It's there until you need it

August 29, 2009 4:11 AM

How often does it really happen that a health insurer will raise an employer's premiums when a high-demand illness occurs?

I saw this on another site:

Go sit in a pediatric oncology ward and talk to the parents. You'll find that most lose their jobs and health insurance when their kid gets sick. This is because the insurance company raises their rates until the employer has to chose between the health insurance for everyone or the employee with the sick child. Most parents with a seriously ill child go bankrupt at some point.

This suggests that high-demand users are targeted and that rates are raised for those employers in the hope and expectation that this will squeeze the user out of the group - the employer. This would seem to be something that could happen more frequently with small employers, of course.

Has anybody seen any research or investigation as to whether this happens on a regular basis? (vs. anecdotal descriptions)

posted by yclipse to work & money (13 comments total)

It seems to me that there are several questions here. There's your specific, above-the-fold question (the answer to which is, I believe: routinely), but there are also the questions of how often this leads to bankruptcy or unemployment (I don't know -- sorry).

This suggests that high-demand users are targeted and that rates are raised for those employers in the hope and expectation that this will squeeze the user out of the group.

I think this is an unnecessary leap. The insurer just wants to make money. It makes sense for them to raise the premiums for high-demand groups to the point that they either recoup their losses or come up against limits set by law. The higher rates might give an employer the incentive to get rid of unhealthy employees, but this doesn't establish a specific intent to make that happen.
posted by jon1270 at 4:59 AM on August 29

This may not be of interest if the testimony of a health insurance company insider could be considered "anecdotal". However, this is a tactic discussed by Wendell Potter, who did PR work for health insurance companies for decades, has recently retired, and is now speaking out out against the reprehensible practices of the health insurance corporations and in favor of public option of insurance.

Some links:

A recent NY Times essay about Potter. Includes the paragraphs:

Mr. Potter says he liked his colleagues and bosses in the insurance industry, and respected them. They are not evil. But he adds that they are removed from the consequences of their decisions, as he was, and are obsessed with sustaining the company’s stock price — which means paying fewer medical bills.

One way to do that is to deny requests for expensive procedures. A second is “rescission” — seizing upon a technicality to cancel the policy of someone who has been paying premiums and finally gets cancer or some other expensive disease. A Congressional investigation into rescission found that three insurers, including Blue Cross of California, used this technique to cancel more than 20,000 policies over five years, saving the companies $300 million in claims.

As The Los Angeles Times has reported, insurers encourage this approach through performance evaluations. One Blue Cross employee earned a perfect evaluation score after dropping thousands of policyholders who faced nearly $10 million in medical expenses.

Mr. Potter notes that a third tactic is for insurers to raise premiums for a small business astronomically after an employee is found to have an illness that will be very expensive to treat. That forces the business to drop coverage for all its employees or go elsewhere.

An article written by Mr. Potter himself on prwatch.org, a resource from the Center for Media and Democracy.

And an amazing PBS Frontline interview with Mr. Potter.
posted by Sublimity at 5:05 AM on August 29 [3 favorites]

The insurance company for my agency determines premiums based on the carrier's experience with the agency... if we have more claims, our insurance premium increases...... Would we force somone off the policy because of this, no. Would we look for cheaper premiums with another company, with, perhaps fewer benefits, we might have to, the employee benefit money pot isn't bottomless.
posted by HuronBob at 6:34 AM on August 29

I'm an HR guy. I do the hiring, I do the insurance plan picking based on what I *THINK* our employees need. It takes me about a week every year or so to talk to 50+ employees and discuss what plans they want, etc from our insurance provider.

I know for certain that our insurance agent has jacked up prices on certain plans that our employees choose...while not jacking up those prices for other employers. I REALLY don't understand how that occurs, but he claims that its not based on our situation, but "just the numbers". I call bullshit on that.

The situation above is indicative of the extreme situation you are referring to. The agent sees that our company is subscribing to some plans more than others out of necessity, and feels he can jack up the rates because we are going to subscribe to those rates even if the rates are jacked up.

THAT is what it comes down to.

