Every week since December, Wally Hart has watched members of the Fulton County Chamber of Commerce drop insurance coverage as they, like other policyholders in the Capital Region, face double-digit premium increases.
“They’re taking the chance of going without insurance coverage because they can’t afford the payment,” said Hart, president and CEO of the chamber. “They’re not going someplace else.”
Fulton County’s average 2010 increase, 23 percent, was the highest in the area. Albany County’s average 15 percent increase was the lowest.
The data, released Wednesday, showed that premiums increased in each of the state’s 62 counties, with increases for people with small group and individual HMO coverage around 17 percent on average but as high as 51 percent, the state Insurance Department said.
Insurers say rising health care costs along with rising taxes and state surcharges are the primary reasons for the premium increases.
The debate over whether the state should have more of a role in insurance premium rates is interwoven with the state budget process.
“The scale of these increases demonstrates why it is so important for the Legislature to approve the prior approval of health insurance rates contained in Governor Paterson’s proposed budget,” Insurance Superintendent James Wrynn said Wednesday, in a statement. “For 10 years, health insurance companies have operated under a system of self-regulation and it simply has not worked. We must have a system in place where insurers must justify proposed increases before raising premiums.”
pressure for change
Hart joined a group of health care service providers, consumers and small business groups who gathered in Albany along with Wrynn to urge lawmakers to enact prior approval.
The proposal includes giving the state Insurance Department the authority to review, reject or modify potential premium increases, an ability the state says could save consumers $70 million.
There is no current oversight of rate increases among insurers, who use a system of “file and use” that went into effect in 2000. The state Insurance Department says prior to that, small group premium increases averaged only 5.2 percent annually but have since nearly tripled, with an average increase of 13.96 percent.
The state also said insurers are spending less on health care costs and their profits have soared.
“Prior to full deregulation under prior approval, insurer dividends totaled $115 million annually,” the state Insurance Department said. “In 2009, four insurers issued dividends totaling $1.2 billion, while implementing small group rate increases as high as 33.5 percent. As profits increased, the amount of money insurers spent on claims fell from 89 percent to 81 percent.”
But insurers say bringing back prior approval will not fix rising premiums.
Leslie Moran, spokeswoman for the New York Health Plan Association, said New York’s individual market for people who purchase health care on their own should be restructured.
“What we’ve said is that we need to look at market reforms that will make health insurance more affordable and therefore make it accessible,” Moran said. “Price controls don’t work. That won’t address the underlying costs. You can’t regulate the premium without regulating the cost drivers.”
The NYHPA testified to the Senate Finance Committee and the Assembly Ways & Means Committee in February.
“The prior approval process would enact strict price control of health insurance premiums, thereby undermining the health insurance market in New York. Government price fixing does not work. Price controls will weaken health plan solvency, hurt providers and virtually eliminate innovation and efficiency. At the same time, the proposal ignores the underlying cause of the increase in the cost of health insurance, which is the increase in the actual costs of health care,” HPA President and CEO Paul Maceliak said in his testimony to the committee.
Maceliak cited information from a Centers of Medicaid and Medicare Services report that showed rising health care costs are driven by increases in underlying medical costs, not health plan administrative costs. “If lawmakers want to explore prior approval, it should be done outside the budget process,” he added.
As a chamber of commerce president, Hart said he realizes that expenses have gone up for insurers, but said there has to be system that is more manageable.
“We have had on average 13.5 percent increases every year since prior approval sunset,” Hart said. “If property tax rates went up by 13.5 percent every year, there would be a holy war.”
What is causing the premium rates to spike higher in Fulton County than other places? Hart said he understands the factors, like service usage and the number of claims filed, but he can’t pinpoint a direct cause because he doesn’t have access to the information used by actuaries, who help insurers determine premiums. But neither does the state, something Hart believes could change if prior approval were in place.
“We’re trying to find solutions for people. It’s just a real battle,” Hart said.
Local insurers say expenses are climbing against premium income.
Schenectady-based MVP Healthcare said premiums in the individual and small group market have seen double digit increases ranging from 12 percent to 20 percent over the year.
“There are fewer people in the individually insured pool in New York across whom you can spread risk,” said Gary Hughes, spokesman for MVP Healthcare. “Insurance works because not everyone uses it all the time . . . people who aren’t using it a lot are paying for the people who are using it.”
Hughes said most of health care premium — 82 percent — is used for health care costs. Another 6 percent goes toward taxes, surcharges, and assessments on premiums from the state, while the rest covers administrative costs.
“It’s not the cost of health insurance, it’s the cost of health care,” Hughes said. Administrative costs for MVP were flat over the year, he said.
“The part that we can aggressively control, we are controlling. I think all insurers are struggling to get their arms around health care costs,” Hughes said.
MVP cites a loss of $20 million reported in 2008. The not-for-profit insurer was not able to make a contribution to reserves as a result. Not-for-profit insurers will report 2009 earnings to the state April 1.
CDPHP’s individual non-group products in the Capital Region saw rates decrease by 11.6 percent, according to spokeswoman Julie Tracy, going from $969 a month to $857 for its HMO category and from $1,274 to $1,126 for its Point of Service category.
But CDPHP’s small group individual HMO product had a 10.7 percent rate increase, Tracy said, from $304 in 2009 to $337 in 2010.
Another not-for-profit insurer, BlueShield of Northeastern New York, said it will see an average premium increase of 10.2 percent. Only 4 percent of its premiums will see an increase of more than 20 percent. Among those will be consumer-driven plans, which will see a 25 percent increase, something BlueShield spokeswoman Karen Merkel-Liberatore said was a result of an aggressive plan called Slate introduced last year.
“We did not anticipate the response by employer groups who selected this plan vs. more traditional plan designs, and the medical claims costs were significantly higher than the premiums,” she said. “What you are seeing now, as far as the rate change, is an adjustment in the premiums to be more in line with what the medical costs are for the plan. That said, current pricing is very competitive in the market and may still the lowest cost option available today.”
Medical expenses for the insurer are expected to rise 10 percent this year, according to BlueShield director of general business Kathleen Slovic.
“Escalating medical costs at rates higher than the cost of living are driving premium increases,” Slovic said. “I know that we saw last year an increase of 8.5 percent in our medical costs.”
Also last year, BlueShield paid for an unplanned assessment that came as a result of the state’s efforts to eliminate a deficit. The price to BlueShield: $20 million.
As a result of rising premiums, BlueShield said more employers are choosing to offer higher-deductible plans.
“Groups are concerned about providing care to their employees. They’re actually starting to become more savvy on the high-deductible products,” Slovic said.
From late 2008 to 2009, BlueCross BlueShield increased enrollment in high deductible plans from several thousand members to 28,000, Slovic said.
“It’s obvious the interest is there,” Slovic said. “We anticipate that jumping up to upwards of 10,000 new members across the board in both markets this year.”