By Duke Helfand
Los Angeles Times
January 5, 2011
Another big California health insurer has stunned individual policyholders with huge rate increases — this time it’s Blue Shield of California seeking cumulative hikes of as much as 59% for tens of thousands of customers March 1.
In all, Blue Shield said, 193,000 policyholders would see increases averaging 30% to 35%, the result of three separate rate hikes since October.
Nearly 1 in 4 of the affected customers will see cumulative increases of more than 50% over five months.
Statement of HHS Secretary Kathleen Sebelius on Blue Shield of California’s proposed rate increase
U.S. Department of Health and Human Services
January 6, 2011
“The people of California have a right to be concerned when they see this kind of rate increase month after month. We have reached out to California Insurance Commissioner Dave Jones and know he is doing everything in his power to help consumers. We stand ready to assist him and the people of California in any way that we can.”
Statement by Blue Shield of California
Blue Shield of California
January 6, 2011
The rate increases reported today cover a period of more than one year and have almost nothing to do with the federal health reform law. These rates reflect trends that were building long before health reform. Our individual market medical costs are rising rapidly due to higher provider prices, increased utilization, and the fact that healthier people are dropping coverage during a bad economy. Health reform will help slow down this trend by expanding coverage, which will keep healthier people in the system, and through quality and cost containment initiatives such as the Independent Payment Advisory Board, Center for Medicare and Medicaid Innovation, Patient-Centered Outcomes Research Institute and other incentives for prevention and coordinated health care.
Even with these rate increases, Blue Shield of California expects to lose tens of millions of dollars on its individual healthcare business in both 2010 and 2011. These new rates meet the federal requirement that 80 percent of premiums are spent on healthcare expenses.
By Don McCanne, MD
Last year California’s for-profit Anthem Blue Cross, a division of WellPoint, enraged everyone when they attempted to raise premiums as much as 39 percent. In contrast, Blue Shield of California is a non-profit insurer attempting to compete in a market in which the rules are established by investor-owned insurers, yet they are now calling for premium increases as high as 59 percent. As a provider or a patient, it is difficult to tell the California Blues apart.
That said, the brief statement released by Blue Shield of California explains the reasons for the increases: higher provider prices, increased utilization, and a decline in enrollment in a bad economy resulting in spiraling premiums due to adverse selection. In spite of these premium increases, Blue Shield expects to lose tens of millions of dollars on its individual health plans.
These premium increases are intolerable, but is Blue Shield really to blame? Keep in mind that the average working family of four now uses over $18,000 worth of medical care (Milliman Medical Index), and Blue Shield is trying to sell a product that covers those costs plus its own administrative expenses. With insurer administrative costs at 20 percent for the individual market, that’s about $22,500 that the premium would have to be. To lower the premium, costs are shifted directly to the family through deductibles, co-payments, coinsurance, and paring of benefits, but how much in direct costs can the family bear when median household income is about $50,000?
Blue Shield is facing an impossible situation. They cannot create a product that has both affordable premiums and adequate protection against out-of-pocket medical expenses.
That is why the Patient Protection and Affordable Care Act provides income-indexed subsidies for both premiums and cost sharing, but applying simple math to these subsidies will demonstrate that they are inadequate for the majority of low- and moderate-income families who have health care needs.
If we were to increase the subsidies to a level where they would be adequate, then you would be paying more than an improved Medicare for all would cost since the subsidies would have to pay not only for health care but for all of the administrative excesses of our fragmented system composed of a multitude of private and public plans. If taxpayers are going to pay the bill, we might as well pay the one that is a bargain.
The administrative team at Blue Shield of California is composed of fine people. We should thank them for their dedicated service and offer them job retraining to serve in our expanded and improved Medicare program. For the investors and administrative team at Anthem Blue Cross, we should show them the door.