A health insurance priority

Changing the individual market would allow more people to buy coverage.





By William J. Marino



Time and time again, we are reminded that the health-care system is broken when otherwise healthy people are forced to choose between paying high health-insurance premiums or doing without coverage.



One possible solution: Taking a serious look at reforming New Jersey's individual health insurance market.



First, it is important for everyone to have a basic understanding of what drives rising health-insurance premiums as we look for workable solutions. Health-insurance premiums are a reflection of the underlying costs of health care, such as hospital costs, physician fees, prescription-drug costs, and the cost of new medical technologies.



For every premium dollar Horizon Blue Cross Blue Shield of New Jersey customers pay, nearly 87 cents goes directly to paying our customers' medical claims - which last year was more than $8 billion. The remaining 13 cents represents administrative costs to service our more than 3.1 million members and maintain our hospital and physician networks. The percentage of premium for administrative costs has been declining, while the percentage going to pay medical costs continues to escalate.



There are a number of factors causing health-care costs to rise.



Increased consumer demand and utilization of medical services, advances in medical technology, increased use of prescription drugs, the practice of defensive medicine, poor lifestyle choices, and the failure to follow medical "best practices" all add costs to the system. Additionally, certain legislative and regulatory measures, including coverage mandates and how certain markets are required to operate, add substantial costs that increase the health-insurance premiums consumers pay.



As underlying health-care costs continue to drive up health-insurance premiums, more and more people are added to the ranks of the uninsured.



The New Jersey Business and Industry Association reported in April that many small companies are dropping health-insurance coverage for their employees because they cannot afford the average cost of $7,307 per employee. As prices continue to rise and more small companies drop health-insurance coverage, many more people will be forced to look for health insurance on their own in the individual market.



Unfortunately, the individual health-insurance market in New Jersey is broken, causing individual health-insurance policy premiums to be higher than they should be. As a result, many younger individuals who are healthy and employed remain uninsured.



New Jersey is one of a handful of states in which the individual market operates under what is known as "pure community rating." That means everyone is guaranteed a policy, and each person with a policy is charged the same premium, regardless of their age, gender or health status.



This system causes what we are experiencing in the individual market today in New Jersey: an underwriting death spiral. Medical costs for unhealthy individuals drive up premiums to a point where younger, healthier people with fewer medical expenses choose not to purchase expensive health-insurance policies. The individual market is left with more older and unhealthy individuals increasing the number of claims and costs.



For example in 2004, the number of Horizon BCBSNJ individual policyholders that had medical claims of more than $100,000 increased by 44 percent, and those claims each increased in cost by 74 percent. Such increasing costs drive up premiums, which prices healthier individuals out of the market making the situation even worse.



Currently, reform proposals are being considered by the Legislature, but those reforms do not go far enough. We support reforms that provide for adjusted community rating to allow insurers to set differing rates for individuals based upon age and gender, with the highest rates being 31/2 times the lowest rates.



According to a March study by Rutgers Center for State Health Policy, reforms allowing adjusted community rating at this ratio would reduce premiums for people below 45 years of age by about 66 percent. The center projected that more than 46,000 more individuals would purchase individual policies.



Horizon BCBSNJ, as the state's largest health insurer, is working on a number of initiatives to reduce health-care costs and reduce the number of uninsured. Reforming the individual health-insurance market to allow more younger, healthier individuals to purchase health insurance is an important first step. We are eager to work with legislators to develop workable reforms to do just that.