On Their Own and Uninsured

At a time when the soft economy has forced many more people to buy health insurance on their own, insurers are imposing steep premium increases on individual policyholders and are making it harder for new applicants to qualify for coverage, according to insurance brokers and consumers.

The number of uninsured nationally is rising, by an estimated 2 million in the last two years, and the rising premiums are putting increasing financial strain on consumers.

At the same time, California’s so-called high-risk pool, the publicly funded insurance of last resort, has come under sharp budget cuts and has a waiting list of eight to 18 months for new enrollees, so many people who desperately need medical insurance have nowhere to turn. Applications to the high-risk pool have increased 40% in the last 12 months.

“Never has it been as difficult to get qualified as now,� said Jeff Miles, who has been selling individual health insurance for more than two decades and is president-elect of the California Assn. of Health Underwriters. “If they have virtually anything wrong with their health, seemingly minor things, that will prevent them from getting approval,� said Miles, whose business is in Marina del Rey.

Jackie Lee, a single mom who recently was laid off from a networking company in Silicon Valley, was denied by two insurers. She said she had not yet received an explanation from Health Net. But Blue Cross, after examining her health history, cited the following reasons in a letter: She had received treatment for back pain and medication for allergies (Zyrtec) and high cholesterol (Lescol).

“I was pretty shocked when they rejected me,� said Lee, 39. “Everybody takes allergy medicine. And the cholesterol, it’s like a preventative thing,� she said, adding that her lower-back pain also is manageable.

For privacy reasons, Blue Cross won’t comment about specific cases. But officials said they have not made substantial changes in underwriting individual policies in recent years. Some other major carriers said the same thing. But none of them would release denial rates or specific underwriting guidelines, citing competitive concerns.

Many brokers and agents, however, interview customers and screen applications before submitting them, a practice known as field underwriting. And what they see are some clear patterns: Insurers now will not write policies if an individual has taken certain expensive prescription drugs, has more than one chronic condition--even if mild and controllable--or shows signs of needing mental health services.

“There’s no question they’ve toughened up,� said David Fear, a senior manager at the Rancho Cordova office of California Insurance Marketing Services, which works with thousands of agents throughout the state. “They’re cherry- picking whom they want.�

About 16 million Americans are covered by individual insurance, many of them self-employed, independent contractors and part-time workers. The federal government says about 39 million people were without health insurance in 2000, and insurance policy experts estimate that the number rose last year to 41 million.

Many of them would love to have individual policies. But the costs and difficulty of getting coverage hold them back.

To help people buy health insurance, the Bush administration and the U.S. Senate have offered proposals for health insurance tax credits, from $1,000 for individuals to as much as $3,000 for families.

That still would not be nearly enough for many people, especially sicker and older individuals, according to research by the Center for Studying Health System Change, a nonpartisan policy group in Washington. Nationally, the center said, individual health premiums will average $214 a month this year.

In many states, including California, individual health insurance premiums are not regulated. Insurers in the past adjusted rates once a year, based on where policyholders live and their age group, usually in five-year age bands.

But recently, rates have risen more frequently, and the combined increases, for older people in particular, have been huge.

Gail Prodor, a 61-year-old widow in San Diego, has seen her carrier, Blue Shield of California, raise her rates six times since April 2000. The latest was a 19% increase that boosted her monthly premium to $582--about double what it was two years ago.

To cope, Prodor has cut back on expenses. But that’s still not enough, she said, so she is looking for a part-time job. Prodor described her health as good. She has four years to go before she can qualify for Medicare.

“All I keep thinking is: When is it going to stop? Can I afford this?� she said of her health premiums. “But I can’t go without insurance.�

Blue Shield said the overall average increase in April for individuals was less than 10%. But it was the second increase in nine months, and some policyholders, such as Prodor, also got midyear premium adjustments when they hit a certain age.

