Connecticut has approved rate hikes of over 20% for some insurance plans (H/T Ed Morrissey):
The state’s largest health insurer was granted rate hikes Friday that will be well over 20 percent for some plans, drawing sharp criticism from the attorney general.
Anthem Blue Cross and Blue Shield in Connecticut requested a wide range of premium increases, which will take effect Oct. 1, to cover the costs of new benefits required by federal health reform. Higher prices mostly affect new members shopping for a health plan on the individual market rather than people who have group plans through an employer or some other organization.
Of course rates had to go up. Insurance companies have to cover more people with more restrictions on how they can do that. They also have new imposed 80% or 85% medical loss ratios (MLR) to deal with, limiting profit margins (a study of insurance companies already complying in 2009 with the MLR versus those that did not revealed significantly lower profit margins for those already in compliance). When your expenses go up and decrease your profit margins, you have to raise your top line and/or cut other expenses to maintain your profit. For insurance companies who must have a high level of expenses for paid benefits, this means higher premiums. ObamaCare puts insurance companies in this situation.
Think of it this way: health insurance companies have an average profit margin of 3.4%, and according to the study above, those who comply with the MLR only make an average margin of 0.7%. If to comply with the new MLR (among other regulations) takes 2.7% of your profit margin, or 2.7 cents off every dollar, how do you make up that loss? With an average profit of 0.7 cents per dollar, you must now generate about four more dollars of revenue to make the same profit, or an increase of 400% in revenue. How can you do that? The easiest way is probably to increase premiums.
Of course, this won’t stop Democrats from demonizing the insurance companies as if the insurers are simply increasing rates to line their pockets. Here is what Connecticut’s Democrat Attorney General had to say about the news of the rate increases:
Attorney General Richard Blumenthal called on Insurance Commissioner Thomas Sullivan “to schedule public hearings on all pending health insurance rate increase requests, ensuring proper analysis and inquiry by consumers, businesses and government officials.”
“Anthem and other insurers are seeking massive, unjustified increases that will crush consumers and companies, especially small businesses, struggling with the worst economic downturn in decades,” Blumenthal said.
This sounds pretty similar to what HHS Secretary Sebelius recently said about insurance companies blaming rate hikes on ObamaCare: the insurance companies are to blame for the rate increases. This is all too predictable, as are future attempts by the Democrats to use this demonization of insurance companies to suggest more government control over the industry.
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