Health plan costs a growing concern

PHOTOGRAPHER: Sara Foss

When the health insurance company Oxford Companies proposed raising its rates by nearly 20 percent for 2013, the advocacy organization Health Care For All New York sent a letter of protest to the state Department of Financial Services.

“HCFANY asks that the Department consider the apparently strong financial health of these companies when examining their proposed rates,” wrote Elisabeth Benjamin, who heads Health Care For All New York, a coalition of 130 organizations. She noted that Oxford “appears to have ample funds with which to operate its business and pay medical claims without requiring increased contributions to profit from consumers.”

The state apparently agreed, and Oxford’s rate increase was reduced to 10 percent.

Under a law passed in 2010, the state Department of Financial Services has the power to review insurer rate increase requests and reject those deemed too high. In New York, the average insurance rate increase for 2013 is 7.5 percent, according to the state. Insurers initially requested an average increase of approximately 12.4 percent, but that figure was reduced, keeping the overall health insurance premium increases below 10 percent.

Rates for small group plans will increase an average of 9.5 percent this year, down from the 15.7 percent in average increases proposed by insurance companies. Rates for individual plans will increase by 4.4 percent, down from the requested increase of 9.5 percent. And rates for large groups will increase by 5.2 percent, down from the requested increase of 7.8 percent.

According to the governor’s office, New Yorkers will save more than $500 million on health insurance premiums this year as a result of the rate review process.

Under the federal health care reform known as the Affordable Care Act, any proposed rate increase above 10 percent in the individual or small group market must be reviewed. Before the state’s “prior approval law” went into effect, health insurance rate increases were not subject to state approval, and premiums went up an average of 14 percent a year for about a decade, state records show.

Benjamin said that the reduced rate increases show that the Affordable Care Act is working.

“We’ve already seen a real reduction in the rate of increase,” she said.

But others expressed skepticism.

Leslie Moran, a spokeswoman for the New York Health Plan Association, said that the rate review process does nothing to address the underlying cause of the rising cost of health insurance — the rising cost of health care itself.

“We don’t see the same level of attention or regulation being given to other costs, to pharmaceutical companies, hospitals and doctors,” she said. “They don’t have to justify their costs and their rates.”

Moran noted that some insurance companies, such as EmblemHealth, have begun exiting the state’s small group market, saying that the stricter regulation was making it unaffordable. “We believe that’s a sign of things to come,” she said. “As we continue to see rates kept tightly controlled and in some cases suppressed, plans are going to have to make business decisions on their unprofitable products, and shed them.” Ultimately, this will affect consumers, who will lose access to products that “they’re happy with,” she said.

Moran said she would like the rate review process to be more transparent. She said that health insurance companies are required to file extensive applications outlining why they want to increase rates, but that “there’s not always the same level of detail for why those rate requests are reduced. Having more information all around would be beneficial to consumers. It would remove that sense of subjectivity.”

Some insurance companies proposed much more modest rate increases for 2013 than Oxford.

Albany-based CDPHP, which has 169,930 members, requested an average annual rate increase of 7.63 percent; the Financial Services Department approved a rate increase of 7.47 percent. Schenectady-based MVP, which has 174,544 members, requested an average annual rate increase of 8.69 percent; DFS approved a 7.28 percent increase.

An October report from the Kaiser Family Foundation examined the impact of rate review. Under the Affordable Care Act, every state is required to review rate increase requests of 10 percent or more in the small group and individual markets; some states, such as New York, have passed laws that allow them to reject requests deemed too high, while other states, such as California, lack that power.

According to Kaiser, which looked at rate filings from 32 states and the District of Columbia, the rate review process lowered premiums for one out of every five filings, either because the rate was modified by the state or the insurer, or because the request was rejected or withdrawn and not resubmitted.

Business groups said their members struggle to cope with premium increases that often outpace company growth. They said that an average rate increase of 7.5 percent is preferable to something higher, but still higher than they’d like to see. And they said that many companies are still experiencing double-digit premium increases.

“The price of health care continues to go up,” said Lev Ginsburg, director of government affairs for the Business Council of New York State. He said businesses are seeing a range of increases, and that some businesses have complained that their premiums are increasing by as much as 15 percent.

“Even a 7.5 percent increase is a tremendous amount to absorb year after year,” he said.

“Premiums in New York are increasing at a very high rate,” said Mike Durant, state director of the New York chapter of the National Federation of Small Business. He said the rate increase reductions touted by the state “is not the experience of small businesses that we represent, and the action taken is window dressing.”