So if an employee is subscribing to an excellent plan...and they are taking advantage of a plan so its costing the insurance company $200,000 rather than the $1,034 they expected...I can almost guarantee they will jack up the rates so it becomes prohibitively expensive to choose that plan.

As for employees being fired for that...DUDE...THAT IS REALLY BAD. I've actually never seen that. But that would be the employer's fault...and it would be worthy of lotsa court time.

I have filed various complaints with the California Department of Insurance (yeah...its California...we DO have that). But nothing is done. They pretty much tell me that nothing can be done unless they are discriminating against the employees or doing something so illegal a 6 year old can see it.

It has very little to do with the employer...at least in our case, because rather than paying a proportion of the rates...the company pays a flat amount for each employee.

It has more to do with the insurance companies...and the agents who need to make their dolla-dolla.

So yeah...THIS is who comes in between you and your doctor...not Obama's "death panels".

I know I kinda went into detail...and I hope its not a derail. If you have more questions, feel free to PM me.
posted by hal_c_on at 6:44 AM on August 29 [5 favorites]

According to one study, 60% of personal bankruptcies are due to medical bills.
posted by mareli at 6:53 AM on August 29

It didn't happen to me, which is not to say it doesn't happen. I work for a very small company (5 employees), and within a 2 year frame my healthcare policy is paying for:

- Pregnancy and childbirth (no copays)
- C-section
- Major surgery (hysterectomy, same day as the c-section, no copays)
- Oncology treatment for my daughter (who passed away; St. Jude Children's Research Hospital paid the balance that exceed the available insurance coverage - over a hundred thousand of dollars)
- Ongoing psychological care for 2 at 80% coverage for out of network (80% of $220 per visit)
- Infertility care, including IVF (estimated $12k-$18k cost projected)
- Prescriptions relating to all of the above

Not only have I not been fired or anything, but the rates to be charged the company have no increased either. My employer pays for me, I pay for spouse/dependants and the amount has not changed since fall 2007, before any of the above.

Most parents with a seriously ill child go bankrupt at some point

This is in part because, when your child is in the hospital constantly, you don't just say drop them off for a 10 day inpatient stay for chemo or their second brain surgery. You eat, sleep, shit and LIVE at the hospital. If you are lucky enough to have a flexible employer, you find SOME time to work, huddled silently over your laptop in the corner while the monitors beep and your sweet baby is napping, hoping the click of the keyboard doesn't disturb her because she's FINALLY comfortable. But if you don't, one or both parents loses their job. Further, your healthcare never pays for all of the bills, for expensive cancer treatment you max it out very quickly. Our child only lived about 6-7 months after her diagnosis with cancer, and yet there were well over a hundred thousand dollars of bills that were above and beyond insurance's max contribution. Imagine if it had been longer, and if we sought treatment at any other hospital in the country, where we would be expected to pay for the treatment?

So, not to say that what Sublimity and others describe does not happen, but that there are quite a few factors that contribute to medical treatment-related bankruptcy and the insufficiency of insurance.

(Did I mention I <3 St. Jude Children's Research Hospital?)
posted by bunnycup at 7:24 AM on August 29 [2 favorites]

This anecdote "How I Lost My Health Insurance at the Hairstylists" discusses the practice of charging employers expensive riders if an employee is treated for certain types of illnesses (in this case a million dollar rider for leukemia).
posted by kimdog at 7:56 AM on August 29 [3 favorites]

How often does it really happen that a health insurer will raise an employer's premiums when a high-demand illness occurs?

Very often. As jon1270 says, rates for employer groups are set based on the experience (read: total medical costs incurred) of the firm being covered. So if you have a group of 100 employees that use $1,000,000 worth of medical care per year, the premiums would work out to (around) $10,000 per employee. Nationally, employers pick up about 70% of the cost of insurance, which means the employer would be paying $7,000 per year per employee, and the employees would each be paying $3,000 per year. (In reality there's more costs than just medical costs, but for large employer groups it's usually pretty even at around 90-95% of total premiums paying for medical costs, so for this example I'll ignore administrative costs.)

