Health insurers are posting record profits these days. Despite this, many of them insist that they need to keep raising their rates substantially to remain viable. How is it that they can justify charging consumers more money when they’re already making money hand over fist?

California’s Anthem Blue Cross, the state’s largest for-profit health insurer, has been pummeled in the press for proposing a premium hike for individual insurance coverage. Some individuals were told their rates would rise as much as a hefty 39 percent — this after Anthem reported a fourth-quarter 2009 profit of over $2.5 billion.

U.S. Secretary of Health and Human Services Kathleen Sebelius jumped into the fray earlier this month, calling the rate increases “extraordinary” and pointing out that this increase is equivalent to more than 15 times the rate of inflation. How are health insurance companies justifying the increase? They’re blaming the economy and the people who buy health insurance from them.

Health insurance premiums death spiral?Health insurance representatives say that medical costs have gone up, which results in a relatively standard rise in health insurance rates. And that’s when things take another turn for the worse: In today’s economy, many people can’t afford those higher premiums, so they decide to stop buying health insurance.

Those who are healthy — that is, those for whom health insurance doesn’t seem like a must-have — are particularly likely to opt out of health plans when they cost more. The result is fewer people — in particular, fewer healthy people — in the membership pool, which drives average rates up further, which bumps more people out, and so on. This vicious cycle is colorfully termed a “death spiral” in the insurance market.

Sebelius and health industry leaders are working to get more information from consumers about the rate increases. Congressional Democrats say that outrageous rate hikes prove the need for major health care reform. Meanwhile, Anthem Blue Cross’s parent company, WellPoint, recently agreed to press pause on the proposed California rate hikes until further investigation. Many Americans whose health coverage hangs in the balance will surely follow the political wrangling ahead.

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