A year on from Wellpoint’s ju-jistu move of announcing a 39% rate increase in California, therefore re-invigorating the health care bill and guaranteeing themselves billions in government subsidies, Blue Shield of California, the non-profit rival to Wellpoint’s Anthem Blue Cross, announced a 59% increase! In the annals of THCB, Blue Shield has a mixed record. CEO Bruce Bodaken was a big supporter of the ACA and consistently called for universal coverage, but at the same time the behavior of Blue Shield after the revelations about the insurance recissions was worse than any other insurer. It actually fought much harder for the right to continue them than Wellpoint, Healthnet and the rest. The most recent rate increases also concern the individual market—you know, that segment of the insurance market that Mark Pauly thinks works pretty well.
Blue Shield is saying that the rates really are only a 15% average increase, and that for some individuals they’re getting a delayed increase—in other words they should have been charged more last year—which is where that 59% number comes from. Why are rates going up? Blue Shield put out a handy press release giving its side of the story. Blue Shield is pretty explicit that the extra costs of the abolition of life-time maximums and the addition of kids up to 26 on family policies was only around 4% over 2 years. The big factor was that utilization went up 7%, unit costs (prices) went up 5% and the rest of the increase (3%) is due to lower overall out of pocket costs relative to what the insurer was covering (because of overall cost increases).
Translated into “where the money went,” hospital payments went up 15%, drugs up 12% and doctor payments went up 9%. In addition, although Blue Shield doesn’t state it, the pooled risk profile of everyone in a particular individual market product gets worse as while they all get charged the same at “entry”, and then more healthy people drop out as prices go up than sick ones. This is the insurance death spiral we used to hear so much about.
However, it’s not just Blue Shield and it’s not just the individual market.
My tiny company just got its rate increase from Healthnet which sells us a high-deductible PPO product in the California small group market. This is not an experience-rated product—in other words every company in the 2–50 employee group gets charged the same despite their employee’s health status. The only adjustment are for age of employees (i.e. the company pays more for the 40+ crowd than the 20 somethings) and location.
What happened this year? No fanfare in the media, but our rates went up 20%. Higher than Blue Shield’s average in the individual market.
And the real story is told when you look at the rates charged by region. For small businesses California is divided into 9 regions. For a 30–something employee with no family our premiums in Region 3 (San Francisco Bay Area) are $347 a month. Move our company to some zip codes (but not all!) in Los Angeles and the premium falls to $320. In fact up the coast in Santa Barbara it’s only $315. But the same employee in rural northern California costs $429! That equates to a variance of 40% in pricing for exactly the same benefit.
That tells me that pretty much Blue Shield is telling the truth. What’s driving premium increases is the increase in utilization and increase in pricing from providers. So I do have some sympathy for Blue Shield and Tom Epstein (their public policy spokesman who I interviewed here last year). But my sympathy is limited for two reasons.
First, the government just reported that overall health care costs only went up 4% in 2009 and that the rate of increase is slowing. (Admittedly costs went up to 17.6% of GDP but that’s because the economy fell off a cliff). As Jeff Goldsmtih has been saying, the health sector is entering a slowdown. So how come America’s health care costs are going up 4% but Healthnet’s and Blue Shield’s are going up 15–20%?
Second, (and you know this is coming). If all the things health plans do (and don’t do) are resulting in them being more inefficient at keeping costs down than the nation as a whole, and by the way, the Federal Government. Why do we need them?
And third, even if the ACA won’t be repealed (and it won’t for a bunch off reasons despite the idiocy of the tea party), we’re still going to have health plans operating the insurance system in the future—albeit with more regulation when the exchanges come into play. And I still see no real changes in how they’re operating.
PS I’m struggling to get much of a reference to Duke basketball in this piece. But yesterday I did meet Ronnie Chatterji who sort of has the health portfolio on the Council of Economic Advisors these days (since Bob Kosher left). And he’s on leave from Duke. It’s a reach I know, but I’ll tell you my Mick Jagger story someday.
Filed Under: Matthew HoltJan 10, 2011