or how lucid are you, they’re not going to wait long for you to go “Hey, stop, I need insurance!”. At the most, they’ll say “Hurry up and pick a hospital!”.