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Saturday, May 25, 2013

Why are health insurance premiums still rising this fast? Blue Cross proposes hike of 24.7% for county employees.

This morning when I got the local paper, I was greeted with a lead article which reported that Blue Cross of Idaho was asking the county to pay 24.7% more for employee's premiums in 2014. Nobody can afford something like this. They will, of course, start looking for alternatives.

I remember similar situations in the clinic where I worked for 12 years, a group that had about 35 employees. We would be happy enough with our insurance plan, which cost too much but did give us reasonable medical coverage, and then the premium prices would rise, significantly faster than did our revenues. We would scramble around, getting quotes and weighing options, engaging in negotiations and eventually would have to switch everyone to a different company with slightly worse healthcare coverage and fill out many forms, with no guarantee of a stable premium or benefits for the following year. As a physician I had access to the health insurance for the group, but very soon opted out because it was so expensive, had benefits I felt I wouldn't use, and because I could actually do better in the individual market.

My individual market experience was not without its disappointments, as I faced 20+ percent premium hikes yearly, but did allow me to decide on a plan based on my family's individual needs (which, thanks to the irrational bounty of the universe in its inscrutable unfolding, were minimal.)

But since that time we have passed the Affordable Care Act (ACA), a healthcare reform bill that seemed to have promised to make insurance companies behave as good citizens. Is it really possible that Blue Cross will hike premiums by 24.7% in one year to our county employees? And this is a rather large group of customers, a significant negotiating force. What will individually insured people and smaller groups see this year?

I went back to the affordable care act to read what it actually says about insurance reform. What changes has it made or will it make to allow us all to be insured in the America of the future in which we can afford basic and not so basic healthcare?
  • In 2010 the Patient's Bill of Rights went into effect which gradually increased the cap on lifetime payouts for essential medical costs. Now this cap can be no lower than 2 million dollars, and by 2014 there will be no cap. Children with pre-existing conditions cannot be denied coverage, and that will eventually be broadened to include pretty much everybody. Adult children up to age 26 can stay on their parents' insurance plans, even those funded by employers. Certain preventive care, including cancer screening and diabetes treatment, need to be paid in full by insurance, without co-pay.  Patients with medical conditions or pre-existing conditions can get what should be affordable insurance through the government under the Pre-existing Condition Insurance Program, if they have been uninsured for over 6 months (which sounds pretty bad to me, definitely courting disaster to wait 6 months.) These reforms are not universal--certain "grandfathered" health insurance policies which have remained essentially unchanged for years can continue as they are, not complying with these regulations, and in 2013, 27.4% of employers still offered grandfathered plans to their employees. The number of people on these plans drops significantly every year.
  • Several regulations directly influence health insurance companies' costs and profits. In 2011, insurance companies were required to spend at least 80% (called the "medical loss ratio") of the money they took in on patient benefits (85% for large group plans.) Above that, 15 to 20% can go to administration costs and profits. If the entire 80 or 85% is not spent on benefits, it must be sent back to the consumer as a rebate. There are mixed reviews of how this has worked. It was thought that it ought to cut costs, but it kind of shoots itself in the foot. If insurers want to fund all of the profits and administration that makes them big and powerful, they just have to increase premiums and be sure to pay out at least 80% of those premiums on medical costs. If they can keep increasing premiums, then they don't have to do any work at all to decrease healthcare costs, because paying more for healthcare means they can also keep more money in profits and administration. Health insurers also can't save up for a bad year by making more profits on a good year which encourages strategic premium hikes, or so one economist says.
  • The ACA also requires states to review excessive premium increases, those more than 10% per year. Most states have that process up and running, with significant financial support from the federal government. There have been stories of health insurance companies backing down from rate hikes due to this process. I wonder, though, if they have responded to this by raising the initial asking price because they expect to have to bargain to reach a compromise. Insurance premium costs have gone up 131% between 1999 and 2012, which sounds like around 10% per year. This is, of course, far faster than the rise in our gross domestic product but would seem like a sweet deal compared to the 20+percent yearly increases that I have seen with my individual plan, and this proposed 24.7% increase that Blue Cross proposes here this year.
  • All insurance companies have to contribute to "transitional reinsurance" funds to help insurance companies pay for very expensive patients, as an incentive for them to provide coverage. This money goes to nonprofit reinsurance agencies which pay the insurance companies that insure these patients to cover their high costs. This also goes to fund a program which keeps early retirees on the insurance that they had received from their employers while they worked. The ACA also allows lower income taxpayers to get their health insurance tax rebates before the end of the year so they can actually use them to pay for health insurance. These regulations are called "Premium Stabilization Programs" which is kind of an overstatement, since premiums don't appear to be stabilizing. The transitional reinsurance fund seems like an awfully complex way to solve this problem, having insurance companies pay other insurance companies to pay them back for providing benefits. These programs are, however, temporary, and will be phased out in 2014 as nearly universal health insurance options become available.
  • In 2014 the ACA introduces the health insurance marketplace. This will be an online clearinghouse of health insurance options including many less expensive and subsidized programs for low income households. Many more patients will be insured through fully funded Medicaid programs, and side by side comparisons of health insurance plans will improve competition and make becoming insured easier. As I look at it, this will be better than what we have now, and allow many more people access to basic healthcare. I don't see it reducing costs in the long run, though. Still, civilized countries make basic healthcare available to their citizens, and it behooves us to join the ranks of civilized countries in this respect.
What will happen with this 24.7% premium hike that I read about in the paper this morning? I suspect Blue Cross will be talked down to some lower number by the state government. Premiums will probably still increase painfully, by double digits. The county may opt for a less expensive option and if the health insurance marketplace really fulfills its duty, in October of this year they may be able to shop for the best plan online. Whatever plan they decide upon will have excellent coverage for basic preventive services, because that is mandated by the ACA. Employees who want to opt out will have some reasonable options for individual insurance and some of them may qualify for subsidies. Some individuals and families will choose to go without insurance and pay penalties which will still be cheaper, in most cases, than paying for insurance. They will gamble that their health will remain good through the year. As insurance companies pay for more of healthcare, unless we make some deliberate changes, that care will continue to get more expensive, and those who choose not to be insured will find costs of unexpected injury or illness devastating financially (which they already do.) I look forward to getting my yearly love note from Regence Blue Shield of Idaho, letting me know what expensive options exist for me as my super-high deductible plan becomes obsolete in 2014. Stay tuned.

1 comment:

Bob Hertz said...

Janice, small group insurance and individual insurance have been in an actuarial death spiral for several years.

I dislike the insurers too, but this is not their fault.

Start with a group of 50. Rates go up, so 5 healthy persons drop the plan. The 5 least healthy will not drop the plan, ever.

So to keep this comment brief, the claim costs for the group remain the same, but there are fewer persons paying.

If you tinker with the numbers, you have no idea how fast that raises premiums. Again this is not insurer greed. Some of the most inflationary plans in my state are co-ops covering teachers.

Denmark has a reinsurance fund like the one you were good to describe. It now amounts for 40% of the premiums! The US will be in trouble if our fledgling fund disappears after 2014.

Bob Hertz, The Health Care Crusade