A Blue Shield of California executive is urging California lawmakers in an op-ed article in today’s Sacramento Bee to close a loophole sanctioned by federal regulations that could front load the exchange marketplace with high cost individuals and families. That could leave plans participating in California’s exchange marketplace, Covered California, carrying an inequitable cost burden in the first year of its operation, asserts Janet Widmann, the health insurer’s executive vice president of markets. It would do so by allowing plans to elect to continue to operate into 2014 under current rules that allow plans to medically underwrite applicants and reject those with potentially costly medical conditions. Unless the loophole is closed, Widmann warns, all health plan issuers would be tempted to exploit it since they could still medically underwrite and select applicants for plans sold off the exchange marketplace so as to not initially end up with a disproportionate share of high cost insureds. Widmann explains:
Since these loophole policies will enroll only those who are healthy enough to obtain coverage under the current discriminatory system, policies that meet the requirements of the new law will be left to cover a disproportionate number of less healthy people. As a result, premiums for coverage offered through the insurance exchange will be significantly higher. Even insurers that have supported reform and want to see the exchange succeed will be pressured to sell the loophole policies to avoid losing healthy customers to competitors.
Plans sold in the Covered California marketplace would be unable to exploit the loophole under policy adopted by Covered California last week requiring qualified health plans with which it contracts to terminate plans they currently offer that are not compliant with the Affordable Care Act as of December 31, 2013. The “level playing field” provision is at section 3.04(b) of the Covered California QHP Model Contract:
(b) Contractor agrees that, to the extent not already required to do so by law, effective no later than December 31, 2013, it shall terminate or arrange for the termination of all of its non-grandfathered individual health insurance plan contracts or policies which are not compliant with the applicable provisions of the Affordable Care Act. Contractor agrees to promote ways to offer, market and sell or otherwise transition its current members into plans or policies which meet the applicable Affordable Care Act requirements. This obligation applies to all non-grandfathered individual insurance products in force or for sale by Contractor whether or not the individuals covered by such products are eligible for subsidies in the Exchange. All terminations made pursuant to this section shall be in accord with cancellation and nonrenewal provisions and notice requirements in California Health and Safety Code Section 1365, California Insurance Code Sections 10273.4, 10273.6 and 10713, and relevant state regulations and guidance.
Last week, California enacted two bills, ABX1-2 and SBX1-2, establishing 2014 market rules for the individual and small group markets and conforming state law to Affordable Care Act provisions. The measures did not include a provision that would close the loophole. Widmann suggests legislation mandating all non-grandfathered health plans (those not in effect when the Affordable Care Act was enacted in March 2010) play under the 2014 market rules barring medical underwriting of applicants. That would require new special session or urgency legislation that would take effect before the end of 2013.
The Los Angeles Times reports Blue Shield of California is proposing to up individual plan premiums by an average of 12 percent in 2013, the penultimate year heading up to the launch of the California Health Benefit Exchange (Covered California) in 2014. Blue Shield’s rate hike is somewhat lower than California’s individual market share leader, Anthem Blue Cross, which last month informed regulators it would boost 2013 rates between 15 and 18 percent for its plans.
Both payers cite rising medical treatment costs for the rate increases. According to the Times story, Blue Shield is also boosting its reserves to cover claims costs from an expected influx of new customers in 2014, when payers must accept all applicants without medical underwriting and the state’s health benefit exchange will offer income tax credit subsidies to defray premium costs. “It’s a once-in-a-lifetime change in the healthcare market that will bring a lot of volatility, and we need higher reserves for that,” Blue Shield spokeswoman Lindy Wagner told the Times.
While about another development, buried in this San Francisco Chronicle story published today is a revealing disclosure by Janice Rocco, deputy commissioner of the California Department of Insurance. Rocco told the Chronicle Blue Shield of California will have only three individual insurance plans open for enrollment after it closes nearly two dozen existing plans next month. Rocco is quoted as saying the insurer is seeking approval from the Golden State’s managed care plan regulator, the Department of Managed Health Care, to nearly double the number of managed care plans to 20.
