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.
Trummel, grappling with his second increase of the year, isn’t holding his breath. But he’s hoping that the new state-run marketplace where people will be able to buy health insurance under the federal health law in 2014 will yield an option that offers him some relief until he qualifies for Medicare.
“If I could get into that (the marketplace), I might have only one more year of this agony with Anthem Blue Cross,” Trummel said. “I’m just holding on until either the health law or Medicare will kick in.”
California legislation limiting self-insured small employer medical stop loss coverage moves forward
California lawmakers are concerned a trend of small employers self insuring their employee health benefits and purchasing stop loss coverage for cases when a given worker incurs high medical bills will play havoc with the state’s small group health insurance market. The chief concern is the arrangement will further reduce an already shrinking and distressed market segment and foster adverse selection as the state prepares to bolster the market starting in 2014 with a Small Business Health Options Program (SHOP) offered through the California Health Benefit Exchange.
Lawmakers are responding by imposing restrictions on medical stop loss coverage with SB 1431, legislation sponsored by California Insurance Commissioner Dave Jones and approved this week by the Senate Health Committee setting higher attachment points for the insurance. Stop loss coverage has been reportedly offered with attachment points as low as $10,000 to $20,000. Combined with a $1,000 to $2,000 deductible, employers would be responsible for an employee’s medical bills in a relatively narrow window above the employee deductible and below the stop loss attachment point. Stop loss insurance kicks in when an employee’s medical costs exceed the attachment point.
“SB 1431 is necessary to prevent the state’s small group market from falling victim to adverse selection and unsustainable premium levels and protecting California’s small businesses, its employees, and the success of the post-ACA (Affordable Care Act) insurance market,” the committee’s analysis notes.
California could adopt own health reform plan with individual mandate if PPACA ruled unconstitutional
If the U.S. Supreme Court decides this summer that the Patient Protection and Affordable Care Act’s (PPACA) mandate that all Americans have health coverage or purchase it by 2014 is unconstitutional, California could nevertheless move forward with its own health reform plan including such a mandate. That’s according to the state’s Health and Human Services Secretary Diana Dooley, per this excerpt from this story appearing in today’s Sacramento Bee:
If the court does rule the federal law unconstitutional, state Health and Human Services Secretary Diana Dooley said California should at least consider enacting its own universal health care legislation, including requiring every Californian to buy insurance.
“I think that we should be committed to making this system more rational than it is today, and improving the health of the people of California,” Dooley said in an interview. “If we ask the insurance plans to take everybody and insure everybody with no screens or pre-existing conditions, then we have to have everybody buying some level of health insurance to meet their responsibility to the system.”
That reciprocity was a core principle of the Health Care Security and Cost Reduction Act. In early 2008, California lawmakers considered but rejected the legislation championed by then-Governor Arnold Schwarzenegger and top legislative leaders. Like the PPACA, the act was modeled after Massachusetts legislation enacted in 2006 that also served as a prototype for the PPACA and included as a central feature the so-called “individual mandate” requiring adults to have some form of public or private health insurance or managed health care plan. In turn, insurers and health plans would abandon medical underwriting and accept all applicants regardless of medical history, thereby making coverage accessible to more people. Other key policy goals of the mandate are to alleviate “cost shifting” in which those who have coverage end up paying for health care costs of those without coverage through higher premiums and to reduce the threat of adverse selection that can rapidly render payers insolvent.
It remains to be seen whether California would move forward with its own reform plan if the PPACA fails to survive judicial scrutiny by the nation’s highest court. Increasing the probability is the view among the Golden State’s health care industry leaders that health care reform has achieved critical mass and will move forward regardless of what happens at the federal level.
Also generating momentum for reform is the state’s already partially spent federally funded investment in setting up the California Health Benefit Exchange under the PPACA to create a marketplace to help individuals and small employers aggregate their purchasing power. Then there are the state’s demographics. California is the nation’s most populous state and has more people in the individual health insurance market than other states — about eight percent of those 65 and younger versus about five percent in the nation as a whole. It also has a relatively large percentage of medically uninsured residents, whose numbers have increased as many people lost employer-paid coverage in the economic downturn.
