Health Affairs

Editor’s Note: Anthem Blue Cross of California, the largest health insurance company in California, recently announced plans to increase insurance premiums by as much as 39 percent for people insured in their non-group health insurance plans. There are two competing narratives about this dramatic and unprecedented premium increase, wrote Jonathan Kolstad and Neeraj Sood in a Health Affairs Blog post last week.

Anthem Blue Cross of California explains the significant increase in premiums as primarily a response to recession-related changes in health and expected medical care costs of the pool of insured. The argument is that relatively healthy individuals who are facing economic hardship have dropped coverage. The remaining pool of insured is less healthy and more costly. Policymakers and consumer groups view these claims with skepticism. They blame corporate greed and  profiteering as the reasons for such egregious premium increases that are well above general medical inflation.

To resolve the conflict between these dueling narratives, Kolstad and Sood looked at data from the March Current Population Survey (CPS) from 2007 and 2009. (The CPS is a nationally representative survey of U.S. households and is the primary source of information on the U.S. labor force.) The researchers found that the data did not support the rationale of Anthem Blue Cross of California for the premium increases: “There is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession,” they wrote.

Kolstad and Sood’s blog post prompted a response from Jeff Lemieux, who directs the Center for Policy and Research at America’s Health Insurance Plans, a health insurance industry group. Lemieux’s comment appears below, followed by a response from Kolstad and Sood.

Jeff Lemieux’s comment: In my opinion, the March 2009 CPS did not capture the full impact of the recession on health insurance coverage. People may drop health insurance coverage with a lag after an economic downturn as their savings are gradually depleted. For example, the number of non-elderly persons with individual coverage was recorded at 16.7 million in the March CPS (ostensibly for 2008), down only slightly from 17.1 million in 2007 (from the March 2008 CPS). Moreover, some newly laid-off workers may have purchased a short-term individual policy for a while. It is only after the recession has persisted and households’ finances are further strained that decreases in voluntary health insurance enrollment may accelerate. This may not have occured until later in 2009, after the March CPS was done.Also, we should note that the number of non-elderly persons with individual coverage has been estimated to have been very stable between 16.0 and 17.3 million in the March CPS data since 1994, and the change from 2007 to 2008 may have been more of a statistical blip than a robust signal. Finally, for many reasons, the CPS is not a precise instrument for measuring health coverage in the first place. (For the figures above I used EBRI’s tabulations of the March CPS by Paul Fronstin.

If the full extent of the recession is not captured, then it would be premature to assume that data from the March 2009 CPS indicate that the recession has had little impact on risk pools in 2010. Also, it is notable that the average age of individual market enrollees in California in your table did increase by about 0.6 years from the 2007 CPS to the 2009 CPS. That would get an actuary’s attention in itself.

Kolstad and Sood’s response to Lemieux: Thanks for your comments. Our results are based only on a snapshot for March 2009. However, this was near the low point of the overall recession and, as such, is probably one of the best months to consider for the impact of a downturn in the economy. Figure 1 below shows the unemployment rate by year and one can see a near doubling of the unemployment rate from March 2007 to March 2009. Even if the dynamic had not fully run its course, we should be able to see at least some evidence for increase in adverse selection that was sufficient to drive an increase in premiums as high as 39%. Our results don’t provide any evidence consistent with this story by what ended up being near the bottom of the recession, March 2009.

To your second point regarding the stability of the non-group market over time; rather than working against our argument it seems to support our contention that the business cycle does not drive adverse selection. Figure 1 plots unemployment rate and percent non elderly with individual insurance, using data from the March CPS for the years 2000 to 2009. Despites sharp changes in the unemployment rate during this period, the percent with non-group or individual insurance remained fairly constant. So these data also do not support a strong link between business cycles and churning in the individual health insurance market.

Finally, the idea that 0.6 years in average age should “get an actuary’s attention” does not add up. Our model of cost is an actuarial model taking age into account. If we increase average age by 0.6 years our model predicts an increase in annual costs of up to $120 per year — not enough to “get an actuary’s attention”.

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This entry was posted on Wednesday, March 17th, 2010 at 1:13 pm and is filed under All Categories, Consumers, Innovation, Insurance, States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.