This development is counter to the market trend of the previous decade in which individual market consumers shifted out of more comprehensive and costlier managed care plans to cheaper, high deductible insurance plans overseen by the Department of Insurance. Blue Shield could be preparing to offer richer, lower deductible managed care plans that can meet the essential health benefit requirements of the Patient Protection and Affordable Care Act in order to potentially qualify them for the California Health Benefit Exchange in 2014. Blue Shield’s shuttering of the nearly two dozen individual insurance plans is likely due to their falling into the death spiral of adverse selection.
When a large vertically integrated health care insurer that also has a health utilization and wellness consulting unit takes over a physician group that has a pre-existing relationship with a payer, that payer may well feel threatened. Enough so to motivate it to sue the physician group.
That’s what has happened following the acquisition of California-based Monarch HealthCare last year by UnitedHealth Group’s Optum Health unit. Blue Shield of California’s breach of contract lawsuit against Monarch shows the transition from traditional payer-provider relationships to broader-based relationships aimed at reducing patient medical utilization and improving health outcomes will encounter some speed bumps along the way.
California HealthLine has the story here.
More evidence the individual health insurance market segment in the nation’s biggest individual market — California— appeared in today’s Los Angeles Times. While an Anthem Blue Cross spokeswoman wouldn’t confirm the account, the newspaper reports a couple was told by the insurer it was shuttering the couple’s $2,500 deductible plan because the risk pool is shrinking and no longer viable.
“A shrinking risk pool will eventually mean that the only people left in the plan will be ones with preexisting conditions,” John Barrett, a Pasadena health insurance broker told The Times. “Over time, rates would go up more than other plans.” In a nutshell, that describes adverse selection in which insureds likely to place the greatest demands on the risk pool comprise an increasingly larger portion of the pool, forcing the insurer to raise premiums in order to ensure the pool remains solvent.
The report comes a little more than two months after Paul Markovich, COO of Blue Shield of California, told a Sacramento, Calif. health care forum that adverse selection is placing “tremendous stress” on the individual health insurance market.
Less than one week after Blue Shield of California said it would raise rates on individual market products May 1 because premium revenues were not keeping up with losses due to rising medical costs and increased utilization of high cost procedures, the insurer has cancelled the increase.
Losses are now ameliorating, Blue Shield spokesman Tom Epstein told the Los Angeles Times, coming in below projections for the latter part of 2010. While the insurer isn’t fully certain of the reason, it believes consumers are assuming more risk by purchasing higher deductible policies with fewer benefits in order to keep rising premiums affordable.
“It’s definitely happening,” Epstein told The Times. “As rates go up, people do tend to downgrade into less rich products that have more cost sharing.”
In canceling the planned May 1 rate increase that was to average 6.5 percent and boost premiums by as much as 18 percent for some policyholders, Blue Shield said March 16 that it still expects to lose money in 2011 after $27 million losses on individual policies last year.
Duke Helfand of the Los Angeles Times has yet another story in today’s issue on the enormous and unsustainable increases in California individual health insurance premiums. Helfand’s story spotlights recent rate hikes by Blue Shield of California, which according to his story have gone up 50 percent or more for about a quarter of 193,800 individual policyholders since last fall.
Blue Shield spokesman Tom Epstein defended the increases as reflecting soaring medical care costs and increased utilization of more costly services by policyholders as well as new state and federal mandates. Those cost drivers required Blue Shield’s actuaries to recalculate projected claims payouts.
Nevertheless, Epstein explained, the outgo continues to exceed premium revenue. Blue Shield expects to lose $20 million to $30 million on its individual policies this year after a loss of $27 million the previous year, he said.
“People are justifiably concerned when they get a significant rate increase. We wish that we didn’t have to do that,” Epstein told The Times. “When people are getting increases like that and we’re still losing money, something is seriously wrong.”
As Teal’C of Stargate SG-1 would say, “Indeed, O’Neill.”
If Blue Shield were a monoline carrier that sold only individual (and not group) health insurance, California Insurance Commissioner Dave Jones, piqued at Blue Shield’s rate hikes and seeking authority to allow him to approve rates before they go into effect, could have an even bigger problem on his hands: potential insolvency of the insurer.