The recession was just getting underway when the Health Care Security and Cost Reduction Act was before the California Legislature, prompting then-state Legislative Analyst Elizabeth Hill to question if the state could afford its tax credits, subsidies and other costs. Four years later, the state’s finances remain under siege amid ongoing deep budget deficits. Selling the individual mandate could also prove politically challenging as it did in 2008, when California health care payers were divided over it and business and consumer interests nearly uniformly opposed.
Self-insuring health benefits has traditionally been the province of large employers that could afford to assume the risk of paying much of their employees’ health care costs. Smaller employers with too few workers to feasibly spread that risk have traditionally relied on insurance as a risk transfer mechanism.
In a sign of how distressed the small group health insurance market has become, that notion is being turned on its head. Now small employers are shunning insurance and self-insuring their health benefit risk — to a certain point. After an employee’s medical costs hit a set amount, stop loss insurance kicks in. That “attachment point” as it’s referred to in insurance terminology can be as low as $10,000 to $20,000, according to this Los Angeles Times article.
As the Times reports, the practice is stoking controversy and raising concern it could steer small employers away from Small Business Health Options Programs (SHOPs) being set up under the state health benefit exchange component of the Patient Protection and Affordable Care Act (PPACA). Beginning in 2014, SHOPs will allow small employers to offer employees a variety health plans like so-called “cafeteria plans” offered by large employers. The concern is without sufficient participation by employers, the SHOP plans could face increased risk for adverse selection by limiting the size of the SHOP’s risk pool.
While not directly saying so in the Times story, California’s insurance regulator is sufficiently alarmed by the potential threat to the actuarial integrity of that state’s yet to be formed SHOP that he wants legislation that would require higher attachment points for self-insured small employer health stop loss coverage. That would also make self-insurance a less attractive option for small employers than getting coverage through the Golden State’s SHOP, reducing the SHOP’s spread of risk. The California Health Benefit Exchange issued a solicitation last month seeking bids to help it design its SHOP.
I recently came across this interesting article published at the website of the American Medical Association discussing how large insurers are forming their own insurance exchanges to compete with state run exchanges. State/regional health benefit exchanges are a critical component of the Patient Protection and Affordable Care Act (PPACA). They are intended to aggregate purchasing power for individuals and small employers by providing them a single marketplace to purchase coverage from a variety of insurers and managed care plans. The policy goal as stated in the PPACA is to increase consumer choice and competition among payers.
But perhaps an unforeseen consequence is that competition would entail payers competing not just against each other in government-operated exchanges but also directly against the exchanges themselves. According to the amednews.com article, motivating payers is the desire to retain a degree of control and independence from state-run exchanges:
Large insurers have invested in private exchange start-ups with the idea that they can offer a better insurance marketplace for employers and workers than a public exchange, keeping private plans dominant in the commercial market.
Moreover, the article continues, payers believe they can do a better job at attracting individuals and small businesses with their own exchanges. Rob Panepinto, managing director for the Client Practice and Exchange Solutions at Connextions, tells amednews.com that “government is not a good marketer.” In California, however, the California Health Benefit Exchange is gearing up in the apparent hope to prove that assessment wrong. The Sacramento Bee this week reported the Golden State’s HBEX tapped Ogilvy Public Relations to begin creating a marketing and public outreach and education strategy.
Looking back to the Clinton administration’s unsuccessful reform proposal of 1993-94, the emerging market dynamic of competing public and private exchanges wouldn’t likely have occurred. The Clinton reform plan would have created government run regional purchasing alliances that would have controlled the entire universe of payer and provider markets with both payers and providers competing within the alliances under the reform plan’s “managed competition” principle.
The Los Angeles Times reports on 2012 rate increases being taken by health plans and insurers in the Golden State’s individual market. According to The Times, premiums are headed up on average between 8 and 14 percent. The newspaper reported that outpaces the cost of medical care, citing federal government data showing the cost of goods and services associated with medical care increased by 3.6 percent over the past 12 months.
However, payers cite claims experience — and not underlying medical costs— to justify the rate hikes. That’s consistent with the adverse selection that is gripping the state’s individual market. Premiums increase to cover fewer and sicker people who keep their coverage, shrinking the pool as healthier people refuse to pay the higher premiums required to cover the claims costs of the former. The accelerating adverse selection calls into question whether the state will have a viable individual health insurance marketplace to participate in the California Health Benefit Exchange when it opens for business in January 2014.