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Thank you, Anthem

No doubt our well-versed readers have heard about the Anthem Blue Cross development this week and the timely opportunity it creates. Amidst harsh criticism from the White House, Congress, HHS, state legislators, and local advocates, Anthem has decided to delay the scheduled 40% premium rate increase for individual policies until May. California’s insurance commissioner will pursue an investigation, and hearings on both the state and federal level will bring the process further into the limelight.

Most importantly, the issue creates a tangible case study of the cause and effect choice between reform and no reform. Anthony Wright explains all the reasons why health reform would prevent insurers from both wanting and needing to do this. I’ll break this down breifly:

Insurers need to raise premiums
The response from Wellpoint indicates that premium rate increases were necessary due to the ever-increasing growth in medical costs. Though the argument has its obvious holes (like the company’s record profits), it does pay homage to the pending ‘death spiral’ of adverse selection coupled with rising ranks of the uninsured due to the recession. Healthier populations face higher premiums and remove themselves from the risk pool, thus increasing costs for those who actually need coverage. Health reform reverses this trend by a) mandating coverage, b) providing subsidies and security to those facing financial hardship, and c) provides risk adjustment funding for plans that enroll high-risk individuals disproportionately.

Insurers want to raise premiums
Increasing profit margin is a logical business model for any organization, and insurers have many unique tools at their disposal to do just that. They do it simply because they can. Anthem’s rate increases are not a new phenomenon, and this development has revealed similar increases in Maine, Oregon, and Kansas. Reform removes this incentive by providing the ‘carrot’ of the aforementioned risk-adjustment payments, and also the ‘stick’ of disqualification of the plan from access to the consumer-protected Exchange and its millions of individuals seeking coverage. The consumer protections force plans to compete on efficiency and cost, as opposed to how best to carve out the healthiest market.

Examples like this bring the policy of health reform out from under the politics of the debate. The staleness of the federal effort received a much-needed ‘how does this effect me’ boost, and clarifies the real world consequences of reform’s absence.