According to a common phrase, “All health care is local.” This is certainly true in North Carolina, where our market for coverage under the Affordable Care Act is experiencing a severe cost problem.
New ACA customers in our state are continuing to use their health care benefits much more than expected for expensive medical services. Many states are experiencing similar challenges with taking on new insurance customers who might not have been covered previously.
At BCBSNC we don’t have much data on other states, but we do have a clear picture of what North Carolina’s ACA market looks like. With by far the largest share of ACA business, and with plans available in all regions of the state, our snapshot of the North Carolina ACA market shows how significant the cost challenge is.
More Chronic Illness, More Demand
As our actuarial staff combed through our claims data for 2014 and the first half of this year, they were struck by several trends. The two biggest were the absence of any slowdown in pent-up demand for medical services, and the prevalence of more chronic conditions than we had expected.
On the first point, almost everyone involved in the ACA had predicted high use of the health care system during the first year, as the uninsured and underinsured got new and better coverage. Our 2014 rates took this expectation into account.
What’s Behind Our 2016 Revised Rate Filing
– No slowdown in pent-up demand for medical services
– More medical treatment for chronic conditions than expected
We, like others in our industry, projected that this pent-up demand would level off in 2015. But that has not happened in North Carolina. In fact, we’re still seeing an increase in demand for medical services among people who enrolled in 2014.
With respect to the second point, many of the newly insured this year have chronic conditions and are using expensive medical services at even higher rates than 2014 customers did. For example, our claims for diabetes care were 32 percent higher in the first six months of 2015 compared to the same period of 2014.
Of course, we’ve known for a long time about North Carolina’s high rates of diabetes and other chronic conditions. But the prevalence of these conditions is even higher than expected among ACA customers.
An additional challenge we face is that some of our customers who are using fewer and less-expensive services are actually stopping their premium payments and cancelling their plans. This compounds the problem of having an insurance pool that skews sicker, as fewer healthier people are contributing premiums.
It’s too early to estimate how long this will continue. The financial penalty currently may not be enough to serve as a deterrent to avoiding coverage. However, the penalty for those who don’t have or maintain coverage in 2016 will be higher, and we have accounted for that in our enrollment assumptions for 2016 rates.
As a result of these trends, last week BCBSNC revised its request for 2016 rates for individuals under age 65 with ACA plans. Based on the latest data on medical spending by ACA customers, we revised our request upward to an average 34.6 percent increase.
Federal Programs Coming to an End
The ACA includes three specific provisions to help insurers transition to the new marketplace. Two of these are scheduled to expire at the end of 2016, and in both cases, the amount of federal funds available will be less next year than in 2015.
One provision is for reinsurance. This is when insurers are covered for claims from customers with very high medical costs. Insurers paid into the reinsurance fund, making a total of $10 billion available last year, but only $6 billion this year and $4 billion in 2016.
In developing our 2016 proposed rates for individuals under age 65 with an ACA plan, we took into account the benefit of receiving reinsurance funds. But we also had to consider the fact that the total amount to the insurance industry will be less next year. This was factored into both our original and revised rate filing submission.
The other temporary federal program is called “risk corridor.” In it, insurers are given a measure of protection from medical claims going significantly higher than expected. However, it would not be wise for us to determine rates by planning to lose money and then be made whole by the risk corridor program. The way we price our business is based on expected premiums offset by expected medical and administrative costs.
Even with a risk corridor payment, the amount we expect to receive will not be enough to offset our losses for 2014 or expected losses for this year on ACA business.
My colleague Patrick Getzen wrote about the impact of these federal programs in a recent post.
How We Compare to Other States
As media reports have noted, there are great variations among states in insurers’ rate filings for 2016. Minnesota, for example, had four insurers request increases of 50 percent or more. On the other hand, California’s state-run health insurance exchange announced preliminary rates under which customers would see an average increase of just 4 percent for 2016.
Data available from the Centers for Medicare and Medicaid Services (CMS) shows that virtually every state had one or more insurers request an increase of at least 10 percent. A majority of states had at least one rate filing requesting 20 percent or higher. CMS requires insurers to submit data and rationale for any rate request of 10 percent or more.
There are a number of reasons why a state could have higher or lower rate increases for individual insurance compared to others. These include:
- Differences in the health of the population, price of medical services, and local patterns of medical practice
- State-level decisions, such as permitting or not permitting transitional plans to continue and whether to expand Medicaid
- The percentage of the population that remains uninsured
There are also big differences between insurers, both nationally and within states. The relevant factor in looking at rate increases for next year is how closely insurers’ actual experience for 2015 matches what they had predicted for this year.
State insurance regulators have until the end of August to decide on proposed rates for health plans on the federal exchange. State-run exchanges have varying deadlines, and some state decisions have already been announced, with a wide range of outcomes.
In New Mexico, the insurance commissioner denied a 51.6 percent rate increase requested by Blue Cross and Blue Shield of New Mexico, saying there was a lack of data to support the request. But in Oregon, the insurance commissioner approved several rate increases above 30 percent, and even ordered some insurers to implement higher rates than they had requested, citing the risk of carriers going out of business from inadequate rates.
The important point to consider is that no two states are alike. What we know about North Carolina is that both medical costs and the use of medical services among the ACA population are very high.
In the next few weeks the North Carolina Department of Insurance will issue a ruling on our rate request. Our goal, as always, is to offer health coverage that our customers can depend on at rates as affordable and sustainable as possible.