What Do We Mean by "Individual Rating?"

Let’s review: insurance companies make money by finding ways to attract younger and/or healthier customers who are less likely to need medical care. They frequently couple that with finding subtle and not-so-subtle ways to avoid customers who are more likely to require care -- including keeping the customer but denying coverage. The “individual rating” system, whereby young people are charged substantially lower prices than older people for premiums, accomplishes both goals at once. But how far is too far?

It didn’t use to be like this. In the early days of insurance through Blue Cross Blue Shield associations, everyone got the same “community rating” price, regardless of age, gender, health status, whatever. In some places, it still isn’t like this. Switzerland, for example, which operates its universal health care system entirely through private insurance companies, has only three age “bands” --  under 18, 19-25, and 25 and up. A 30 year-old and a 60 year-old Swiss citizen pays the same rate, and it’s affordable for each of them. Finally, a helpful chart from Georgetown Health Policy Institute shows that some states are more equitable in their “individual rating” than others: New York has no variance whatsoever, Vermont a mild 1.2:1, Minnesota and Maine 1.5:1. However, these are clearly the exceptions. America’s Health Insurance Plans, the lobbying arm of the insurance industry, is pushing hard for a cap of no less than 5:1.

It comes down to this: is it fair to charge a 25 year-old $4,500 a year for a comprehensive plan, and then to charge a 60 year-old $22,500 for the exact same plan? Certainly, if you’re older, you’re more likely to need care. If you have developed a chronic condition, it’s likely to be a persistent and possibly even expensive cost. But the Agency for Healthcare Research and Quality (as cited in an article on Kaiser Family Foundations’ Health Watch) pegs the average medical cost of Americans aged 45-64 at only $4,866 per year – for this, they’ll charge you five times as much?

Clearly the reasons for keeping the individual rating have more to do with marketing and politics than they do policy. We’ve been warned by the insurance industry since the days of Harry & Louise ads that charging everyone a fair price means most of our premiums will go up. It’s likely that they will, in fact, increase for the youngest and the healthiest, at least a little. It’s pretty hard to go anywhere but up from the cheapest prices available. But there’s little conclusive evidence that this is cause and effect, rather than insurance companies charging more because, well, they say so. Remember -- although the health care costs of Minnesota (home to a fair community rating ratio) have gone up over these past few years, they haven’t gone up as much as Idaho, Wyoming or the other “wild wests” of insurance deregulation. And, as mentioned, the costs for older patients isn’t that dramatically different than younger – about 2.3 : 1, on average. The most expensive patients are on Medicare, which doesn’t factor into the equation.

So what rating system will emerge in our latest health care effort? The House and Senate Health, Education, Labor and Pensions bills would set it at 2:1 not just for insurance in the Exchange, but also for plans outside the Exchange. The AARP is pushing for 2:1. The Wyden-Bennett Healthy Americans Act wouldn’t allow any individual rating on age -- only on the basis of geography, smoking or family size. Clearly, there’s bipartisan support for doing away with individual rating. But the health insurance industry is pushing for 5:1. And we’ve heard rumors from the Senate Finance Committee that they’re looking at as high as 6:1.

Where the final bill winds up on this question will help answer whether reform is looking out for the American people or the American insurance industry.

(Photo credit:  tomeppy on Flickr.)