Blue Letter

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Blue Cross Blue Shield Most Expensive Health Insurance

The Sept. 23 deadline for compliance with several health reform benefit mandates brought negative impacts for several Blue Cross and Blue Shield plans. Most notably, Blue Cross and Blue Shield of North Carolina agreed to refund $155.8 million to members enrolled in individual coverage, citing the health reform law's grandfathering provisions as the catalyst. And other Blues plans have blamed the reform law for withdrawals from the child-only coverage market and for premium rate hikes in other lines of business, drawing criticism from regulators.

Under an agreement with the state insurance commissioner, BCBSNC said it will issue a one-time refund to 215,000 members. CEO Brad Wilson said at a Sept. 20 press conference that the funds are coming out of the company's "active life reserves," which are "portions of the premium that we set aside in the early years of a policy to keep premiums more stable over the life of the policy, as customers' medical expenses rise."

Under the health reform law's grandfathering provision, "policies purchased or substantially modified after March 23 of this year will end in 2014," Wilson said.
"Therefore, the reserves held for these products will cover a much shorter period of time, which allows for these funds to be released." He explained that refunds will equal a little more than 1.5 times an individual's monthly premium. A policyholder who pays $380 a month will receive a check for $690.

Yet BCBSNC also requested an average 7% rate increase for Blue Advantage PPO customers in August. The insurer said when it filed the proposed increase that it was the lowest since 2007, and that 28,000 customers would see decreases in their rates. The insurance commissioner approved a 5.37% increase.

So why the need for increases when the insurer's pockets are overflowing? Lew Borman, spokesperson for BCBSNC, says the issues were decided in separate discussions. "The rate filing was an annual filing, an annual discussion. The premium issue was separate." Premium increases, he asserts, "are based primarily on medical trend….The active life reserves come from 2010 and the rate filing is for 2011."

But one analyst contends the issues are, in fact, linked. The North Carolina Blues plan "apparently has excess statutory capital," says Brian Wright, an equity analyst at Collins Stewart LLC in New York. "There are two ways to reduce the excess. One way is to price premiums lower than they would be so that capital is degraded away." The problem with that method is that "consumers would get a false sense of what was actually happening with underlying health care inflation," he says. BCBSNC chose the second way to reduce excess, which is to give customers refunds on prior years' premiums. That way, Wright says, "consumers receive the same benefit on a dollar basis, but do not get the false impression that medical inflation is lower than reality."

There is some precedent for Blues plans returning excess capital to policyholders through premium givebacks. In 2003, a slowdown in the rate of increase in health care spending left many not-for-profit Blues plans with unexpectedly high reserves and brought intense scrutiny from state regulators. The result:

• Blue Cross & Blue Shield of Rhode Island said in October 2003 that it would distribute $21 million to customers, hospitals and other providers via premium rebates and increased reimbursements. The insurer decided to use a "rate holiday" to return $7 million to employers. Each employer group would get a 5% discount on one month's premium payment. Another $7 million would be used to increase physician reimbursement, and the last $7 million was distributed to hospitals in Rhode Island.
• BlueCross BlueShield of Tennessee said in October 2003 that it would refund $67 million in premium payments to fully insured group and individual members starting in December 2003. Any enrollees or businesses that had fully insured Tennessee Blues coverage for at least one month during 2003 were eligible to receive about 4.5% of premiums back, in the form of a check mailed in December 2003 or a credit on their statement for January 2004. The Tennessee Blues plan did not include providers in the giveback program.
• Horizon Blue Cross Blue Shield of New Jersey said in February 2004 that it would distribute $33.8 million to small businesses, $7.9 million to senior Medigap members and $8.3 million to individual enrollees under age 65. In addition, the insurer said it would commit $5 million to provide computer hardware and software to a number of New Jersey hospitals and physicians.

Meanwhile, some Blues plans and other insurers have withdrawn from child-only coverage, citing issues with reform provisions related to pre-existing condition exclusions. The insurers said they no long would sell such policies as of Sept. 23, when they may no longer reject applicants up to age 19 based on pre-existing conditions. In Colorado, for example, WellPoint, Inc.'s Anthem unit and several other carriers, including Aetna Inc., CIGNA Corp., Humana Inc. and UnitedHealth Group's Golden Rule Insurance Co. subsidiary, said they would drop new sales of child-only policies while continuing to cover current child-only enrollees and to accept children with pre-existing conditions in new family policies. Insurers in several other states also reported that they would withdraw child-only products.

Under rules issued in June that take effect for plan years beginning on or after Sept. 23, 2010, insurers may no longer exclude pre-existing conditions from coverage for enrollees under the age of 19. In an effort to address concerns regarding adverse selection, HHS issued guidance July 27 authorizing insurers to restrict enrollment of children under age 19 "to specific open-enrollment periods," if permitted by state law. But the open-enrollment period must apply to healthy as well as sick children, while the insurers — and some state insurance commissioners, preferred to allow acceptance of healthy children year-round. HHS signaled that it would try to adjust open-enrollment periods to address the risk of adverse selection, but no deal had been reached by press time.

Meanwhile, insurers in several states blamed reform for premium rate hikes. The Rhode Island Blues plan, for example, reportedly told customers it would raise premiums by a few percentage points on top of already approved rate hikes to account for additional benefits mandated by the reform law. BCBSRI and other Rhode Island insurers that planned to impose similar rate hikes came under fire from Insurance Commissioner Christopher Koller. In a Sept. 9 letter to chief executives at the state's three largest insurers, Koller said that any changes to approved premium rates "as a result of PPACA [i.e., the reform law] will be considered material and an exception to the OHIC's previous decision….They may not to be applied in quotes to customers unless and until approved by this office." The insurers also must submit "analysis supporting the additional premium rate charge anticipated for each contemplated change and why it should cause average rates to increase by more than the amount approved."
BCBSRI spokesperson Kimberly Reingold told The AIS Report that "the guidelines under federal health care reform will add cost to employers and we currently are working with them to understand the specific impact to premiums, which will vary based upon benefits selected by each employer. Every time an employer changes their coverage, or we are mandated to cover new services…rates are adjusted." She added that "those rates could be anywhere from 1.8% to 3% more depending upon plan design."

HHS reacted strongly to news that insurers were blaming reform for rate hikes and market exits. In a Sept. 9 letter to the trade group America's Health Insurance Plans, HHS Sec. Kathleen Sebelius warned that there will be zero tolerance for "misinformation and unjustified rate increases" blamed on health reform. In her letter, Sebelius said that several insurers are falsely attributing 2011 premium increases to patient protections in the reform law. According to the administration's analysis and those of some "industry and academic experts," any potential premium impact from reform would be no more than 1% or 2%.

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