Ann and Rodger Lenhardt were in for a jolt when they received their notice from Blue Cross Blue Shield recently. It said their monthly health insurance cost would triple to $859.42 a month next year.
Under closer inspection, however, the Lenhardts discovered a different story: By switching policies and taking advantage of federal subsidies, they will be able to offset most of their monthly premium costs, giving the farming couple highly discounted insurance.
About 160,000 Blue Cross customers in North Carolina have been receiving such insurance notices in recent weeks, prompting widespread anxiety among insurance customers who fear theyll be priced out of the insurance market. The letters went out to Blue Cross customers who purchased individual policies after the passage of the Affordable Care Act in 2010; the new law mandates more generous coverage that older policies didnt include.
Many of these Blue Cross customers will find financial relief with subsidies and cheaper policies, but some will not be able to avoid steep increases .
The Blue Cross notices do not explain how the rates were calculated. But the nations new health care law, by creating public insurance databases, offers a revealing glimpse into industry practices that for years had been tightly guarded corporate secrets.
The Lenhardts, who live in Chatham County, have the benefit of North Carolinas lowest-cost insurance rates. As a result, the Lenhardts will have access to health coverage that can cost over $100 a month less than it costs to buy an an equivalent Blue Cross policy in adjoining Harnett County, which happens to be attached to an area with some of the states most expensive health insurance rates.
I may end up being one of the winners in this situation, said Ann Lenhardt, an elderberry farmer in Pittsboro. Im going to end up with much better insurance than I used to have.
Under the new law, more than 1 million North Carolinians are expected to shop for health insurance or face fines for lack of coverage.
Location, location, location
State residents have paid significant price differences for health insurance for years, based on where they lived, but few outside the insurance industry knew about it. Now the Affordable Care Acts transparent data trove reveals that when it comes to health insurance, geography is destiny.
Geography is one of just three factors that insurance companies are allowed to base rates on, along with tobacco use, and, to a limited extent, a persons age. Gone are the days when insurers could jack up costs for older people and for women, or simply turn away people with pre-existing conditions.
Even though insurers are not allowed to consider the health of the people they will insure when setting regional rates within a given state, North Carolinas 2014 rates closely track regional health trends. Thats because insurance rates are influenced by the doctors and hospitals that treat local populations and negotiate reimbursement contracts with insurance companies to reflect those treatment costs.
Insurance data for 2014 show that within North Carolina, the costliest insurance rates will often be charged to those who can least afford it: those in poorer counties that have typically one rural hospital and a concentration of uninsured patients who drive up system costs. The cheapest insurance rates, on the other hand, are concentrated around the metropolitan area that includes the Triangle, an affluent region with a large insured population.
The disparity could exceed $200 a month for a family, or more than $2,400 a year, for a policy with the same name in different parts of the state.
Whats more, North Carolina has among the most expensive health insurance costs in the nation. The states cheapest area for insurance rates, where the Lenhardts live, is still above the national average in terms of cost. Meanwhile, Blue Cross most expensive area in the state, which encompasses Lincoln, Gaston and Cleveland counties, is in the costliest 10 percent of rating regions nationwide, according to the Kaiser Family Foundation.
Those price differentials are forcing insurers to explain why they charge so much more in rural areas, justifications that until now had been made confidentially to the insurance regulators who approved the rates as sound.
With all this transparency and data we are all learning a lot of things we didnt know before, said Blue Cross CEO Brad Wilson.
The rate disparities also point to a troublesome aspect of the nations health care law, which awards federal subsidies to offset insurance costs based on household income, but does not take into account that insurance costs can swing wildly from county to county.
The fundamental question is: Why are those premiums higher in those regions than they are in others? Wilson said. The primary reason is the underlying cost of care i.e., the cost of medical services being delivered in that geography is higher than in other regions.
Wilson said thats a reflection of many factors, including obesity rates as well as uninsured people who go to the hospital emergency department for a headache.
States decisions have impact
But there are plenty of other factors at work, too. The new health care law, commonly called Obamacare, raised insurance standards by requiring more generous coverage and mandated policies for people with pre-existing conditions. An estimate from the Rand Corp., prepared this year for the U.S. Department of Health and Human Services, predicted the law could drive up premiums by as much as 43 percent in some states and drop premiums elsewhere.
