After raising its premiums for coverage on the Obamacare exchange by 36.3 percent for 2016, the state’s dominant health insurer is heralding another increase of the “same order of magnitude” for 2017.
BlueCross BlueShield, which covers 162,423 of the 268,867 Tennesseans enrolled in the government-run exchange (aka the Marketplace) claims it lost more than $150 million on that coverage in 2015 when its rates were among the lowest in the land. But the 36.3 percent increase for 2016, the largest of any state, brings Tennessee rates to just about the national average, which went up about 10 percent this year.
According to data compiled by an investment banking firm, BlueCross’ “premiums earned” on the exchange last year came to $866 million when it had just about the same number of enrollees. So a 36.3 percent rate increase would seemingly yield more than $300 million in additional revenue. Plug in another 36.3 percent increase on top of that for 2017, and you’ve got another $400 million coming in. So how on Earth can costs be going up so exponentially to justify such a rate increase on the part of a nonprofit insurance company whose rates are regulated by the state?
When I posed this question to BlueCross spokesperson Mary Danielson, she responded as follows:
“Marketplace members are sicker than expected and our current rates aren’t covering the cost of their medical claims. When we priced for 2016 we anticipated healthier individuals would enroll. Instead, new entrants coming on board had higher claims than expected…. And we continue to see similar losses this year to what we’ve experienced in the past two years.”
In Obamacare’s early going starting in 2014 it was thoroughly predictable that older, sicker people, many of whom were previously uninsurable, would be a lot quicker to sign up than younger, healthier ones. All the more so for those with incomes up to 400 percent of the poverty line who qualify for subsidies in the form of tax credits and other cost reductions.
Yet by 2016 one might suppose the population would have stabilized and that competition among insurers would have also contributed to price stability. As the Kaiser Family Foundation’s Senior Vice President for Special Initiatives Larry Levitt observed in a recent posting on the American Medical Association’s JAMA Forum, “The Marketplace has proven to be much more price competitive than anyone fully anticipated. Most consumers—who are generally lower-income and receiving government premium subsidies—enroll in 1 of the 2 lowest-cost plans in the Marketplace. And as insurers raise and lower premiums to jockey for market share, consumers have shown a remarkable propensity for switching to lower premium plans to save money.”
But in Tennessee, BlueCross’ aggressive (I didn’t say predatory) pricing in the early going has contributed to a dearth of competition. After dropouts, BlueCross will be the sole insurer offering health plans on the exchange next year in 57 of the state’s 95 counties, and in 24 others it will be one of only two. Only in the Memphis and Nashville markets will there be three carriers.
Two is a magic number because premium tax credits are predicated on the cost of the second-lowest silver plan in each market (silver being one of four classes of plans that also include bronze, gold, and platinum). So BlueCross is virtually assured of getting the designation in most parts of the state. And once having done so, the workings of the tax credits is such that they will go up by the full amount of any premium increase for people whose income stays the same.
For most types of health insurance, premium increases of the magnitude that BlueCross is propounding would lead to what’s known as a death spiral wherein all but the worst risks vamoose and leave the insurer to founder. But instead of a death spiral, the workings of Obamacare can beget a subsidy spiral in which the only thing that goes up is the cost to the taxpayers. This is borne out by Kaiser data showing that the cost of second-lowest silver plans after tax credits in Tennessee this year went up only 1.5 percent.
It’s tempting to accuse BlueCross of gaming the system, but I’ve concluded that would be an overreach. The company has stood too tall and served the state well in too many other ways for that. Its CEO, J.D. Hickey, is highly regarded in both industry and governmental circles, and he appears to have pre-sold Insurance Commissioner Julie Mix McPeak on the need for the 2017 rate increase, which is due to be submitted to the state within the next few weeks.
To some extent, BlueCross may be a victim of gaming rather than a perpetrator. Anecdotally, one hears a lot about people who enroll on the exchange when they need a costly surgery or other expensive treatment and then drop their coverage.
While BlueCross’ enrollees at the beginning of 2016 numbered just about the same as a year before, 48 percent of them were new to the exchange, which connotes a very high turnover rate. And there was a 23 percent enrollment drop during the course of 2015 before it rose again when the enrollment window reopened last fall.
All of this is according to authoritative postings by Louise Norris on the website healthinsurance.org.
This churning may well have contributed to a worsening of the risk pool. And along with adverse selection, perverse non-enrollment by the healthy remains a problem.
For many, paying the penalty for not adhering to Obamacare’s much-maligned individual mandate is preferable to paying premiums. The penalty, which is the greater of $695 or 2.5 percent of income, may need to be raised or better enforced.
Little is known at this point about prospective 2017 exchange rates in other states. While another year of significant increases is widely anticipated, Tennessee will almost certainly be an outlier.
The public deserves a better explanation than BlueCross has furnished so far as to why this is the case. And while the federal government, not the state, will bear the brunt of the higher costs, it’s also incumbent on McPeak to fully justify that any rate increase she approves is reasonable.
Joe Sullivan is the former owner and publisher of Metro Pulse (1992-2003) as well as a longtime columnist covering local politics, education, development, business, and tennis. His new column, Perspectives, covers much of the same terrain.
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