Rates baffle consumers, especially the self-insured

By Guy Boulton of the Journal Sentinel

Posted: July 11, 2010 |(156) Comments

Over the past six years, Dan Musickant and Lucia Lozano, a husband-and-wife team operating a consulting business, have raised the deductible on their health insurance from $2,500 initially to $10,000 to help keep the cost in check.

Their premiums still rose 70%, to $4,716 a year for the family of three. And the last increase was the steepest of all: 27%.

“What in 2009 took place that they needed to raise the premium 27%?” Musickant asked.

By the end of this year, he might have a better sense whether the increase was justified.

Starting Sept. 23, health insurers must file annual reports that summarize what percentage of customers’ premiums went to pay medical bills.

Health insurers who pay out less than 80% of the premiums they collect from people who either buy their own insurance or receive it from small employers will have to provide rebates next year.

That’s just one example of the pending changes under federal health care reform that will remake the market for health insurance. The biggest changes could come in the market for individuals and families who don’t get health benefits through an employer.

That market – which includes about 150,000 people in Wisconsin – has been subject to little state scrutiny.

“It was left pretty wide open,” said Sean Dilweg, the state’s insurance commissioner.

The state has allowed competition to regulate the market. The real driver in health insurance premiums is health care spending, and Wisconsin has a competitive insurance market compared to some states.

Yet, how health insurers determine rates leaves most consumers flummoxed and frustrated, particularly those who buy insurance on their own.

Health care spending, as Musickant notes, didn’t increase 27% last year.

A national survey by the Kaiser Family Foundation, a health policy research organization, found that people who buy their own insurance faced premium increases that averaged 20% for their most recent renewals.

America’s Health Insurance Plans, the industry’s trade group, has said the premium increases stem from higher medical costs and from younger and healthier people dropping their health insurance during the economic downturn.

People who are young and healthy subsidize the cost of health insurance for people who are older and sicker.

A clearer picture

Whether dropped claims are behind the recent increases could become clearer when insurers file information on what they are paying out for medical claims.

State insurance commissioners are still working out how to calculate the medical-loss ratio, which requires 80% of premiums to go to health care costs. Is a nurse help line, for example, a medical or administrative expense? What about reviewing a claim for a questionable test or procedure?

How the pending changes under federal health care reform will affect the insurance market for individuals and small employers is unknown. They could drive some companies from the market. The scope and complexity of the legislation almost guarantees unexpected and unintended consequences.

J.P. Wieske, acting executive director for the Council for Affordable Health Insurance, an industry group, said the new requirements on the medical-loss ratio could lead to a shake-out in the industry, potentially lessening competition in some states.

“In the short run, even some of the bigger players could have problems,” he said.

But consumers and small businesses would have more information when shopping for health insurance while health insurers would face more scrutiny.

The health care reform legislation will set up online exchanges, where health plans are required to provide minimum benefits for four different tiers of coverage. This will enable people and small business to make apples-to-apples comparisons when shopping for health insurance.

“The benefit of providing the rates in a clearer format for consumers is huge,” Dilweg said.

The exchanges also will include information on:

• Administrative costs, so consumers can determine which health plans are the most efficient.

• Consumer complaints, such as unpaid medical claims.

The hope is that the exchanges will lower costs by increasing competition among insurers, and encourage them to put more pressure on hospitals and doctors to become more efficient.

The health care reform legislation also includes money to help states review health insurers’ rates.

The Office of the Commissioner of Insurance doesn’t now track rate increase in the individual market. For example, estimates given earlier this year on rate increases in the individual market for Humana, which covers Musickant and his family, were wrong.

Humana declined to comment on its rate increases in Wisconsin.

“A lot of the protections that this state has on insurance were put in place in the small group market, which is two to 50 (people),” Dilweg said. “That’s the history of Wisconsin health insurance regulation, as far as I’ve seen.”

Regulatory tools missing

The market for individual insurance was seen more as a stopgap. But that’s changed as more small businesses have stopped providing health benefits because of the soaring cost.

“The tools were not in our regulatory toolbox to do anything,” Dilweg said. “But that’s changing with federal health care reform.”

Here’s one example: Wisconsin has no law prohibiting health insurers who sell individual insurance from tying premium increases to an individual’s or a family’s past medical claims. In other words, a health insurer could raise rates for specific groups of customers who develop health problems, such as being diagnosed with breast cancer or having a heart attack.

No insurer does this, to the state’s knowledge.

“They would just kill themselves if they did that. Nobody would ever do any business with them,” said Todd Catlin of the Liberty Insurance Group in Brookfield. “I would never – nor would any sane broker – place any business with a carrier who did that.”

The state’s largest health insurers – such as Anthem Blue Cross and Blue Shield, Humana and Golden Rule Insurance Co., the UnitedHealthcare affiliate that sells individual insurance – said their premiums are based on the medical bills of the entire risk pool, which is everyone who has bought a specific health plan.

But it suggests the lack of safeguards in the state’s regulations for the individual insurance market.

In the past, for instance, the Wisconsin Office of the Commissioner of Insurance has done three or fewer market conduct studies or exams per year. This is in a state with 2,000 licensed insurance companies, although a much smaller number account for most of the insurance sold in the state.

The office, which was given more staff by the Legislature, is now doing 10 to 12 exams a year.

But the real changes will come from the new regulations and scrutiny under federal health care reform.

Whether they will slow the rise in premiums is unknown. But it should mean consumers will have more information when premiums increase.

Musickant is among the consumers looking forward to the changes and the online exchanges.

“I’ll explore any option when it’s there,” he said.

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