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Californians pay less for health insurance Posted: July 29th, 2011

By Karen Haywood Queen

What's up with rising health insurance rates in California?

You might be surprised to learn that health insurance premiums in the Golden State are actually in line with or even slightly lower than rates nationwide, says Jim Branscome, a statistician for the Agency for Healthcare Research and Quality (AHQ).

However, nationwide, health insurance rates have been outpacing inflation for 60 years, notes Dr. Stephen Shortell, professor of health policy and management and dean of the School of Public Health at the University of California Berkeley.

"It's not just in California," Shortell says. "Insurance premiums are going up across the country."

California health insurance is still less expensive

Californians with employer-provided health insurance still pay less on average for medical coverage than the rest of the country, according to information compiled by AHQ, which is based in Rockville, Md.

In 2004, California workers paid an average of $554 a year for their share of employer-provided health insurance, compared to the national average of $671. Five years later, everyone was paying more but Californians were still paying less than the national average. Across the country contributions in 2009 climbed to $957 for employee-only coverage, compared to $795 in California.

In fact, the gap is widening between California and the rest of the country when you look at employees with single (employee-only) coverage who don't make any contributions toward their employer-provided health insurance premiums.

For example, in 2004, nearly 30 percent of Californians with single coverage plans contributed nothing, compared to the national average of about 24 percent. Jump ahead to 2009 and 28.5 percent of Californians enrolled in such plans got a free ride--a lower percentage than in 2004, but a bigger gap compared to the 20.6 percent who paid nothing for health insurance nationally, according to AHQ.

Managed care keeps costs down

Historically, health insurance rates have been lower in California because that's where managed care--HMOs specifically--were pioneered, says Bryce Eddy, senior vice president at Poms & Associates Inc., insurance brokers in Woodland Hills, Calif.

"Originally, health care was the most competitive, cost-wise, in California," Branscome says. "This is where managed care was invented. It's still less expensive here overall."

The HMO model is based on keeping patients healthy, limiting reimbursed care to a certain pool of providers, and controlling access to specialists. The doctor gets a portion of your premium every month whether you go or not. You also have to see your primary care doctor for a referral to a specialist.

In contrast, the preferred provider organization (PPO) model is based on fees for health care services and patients have more choices of providers. With a PPO, policyholders can see an in-network health care provider, or for a greater share of costs, can choose to seek out of network care. Additionally, patients often can go straight to a specialist.

As consumers demand more health care options, PPOs are replacing HMOs in California and across the country, and according to Eddy, some HMOs have started to act more like PPOs.

"People want unrestricted access," Eddy says. "They don't want to go through a gatekeeper. More plans are responding to that."

While flexibility gives consumers more choices when it comes to their health care, increased freedom in the managed care model leads to higher health insurance rates.

More doughnuts, diabetes and doctor visits

In addition to changes in consumer preferences, premiums are rising in California for the same reason health insurance rates are going up across the country: the cost of care is outpacing inflation.

"Part of it also is the increased cost of delivering medical care," Shortell explains. "For the past 60 years, the rate of increase has been higher than the rate of inflation. We pay our doctors more money. We have more intensive treatment. Insurers are passing increased costs on in the form of higher insurance premiums."

Many of us are also choosing to go to the doctor for peace of mind. Those visits, while putting your fears at rest, drive up costs, Eddy adds. Low co-payments are another factor contributing to the rising cost of health insurance.

"In the past, we had to triage a lot more," Eddy says. "If you were bleeding uncontrollably and needed stitches, you went in. Now, if your kid has the sniffles, instead of thinking 'he'll be better in a couple of days,' now we're saying 'with a $10 co-pay, let's take our child in just to be safe.' That's created a whole culture of running to the doctor for things we used to treat with rest and mom's chicken soup. It's over-utilization of care. Consumers are insulated from the cost. It may cost $10 or $25 out-of-pocket to go see the doctor. But obviously it costs more for the doctor to see you. You pay for that in premiums," Eddy says.

Chronic conditions like diabetes and high blood pressure, which are linked to obesity, drive up costs as well. In fact, chronic conditions now account for 75 percent of all claims, according to Centers for Disease Control and Prevention. Regular care needed for chronic conditions is expensive and drives up health insurance rates for everyone.