Anthem of Maine requests 23% rate increase, state regulators tell them to shove it

[dgoldenz]

This is like deja vu all over again....last year they requested a 19% increase and the state only approved a 10% increase to give them a 0% profit margin. This year they are requesting a 23% rate increase and the state is only approving 6%. State legislators say that because Anthem's parent company made money in other states, they should not be able to make a profit in Maine. Anthem has 78% of the market in Maine because the regulations drove all the other insurance companies away. So what happens when Anthem packs its bags and says goodbye too? You can probably figure that one out for yourself.

They paid out $1.04 for every $1.00 they took in last year - damn those evil insurance companies and their profit-mongering. Why can't they operate at a loss?!?! Of course, the state will blame the insurance companies, meanwhile it is the guaranteed-issue community rating in Maine driven by state legislation that is forcing rates through the roof.....this is only a preview of things to come if the current reform bill(s) pass.

Maine news, events, photos, videos, and blogs - Bangor Daily News - Maineville

PORTLAND, Maine — Anthem Blue Cross and Blue Shield of Maine drew fire Thursday from health care reform advocates and a member of the state’s congressional delegation for proposing a rate increase of more than 20 percent for its Luminos and HealthChoice health insurance plans while its appeal in an earlier case seeking a higher operating margin remains unsettled.

Anthem is seeking average 22.9 percent increases for the two individual coverage plans, saying that the increasing demand for medical services, use of new prescription drugs and demand for advanced technologies are driving up the cost of health care at an unprecedented rate.

If approved, the increase would take effect July 1, 2010.

Anthem spokesman Christopher Dugan said the newly filed increase is justified based on 2009 figures showing that for every dollar it received in premiums for its non-group products, it paid out $1.04 in claims, administrative costs — including marketing and other promotional costs — and taxes.

[MODERATOR NOTE: Quotation trimmed down to a summary of the full article. Those wanting to read the full article should follow the link provided.]

 

[ziggy29]

From the article:

the increasing demand for medical services, use of new prescription drugs and demand for advanced technologies are driving up the cost of health care at an unprecedented rate.

This is a part of what has to give. New medical technology is great but it's not cheap and it's not always even necessary. Yet we demand it and then wonder why (among other reasons) we can't stop costs from rising in the double digits year after year.

 

[dgoldenz]

From the article:



This is a part of what has to give. New medical technology is great but it's not cheap and it's not always even necessary. Yet we demand it and then wonder why (among other reasons) we can't stop costs from rising in the double digits year after year.

I agree. The rising cost of biotechnology specialty drugs is a major factor too. Back in the 1970's, there were no prescriptions that cost $15,000 a dose.

 

[deserat]

From the article:



This is a part of what has to give. New medical technology is great but it's not cheap and it's not always even necessary. Yet we demand it and then wonder why (among other reasons) we can't stop costs from rising in the double digits year after year.

Cardiac catheterization used to be very expensive, so did LASIK, cataracts surgery, etc. Death rates due to cancer used to be much higher. AIDS diagnosis was a 7 year or less death pronouncement.

There needs to be an early adopter willing to pay the initial price so that experimentation can occur and help to bring down the price of production and develop efficiencies to make those techniques, drugs, etc, available to the masses. Otherwise, those developments will not occur or occur at a much smaller rate.

You can't have it both ways - and right now, the US is considered the most prolific place for this development to occur - and our citizens enjoy the benefit of that before other citizens in the world mainly because of access. Yes, the expectations have been set higher here, but for years the costs have been hidden because the consumer does not usually know the cost of what is being provided (costs are handled through middle-man with cost smoothing shown to the customer). The middle-man needs their cut, too, which also drives costs up. When the government tries to regulate costs, then it forces the market to behave differently.

The OP is right - if the insurance company cannot recover their costs, then they can't survive and will go out of business. We really should be looking at those states that have the mandated insurance coverage to see how that might work on a national level. So far, I haven't seen any successful examples. However, pointing to the cost of medical technology and saying that's the reason isn't the panacea.

 

[ziggy29]

However, pointing to the cost of medical technology and saying that's the reason isn't the panacea.