When North Carolina officials decided not to set up a state insurance exchange, deferring instead to the federal government, they triggered a 3.5 percent service charge, tacked onto North Carolinas insurance rates, to run the exchange.
Additionally, North Carolina officials opted not to expand Medicaid, the federal insurance program for the poor. As a result, about 200,000 people who would have qualified for Medicaid will now qualify for insurance subsidies.
Those people are widely expected to be in poorer health, prompting insurance companies to boost rates by an estimated 2 percent to compensate for the risk of insuring this population, said Mark Hall, a professor of law and public health at Wake Forest University.
The states decisions not to embrace the health care law likely dissuaded insurers from entering North Carolinas market, inhibiting price competition, said Kerry Hall, spokeswoman for the N.C. Department of Insurance. Blue Cross is the only insurer that operates in all 100 counties, while Coventry Health Care of the Carolinas is selling subsidized policies in just 39 counties.
There are a lot of assumptions that had to go in there: How many uninsured will you have buying the products, and the health risks of those uninsured, said Patrick Getzen, Blue Crosss chief actuary. What youre seeing is, what are the negotiated deals that you have in those regions, how many providers are there. We have certain regions where there is only one hospital. That makes it tougher to negotiate.
Coventry officials declined comment about their rates. Coventrys regional cost patterns do not line up exactly with Blue Cross, largely a reflection of reimbursement rates Coventry negotiated with doctors and hospitals across the state.
Bracing for backlash
Blue Cross, the states largest insurer, has 375,000 customers with individual policies. Under the Affordable Care Act, customers can keep older insurance policies that dont comply with the new law but only as long as those policies were in effect at the time the law was enacted in March 2010.
Blue Cross spokesman Lew Borman said the company notified customers at the time about the new health care laws grandfather clause, but about 160,000 made changes or bought coverage during the past 3 1/2 years. Blue Cross in recent weeks has alerted those customers that the obsolete policies would be discontinued in 2014.
In its letters, the company also cited a premium for a comparable policy, which in some cases is hundreds of dollars a month more than what customers are paying now.
The N.C. Department of Insurance approved the rates this year, but the agency reduced the rates by 10 percent from the levels Blue Cross had proposed. Blue Cross, bracing for a customer backlash, launched a television and online campaign blaming the Affordable Care Act and a host of other factors for the dramatic rate increases.
The greater the convenience and flexibility, and the more stuff, the more it costs you, said Wilson, the Blue Cross CEO.
Recipients of the Blue Cross termination notices included the Lenhardts, who bought their Blue Cross policy last year and knew it would be terminated in 2014.
The Lenhardts, who own Norms Farms in Pittsboro, expect their elderberry business to generate less than $20,000 in household income next year, putting them at about 125 percent of the federal poverty level. Thats on top of the cheapest health insurance rates in the state.
Well qualify for a huge subsidy, Ann Lenhardt, 53, said. It looks to me like it would cover the entire cost of it.
Premiums are only one of several insurance costs customers will pay. They will also have to cover co-pays, deductibles and cost-sharing obligations. Many insurance customers will be learning that plans with cheaper premiums are more likely to have restricted networks of doctors and hospitals.
Nancy Mize, a Raleigh optometrist, bought her Blue Cross policy in May 2010, after the passage of the Affordable Care Act. She is now paying about $280 a month in insurance premiums from Blue Cross, and a similar Blue Cross plan would cost her about $589 a month in 2014.
Her income is too high to qualify for a federal subsidy, and she is stuck with paying full premiums.
Mize, 56, said she has found a cheaper Blue Cross option than the companys letter suggested, costing $448 a month, but the deductible in that plan is more than twice as much as her current deductible, and she expects her total health care costs to double next year.
Still, in more expensive sections of the state, an insurance policy for a single buyer could cost as much as $100 extra a month above what one would pay in Wake County.
Its not going to break me, Mize said of her insurance prospects. But it does seem like an awfully big tax on the middle class.
Staff researcher David Raynor contributed to this article.