Blue Cross and Blue Shield, North Carolina’s largest health insurer, is scrapping its June request for a 25.7 percent rate increase in favor of a larger rate hike: 34.6 percent.
In announcing the change Thursday, the Chapel Hill organization blamed the Affordable Care Act for driving up costs by extending health insurance to many chronically ill people. As the state’s dominant health insurer and the only ACA insurer in several dozen counties, Blue Cross is seen as a barometer of North Carolina’s health insurance market for pricing and access.
The company’s request, which requires approval from state and federal regulators, would affect about 380,000 people Blue Cross covers in North Carolina on individual policies under the Affordable Care Act. It does not apply to the majority of the 3.9 million Blue Cross covers in the state under employer plans, state plans and other policies.
Blue Cross continues to see a large number of chronically ill people who require expensive medical care this year, the second year of ACA enrollments, said Patrick Getzen, the insurer’s chief actuary. The ACA made it illegal for health insurers to turn down people with pre-existing conditions and charge older customers exorbitant rates, common practices in the past that helped insurers control their expenses.
The architects of the health insurance law anticipated an influx of older, sicker customers, but expected that the cost of treating them would be offset by attracting younger and healthier customers. That hasn’t worked out for Blue Cross so far, despite the company’s marketing campaign to attract “young invincibles” and federal penalties for those who fail to obtain health insurance.
Getzen said that in 2014 the company’s health care costs in North Carolina exceeded revenue by $123 million, even after receiving $343 million in reinsurance and other financial assistance from the federal government to offset ACA expenses. Getzen said the financial picture was expected to improve this year, but he said that expenses keep rising.
“We actually expected pent-up demand to level off in 2015,” Getzen said. “But that didn’t happen.”
The rate increase sought by Blue Cross is higher than most insurers are seeking around the country, said Cynthia Cox, Associate Director for the Study of Health Reform and Private Insurance at the Kaiser Family Foundation.
Blue Cross said 34.6 percent is an average, with a range of 5 percent to 42 percent. Some customers can expect to see above-average increases in next year’s rates unless they switch to a plan with cheaper premiums, which will typically mean paying a larger deductible.
For example, a 40-year-old non-smoker living in Raleigh who has a Blue Value Silver plan with a $2,500 deductible pays about $315 a month today. With the adjusted proposed increase, this customer will pay about $418 for the same plan in 2016, an increase of 32.7 percent.
However, 92 percent of North Carolina residents enrolled in an ACA plan receive federal subsidies to offset their costs. The subsidies will cover most of the rate increase Blue Cross is seeking, so most customers will not pay the full rate increase.
“I hope the Insurance Department takes a hard look on these rates,” said Adam Linker, health policy analyst at the N.C. Justice Center in Raleigh. “This is on the high end of what insurers are asking for nationwide.”
Department of Insurance spokeswoman Kerry Hall said the agency is reviewing the rate request and will issue a decision in time for open enrollment, which begins Nov. 1.
In addition to the rate increase request, Blue Cross is also eliminating some health plans in the Triangle and the Charlotte area. In October about 55,000 customers in the Triangle and Charlotte region will receive letters notifying them that effective in January, they will have to select a plan with a limited provider network of hospitals, doctors, labs and other services.
In the Triangle that will mean picking either Duke Medicine or a network comprising UNC Health Care and Rex Healthcare. WakeMed Health and Hospitals will be available in both networks.
In the Charlotte area, the choice will be Novant Health or Carolinas Health Care System.
“I was surprised they couldn’t get better rates for the narrow networks,” said Linker. “That’s the purpose of a narrow network, because you’re locking patients into that system.”
Other ACA insurers in the state, Coventry Health Care of the Carolinas and UnitedHealthcare, also offer narrow network plans to keep down costs.
During a conference call with reporters, Getzen said that 60 percent of Blue Cross’s ACA customers in the Triangle and Charlotte regions are already on the cheaper narrow network plans, called Blue Value and Blue Local. The plans that are slated to be eliminated, called Blue Select and Blue Advantage, are about 15 percent more expensive than the narrow network plans, Getzen said.
Getzen said the affected customers won’t feel the full effect of the rate increase because they will be switching to a cheaper category of health insurance plans. “The first thing they’ll experience is a lower rate,” he said.
Within a provider network, the patient will typically use that network’s doctors, specialists, labs, hospitals and other services. If customers opt to use medical services out of network, they will have to pay a higher fee.
“It’s a more holistic and more integrated way to manage the patient,” he said. “We can get a better rate on the negotiation but I’d say it’s because the provider thinks they can manage the care more effectively.”