“We’re doing our best, but we have escalating costs,� said Lisa Rubino, a senior vice president in charge of Blue Shield’s individual market.

As to the frequency of rate increases, Rubino said Blue Shield was following competitors. Blue Cross of California raised premiums in February and has another rate increase coming in August. Health Net too is in a twice-a-year mode. Among major carriers in this market, only Kaiser Permanente has stuck to an annual increase.

“Our goal is to price products as low as we can and make sure premiums cover anticipated risks going forward,� said Alan Katz, Blue Cross of California’s head of sales for individual and small-group policies.

Katz said the overall average increase in August was in the low double digits, on top of a 5% to 10% boost in February. Blue Cross’ parent company, WellPoint Health Networks, last week reported a 71% increase in profit. In a letter prepared for consumers questioning their premium increases, WellPoint said its overall earnings have grown because of strong membership gains across all products.

Interviews and company filings show that total enrollment of individual policyholders in California has shown little, if any, growth in the last couple of years.

“If I need insurance today, there’s a good possibility that I can’t get it. And if I can get it, I might not be able to afford it,� said Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, who has written extensively in this area.

Insurance executives say there are plenty of affordable individual coverage options, including low-cost plans with deductibles as high as $7,500. They point out that rates are going up for everybody, not just individual policyholders, reflecting spiraling costs for hospital services and prescription drugs.

About two-thirds of Americans obtain health insurance through their employers, and their out-of-pocket costs are going up too. But employers still pick up much of the tab. Employees and dependents in group policies also are typically guaranteed coverage by law, regardless of their health status. Large employers use their size and clout to get better rates. And many states, including California, regulate premiums that health insurers can charge small employers.

Few individual policyholders enjoy those benefits or protections. Regulators in California do not review and approve premiums for this market or the underwriting practices.

When the economy was strong and hiring brisk, that didn’t matter as much. Many more people were getting coverage through employers or could afford private insurance. That’s not so anymore. In the last 12 months, the number of unemployed in California has jumped by more than 200,000. Moreover, surging health-care costs have prompted some small employers to drop health benefits for employees or dependents.

Some states have pushed through new regulations, including a requirement in Colorado that insurers accept self-employed people regardless of preexisting conditions.

But lawmakers and regulators in many other states, worried about an exodus of insurance carriers, generally have been reluctant to compel insurers to provide better access and prices for consumers in this market, said Steven B. Larsen, insurance commissioner for Maryland, which does regulate premiums for individual policies.

“I’m a little skeptical of the argument that everybody’s going to pack up and leave,� he said.

Efforts by California lawmakers in recent years to pass broad reform of individual health insurance have failed. A bill by Assemblywoman Helen Thomson (D-Davis), AB 1401, would offer more limited help to those denied by insurers, including extending COBRA benefits, which continue employer-based coverage for departing workers, to 36 months from 18 months.

For insurance companies, writing individual health policies is more risky than most other lines of business. Administration and marketing costs are higher, in part because many individuals cancel after just a short time. Insurers also must prevent so-called adverse selection, in which healthy individuals drop out and leave behind a rising pool of sick people.

Experts say that given the inherent risks heightened by the turbulent health-care market today, it’s not surprising that issuers would be more aggressive about pricing and underwriting. But even experienced brokers have been alarmed by the extent of the premium hikes and cherry-picking.

Susan Au, a former Blue Cross employee who has been an independent agent for two decades in the San Gabriel Valley, says she is struggling to explain the rate hikes to her customers.

“A lot of people are buying higher and higher deductible plans or dropping out altogether,� she said. “I don’t see the light in the tunnel.�

Melissa Hernandez, 34, bought insurance from Blue Cross in mid-January after she was laid off last year from a graphics design firm in Burbank. But just seven months later, she got her first renewal--a 23% jump in premium, to $160 a month.

“Initially it doesn’t seem like a lot,� she said. “But I’m really concerned because I was unemployed for six months.... Every little bit counts.