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Insurance Group Denounces Big Premium Hikes for Sick

Originally published by Reuters Health, April 11, 2002

WASHINGTON (Reuters Health) — Two days after the Wall Street Journal detailed the practices of a Wisconsin health insurer that routinely boosts premiums for those who fall ill by as much as 60%, a lead insurance trade group denounced the practice.

“You don’t want people’s premiums to go up substantially every year if they get sick,” said Don Young, president of the Health Insurance Association of America. “That undercuts the whole purpose of insurance.”

The Journal article chronicled the use of what it called “reunderwriting” in the individual insurance market by the Green Bay, Wisconsin-based American Medical Security Group, which belongs to the HIAA. According to the article, the company has boosted its profits by routinely raising premiums on policyholders diagnosed with serious diseases, or those whose claims indicate they will be more expensive to the company in the future. One couple in the story saw their premiums rise from $417 per month in 1996 to more than $1,800 in 2000 after the wife was diagnosed with breast cancer.

The article said the practice of boosting premiums for the sick “is making a quiet comeback,” but Young said a survey of the industry found no other company using the technique to such a degree.

Young, however, defended the right of insurers to increase rates in smaller increments for those with higher claims and to lower premiums for those who are healthy. Such practices, he said, “can help make people good consumers of care” by encouraging them to use only care they really need, as well as keeping healthier people in the insurance pool, which spreads risk more broadly and holds down premiums for everyone.

But Young said his members believe that increases of the sort used by American Medical Security Group are excessive. “We oppose the use of individuals’ personal health condition or diagnosis to substantially raise rates after a policy is written.”

Young said it was “premature” to discuss what, if any, actions the group may take with regard to the firm, and added that the company itself is reviewing its operations.

The HIAA statement comes at a delicate time for the health insurance industry—just when Congress is considering whether to increase private plan participation in Medicare and whether to provide federal tax credits to help more people buy private coverage.

Democrats have already been quick to criticize the premium hikes as another reason why Congress should resist privatization efforts. “It’s one more example of cream-skimming, of segmenting the market, of how the private health insurance industry doesn’t serve public needs,” said Rep. Sherrod Brown, D-Ohio, ranking member of the House Energy and Commerce Health Subcommittee.