Durant said that NFIB does not support New York’s prior approval law. “Cost containment of insurance rates does not address the underlying cause of rising health insurance costs,” he said. “NFIB pushed for, and continues to advocate, for systematic reforms that address the root cause of increased health care costs.”

The cost of health insurance is “one of the top three or four concerns for small businesses,” Durant said.

Ginsburg agreed.

“Health care is the number one issue for businesses,” he said. “When we ask our members what’s driving costs, health care is always at the top of the list.” He said that the Affordable Care Act “has done a great deal to make insurance available to a larger pool of people. But it’s done nothing to make it affordable and nothing to touch the cost of health care. Businesses are incredibly unhappy with the cost of health care.”

Ginsburg said that New York has more health insurance mandates than other states and that as a result “New York has paid more for health insurance than its sister states for a long time.” He also expressed skepticism about the rate review process, saying that the state would probably see a growing number of insurance companies leave the small group market in response to having their rate increase requests rejected.

“You can’t artificially keep the cost of premiums down,” he said.

Charles Steiner, president of the Chamber of Schenectady County, said that the rising cost of health insurance has forced businesses to become more creative. A growing number of employers are switching from traditional HMOs to high deductible health plans, and offering employees a “cafeteria-style” menu of options, allowing them to pick the services and coverage they need.

“Businesses are trying to come up with good, adequate coverage for employees,” Steiner said. “But there’s only so much they can accommodate.”

Business groups are also skeptical about the Affordable Care Act, which they worry will raise health costs rather than lower them. At the moment, there’s a lot of uncertainty surrounding the health insurance exchanges — state-based markets where small businesses and individuals will be able to shop for coverage.

“We don’t know what the health care exchange in New York is going to look like,” Durant said. “Businesses are on edge. We’re encouraging them to talk to accountants and lawyers. … There hasn’t been a good public airing of where things stand. Businesses are bracing for the worst.”

Moran said there’s going to be “a lot of sticker shock when the exchanges come online, and people see what health insurance costs.” She said that some consumers might opt to pay the penalty for not carrying insurance, rather than purchase insurance.

“Just because you make health insurance accessible doesn’t mean you can make people buy it,” she said.

Under the Affordable Care Act, all Americans must carry health insurance starting in 2014.

Insurers have said that the Affordable Care Act could result in much higher premiums as health coverage is expanded to millions of uninsured people, and that some Americans could see their insurance bills double over the next year. The sharpest price hikes are expected to come in the individual market.

Mark Bertolini, CEO of Aetna Inc., described the price hikes as “premium rate shock. … We’ve done all the math, we’ve shared it with all the regulators, we’ve shared it with all the people in Washington that need to see it, and I think it’s a big concern.”

Last year, America’s Health Insurance Plans, a trade association representing the health insurance industry, released an analysis suggesting that a new “health insurance providers fee” contained in the Affordable Care Act will increase the cost of insurance in every state. The fee would vary in size based on insurers’ net premiums; the IRS estimates that the federal government will collect $8 billion from insurance companies in 2014 and $14.3 billion by 2018.

According to AHIP, the fee will “increase premiums in the insured market on average by 1.9 percent to 2.3 percent in 2014.” Ginsburg said that insurers will likely pass the cost of the fee onto their customers.

John Huppertz, chair of the MBA Healthcare Management Program at Union Graduate College, said that the impact of the Affordable Care Act on the future cost of health care premiums is unclear. Ideally, the exchanges will attract a younger, healthier market — young adults who have opted to go without health insurance. But he said there’s a chance the exchanges will fill up with lower-wage workers who have gone without health care for a long time and are struggling with chronic health problems.

“How many people sign up for the exchange and who signs up — those are question marks,” he said.

Health insurance premiums have risen sharply over the past decade. Premiums for employer-sponsored family health insurance plans increased 62 percent over seven years, from an annual cost of $9,249 in 2003, to $15,022 in 2011, according to a December report from The Commonwealth Fund, a New York City-based private foundation that advocates for better health care and researches health care issues.

The report also found that workers are paying more out of their own pocket: employee payments for their share of health insurance premiums rose by 74 percent on average, and deductibles more than doubled, up 117 percent during that same time period.

In New York, the average health insurance premium for a single individual rose 59 percent between 2003 and 2011, from $3,592 to $5,717, while the average health insurance premium for a family rose 76 percent, from $9,439 to $16,572.