California Medical Insurance Premiums are Higher..Why?
Posted on Tue, Nov 30, 2010
The national average of medical insurance premium increases hovers around 9%. However, California's average medical insurance premium increases have been around 14%. Why are California's rate increases so much higher?
California has historically had the least expensive medical insurance premiums in the U.S. California has been catching up to the rest of the nation.
Prior to our modern medical care system, sick people were taken care of in their homes either by their families or by charitable organizations that delivered community based facilities. At that time, doctors couldn't do much, and therefore most people with serious ailments ran their course, either getting better or dying.
By the early 1900s, the ability of hospitals to treat diseases increased, and the cost of doing such did as well. At that time, Blue Cross started to sell prepaid medical insurance plans, and Blue Shield followed. These plans covered physician and hospital services. These types of plans were considered to be used for catastrophic injuries and illnesses. Around the same time, Henry Kaiser, a California industrialist, started to provide medical services to his workers as an added benefit. Dr. Sidney Garfield, who had been treating employees of Kaiser in the Mojave Desert, and the enterprising insurance agent Harold Hatch, produced a plan that would cover all medical services and care for five cents a day, which helped recruit Kaiser employees.
In 1944, Kaiser Permanente offered its plan to the general public, and the HMO was born. Even now, California has many more HMO participants than PPO participants.
To try to compete, many HMO competitors followed the same model of prepaid services. This gave California the largest concentration of physicians, the most controlled premiums in the U.S., and the most competition for consumers. Why, then, has California lost that advantage and its low rates?
Years ago, there were so many more HMOs competing for consumers in California compared to now. With all of the business failures, acquisitions, mergers and huge financial and regulatory barriers to enter into the California insurance market, the number of HMOs willing to compete has gotten very slim.
The California legislature hasn't ever met a mandate or a regulation that they don't support. However, the rest of the U.S. can thank California for introducing many provisions that are now federal law, which were initially started as legal requirements in California, such as regulations, privacy, domestic partner coverage, etc. Also, huge investment capital is required in order to comply with all of California's requirements. As an example, numerous hospitals are still having a hard time complying with California's specific seismic retrofitting state laws.
While doctors have struggled with enormous workload demands, increased intrusion into the method in which they manage their medical practices, the high cost of medical malpractice premiums, the pain of capitation (which is the low portion of an insurance premium that a physician earns to manage an HMO patient's medical care), its not surprising that many physicians are not accepting HMOs and HMO patients any longer.
Increasingly, regulations in California are mandating immediate access to a specialist without the requirement of a referral. Since specialists' fees are higher, these costs for claims are quite high, especially if there's unrestricted access to a specialists' services and/or frequency of visits. HMO and PPO premiums used to have premiums that were very far apart. However, the gap in cost between HMO and PPO plans is narrowing.
Health care reform may not be addressing health care costs. Therefore, what can be done to lower California's health care costs? It may require solutions such as focusing on employee wellness and preventative care. Whatever the solution may be, it needs to be done as quickly as possible, because medical costs are uncontrolled and medical insurance premiums are becoming unaffordable for the majority in California.