Runaway medical bills in California

Rising premiums and co-pays next year could destabilize many already struggling with inflation

Photo by Zhen Hu

By Mark Kreidler

This story is produced by the award-winning journalism nonprofit Capital & Main and co-published here with permission.

Millions of Californians are grinding their way through an inflationary cycle that hit 40-year highs over the summer. This year, they face another challenge that could feel bewildering or overwhelming: a sharp hike in health care costs. But to the companies making massive profits off that system, it’s just business as usual—and business is great.

According to Covered California, the state’s version of the health insurance exchange created under the Affordable Care Act, premium rates for people buying insurance in 2023 will increase by 6 percent. The agency attributes the rise, more than three times higher than any in the past four years, in part to “the return to normal medical trends that existed prior to the COVID-19 pandemic.” (Inflation likely also plays a part.)

People are going to the doctor again, both for basic checkups and for some of the care that they postponed during the worst of a pandemic that is nowhere near over. As the health companies explain it, the resumption of normal medical activity within their systems has produced some of the need for a dramatic rise in monthly upfront charges to patients.

“Most Californians don’t have that much in the bank, which means going to the hospital can destabilize family finances.”

~ Anthony Wright, executive director, Health Access

But increased premiums because of increased use does not fully explain what is causing Californians’ escalating health costs. Nor does the reflexive tendency of the industry’s behemoths to immediately pass along any bump in the price of running their businesses.

It’s much darker than that. Along with higher premiums, deductibles and co-pays are set to rise, wreaking havoc on the finances of California’s working class. Only state-level intervention is likely to prevent runaway bills that many families cannot afford.

“Most Californians don’t have that much in the bank, which means going to the hospital can destabilize family finances,” said Anthony Wright, executive director of Health Access. “California policymakers need to double down on providing affordability assistance, and addressing the underlying costs of care.”

*   *   *

The past couple of years have been stunningly good to the health insurance industry. In 2020 and again last year, insurers collected premium after premium from Americans who, in turn, mostly avoided hospitals, doctors’ offices and clinics amid lockdowns and pandemic restrictions.

The companies thus paid out only a fraction of their premium collections to cover actual care, leading to soaring profits. Some insurers made so much that they could afford to skim billions of net revenue to buy back shares of their own stock in 2020, and then upped their take further in 2021. Forced by federal law, health companies issued record rebates to enrollees two years in a row because their profit margins off premiums alone were so high.

Even with patients resuming the use of their health plans, that rich trend has continued. In the third quarter of 2022 alone, UnitedHealth Group raked in $5.2 billion in profit, putting it about $15 billion in the black for the year with one quarter yet to report. Andrew Witty, UnitedHealth’s chief executive, made it clear to analysts that he expected a robust finish to the year, allowing “us to deliver durable and balanced growth and to increase our 2022 adjusted earnings.” The stock price, Witty explained, would go up yet again.

UnitedHealth merely led the pack. Over the first half of the year, Aetna CVS Health posted $5.2 billion in profit, Elevance (Anthem) $3.45 billion, Cigna $2.7 billion and Humana $1.6 billion.

As for Kaiser Permanente, worry not. Although California’s leading health provider reported a net loss in the second quarter this year, analysts were quick to note that it was due to investments in the market, not a downturn in the health industry. And Kaiser had more than enough to cover any short-term issue—it netted a record $8.1 billion in profit last year.

Many of these companies are front and center in Covered California, through which roughly 1.7 million residents choose individual health plans, and all of the companies exist in the state in the form of employer-based insurance, which is also expected to be hit with significant premium increases in 2023. (UnitedHealth dropped out of Covered California in 2016, deciding there was more profit to be made working with private employers and the state government’s CALPERS program.)

The focus on premium increases is fair, even though many Covered California applicants won’t see their monthly payments rise dramatically because government subsidies will cover a lot of the rate hikes for those who qualify. Like the American Rescue Plan before it, this assistance is temporary, baked into the Inflation Reduction Act. When it ends in three years, people who currently pay little or none of their premium charges could suddenly be on the hook for thousands of dollars per month.

Photo by Annie Spratt

But that only tells part of the story. After all, health insurers are getting their full premium payments one way or another, either from individuals, employers or the government. It makes little difference to them who writes the check.

Big money, meanwhile, is often made through deductibles—the amount you have to pay before your health insurance even begins to help with certain types of care, like a hospital stay. And those costs are poised for another massive run-up.

Of Covered California’s four metal-tiered plans, the silver category is by far the most popular, with four offerings within that space alone (bronze, gold and platinum each have one apiece). For 2023, the deductible for an individual silver plan will shoot up by more than $1,000, to $4,750. The maximum out of pocket expense for an individual sees a similar hike, to a top end of $9,500. A family’s maximum out of pocket expenses can climb to a backbreaking $17,500.

Patients will get nicked in the margins, too. Co-payments for primary care visits on silver plans will rise from $35 to $45, while a visit to a specialist that costs $70 right now will become an $85 expense on Jan. 1.

“In a year of rising costs, Californians are crying out for affordability help, yet health insurance companies keep looking for ways to raise [prices],” Wright said. “Californians will now face hospital deductibles of almost $5,000 this year, and perhaps more in the years ahead. When care is unaffordable, it discourages Californians from getting care and coverage.”

*   *   *

Two bills introduced in the state Legislature this year attempted to address specific aspects of this crisis of unaffordability; neither made it through. AB 1878, authored by Assemblymember Jim Wood (D-Santa Rosa), would have meant zero-dollar deductibles for silver plan users who earn up to 600 percent of the federal poverty level. It was held in the Senate Appropriations Committee and will not move forward, Wood’s office said.

AB 1878 was largely a mirror of SB 944, authored by state Sen. Richard Pan (D-Sacramento), which eliminated deductibles and reduced copayments for many Covered California enrollees over the next two years. Pan’s bill reached the desk of Gov. Gavin Newsom, who vetoed it, explaining that he wanted to hold back the $300 million approved by the Legislature for the process in case it was needed to offset future premium rises.

That leaves many Californians in a now-familiar position: They’re reliant on federal assistance to keep their premium obligations manageable and their mandated health insurance intact, but the cost of actually using that insurance is daunting—and mounting.

State government leaders must keep trying. Obamacare, as it’s often called, was not initially embraced by the health insurance industry (when UnitedHealth withdrew from Covered California and more than 30 other state exchanges several years ago, it was thought that many other insurers would follow), but the past four years have seen a significant surge of provider activity on the exchange. The reason? There’s huge money to be made, as evidenced by the companies’ bottom lines.

Californians who use the system, meanwhile, are getting shelled by rising costs, and experts say those with employer-based insurance aren’t likely to fare much better. Surely a period of devastating inflation is an occasion for the Legislature to take another long look at what health companies are pulling out of the state—and how much of that is coming from working class residents who’ll struggle to absorb the kinds of rate hikes they’re about to face.

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