If, in one year, somebody's child gets cancer, maybe you see total medical costs for that group rise to $3,000,000 per year. When the insurance contract comes up for renewal, the insurance company will triple the premiums, because the cost of medical care has tripled. There's a couple of ways that a employer can respond to this:

1. Keep their contribution the same ($7,000 per year per employee) and pass along all the extra cost to employees, who are now expected to pay $23,000 per year for coverage

2. Switch to a lower-cost plan (either covering fewer benefits or that requires more cost-sharing, e.g. a $10,000 deductible instead of a $3,000 deductible--this is referred to as "buying down" the cost of insurance)

3. Switch to a different carrier (since each carrier has a different network of docs, this can be significantly disruptive to all employee's current care arrangements--they now have to find new physicians)

4. Drop insurance entirely

5. Find a way to force the employee with the sick family member out

Options #1-4 have the potential to be highly unpopular with all employees, and the employer risks losing a lot of people. It's not surprising that what happens in practice is that employers often find ways to force the high-cost person out, although this is incredibly unethical and in many states illegal.

One thing to note is that the size of the employer matters, a lot. If someone at Microsoft or Boeing has a very sick child that costs $1,000,000 to treat, the group of covered people is so large that spreading out the cost doesn't make much of a noticeable difference--you might see premiums hiked 2%. If, on the other hand, someone working at a small employer that only has 5 employees has a sick child, there's no way for either the employer or the employees to cope with the extra cost. Insurance always works better when you spread the risk among the largest possible group; it's a bit of a historical quirk that Americans ended up with a system where the "group" is defined by who works for a certain employer, and this is one case where you see how that can be a very, very bad way to set things up.
posted by iminurmefi at 9:05 AM on August 29

Also, as an addendum to that long post above: the small-group market (usually employers with less than 50 employees) is notorious for very unstable premiums for the reasons I outlined above. The way that many small employers deal with this is banding together in associations to buy insurance--so, for example, a bunch of small tech start-ups could join the "Northern Virginia Technology Association" or somesuch and buy insurance through the association. As soon as you have medical costs spread over a larger group of people, the chance of one employee's expensive illness being enough to significantly raise premiums drops.

Of course, these associations often skim a percentage of total premiums to pay themselves, so it's not like it's a perfect solution, but that's why it's possible for people working at small employers to have expensive illnesses and not see their premiums rise.
posted by iminurmefi at 9:11 AM on August 29

This isn't business but self-insured. My wife had a tonsillectomy and a broken foot, her premiums went up 73% when the policy was renewed.
posted by Mick at 6:23 PM on August 29

An addendum to iminurmefi - this is what's wrong with the US insurance process (among many other things like rescission, that sort of shit just doesn't happen elsewhere). The point of an insurer is to spread the risk and having a deep pool of people to draw on, but instead they consider your employer to be your risk pool so when a costly event happens for an employee of a small company they're basically fired. If the insurer was operating how they're meant to (and how they do in the rest of the world!), the risk would be spread across tens of thousands of people and that one claim would be meaningless. And their rates would be stable the next year!

I pay the equivalent of USD600 per year for my health insurance, though I'm only 30. I could get cancer and expect my rate to be unchanged. I won't get fired, because I'm paying the $600 myself and my insurer is actually spreading the risk. At the moment, most years I'm pissing away $600 and that pays for other people's hip replacements but when the time comes, I'll get mine rather than being tossed on the street.
posted by polyglot at 3:14 AM on August 30

"You'll find that most lose their jobs and health insurance when their kid gets sick."

Another plausible explanation for that is that parents whose children are very sick or dying are (understandably) so preoccupied with their children that their job performance goes into the toilet, and that's why they get fired.
posted by Jacqueline at 6:42 PM on August 30

According to "Insured, but Bankrupted by Health Crises" (New York Times),

" ... as it turns out, an estimated three-quarters of people who are pushed into personal bankruptcy by medical problems actually had insurance when they got sick or were injured."
posted by kristi at 10:15 AM on September 3