Who said it's *the* reason?

It's not THE reason. There is no *one* reason. It's but one of several. And we have to accept that cutting edge medicine is expensive and as long as we want it health care costs have no realistic choice but to continue blowing away overall inflation.

 

[Martha]

All may be true but it also may be true that Anthem doesn't do a good job of controlling costs. Keep in mind the losses include their admin costs and marketing. I would be interested in how the cost of medical care in Maine compares with other areas before drawing a conclusion and would be interested in knowing Anthem's admin and marketing costs as well.

However, the real problem in Maine is that there is guaranteed issue but no requirement to buy insurance so there is a serious adverse selection problem. This makes any comparison to current health insurance reform suspect.

 

[dgoldenz]

All may be true but it also may be true that Anthem doesn't do a good job of controlling costs. Keep in mind the losses include their admin costs and marketing. I would be interested in how the cost of medical care in Maine compares with other areas before drawing a conclusion and would be interested in knowing Anthem's admin and marketing costs as well.

However, the real problem in Maine is that there is guaranteed issue but no requirement to buy insurance so there is a serious adverse selection problem. This makes any comparison to current health insurance reform suspect.

You don't think there will be adverse selection with the current reform bill? If you can't write the check, you can't write the check! Regardless of subsidies. The medical cost of care in Maine is probably roughly the same as most other states, but the increase they are requesting is also in line with the increases that other states face. In Virginia here, Humana just raised their rates as of January 1st by 20-25% on all of their policies. Anthem has raised their co-pay plan rates 25% in the past year.

Anthem controls about 80% of the market in Maine because the regulations drove all the other companies away. Any time you have 80% of the market, your marketing costs are comparatively low because everyone already knows about your company. This issue is NOT because of marketing costs. This issue IS about the regulations in place forcing bad business onto the books and the government then giving Anthem a big "eff you".

 

[Martha]

You don't think there will be adverse selection with the current reform bill? If you can't write the check, you can't write the check! Regardless of subsidies. The medical cost of care in Maine is probably roughly the same as most other states, but the increase they are requesting is also in line with the increases that other states face. In Virginia here, Humana just raised their rates as of January 1st by 20-25% on all of their policies. Anthem has raised their co-pay plan rates 25% in the past year.

Anthem controls about 80% of the market in Maine because the regulations drove all the other companies away. Any time you have 80% of the market, your marketing costs are comparatively low because everyone already knows about your company. This issue is NOT because of marketing costs. This issue IS about the regulations in place forcing bad business onto the books and the government then giving Anthem a big "eff you".

Well, this shows that insurance companies are no good at solving the health care cost problem. Does Anthem reward providers who do a good job at low cost? What is Anthem doing to solve the cost problem? Which was part of my point in my prior post. But nevertheless, without an individual mandate we will have adverse selection and guaranteed issue will be guaranteed high cost without such a mandate.

I believe we differ on the adverse selection issue with national reform, but the idea is that a mandate plus subsidizes will address that issue. I am not going to assume, as you are assuming, that people will bail out and just pay the fine. Massachusetts has not had a significant number of people doing that, and the number who bail has dropped from what it first was.

Unfortunately, allowing a separate group market (employers) makes the insurance cost problem worse and one thing I really wanted to see from reform was separating insurance from employment. Groups have bargaining power and individuals do not. That remains an issue with the individual market, along with the inherent instability of a market where people may come and go depending on whether they are employed.

 

[FIRE'd@51]

I believe we differ on the adverse selection issue with national reform, but the idea is that a mandate plus subsidizes will address that issue. I am not going to assume, as you are assuming, that people will bail out and just pay the fine. Massachusetts has not had a significant number of people doing that, and the number who bail has dropped from what it first was.

I hope you are right, but I'm not so sure. My understanding is that when the mandates and subsidies take effect (2014), the fine will be only $95, rising to $750 in 2016. Compared with even the subsidized cost of insurance, these fines will probably not be much of a deterrence to not buy insurance, especially if you can then buy guaranteed-issue insurance after you get sick. This was a big problem in Massachusetts, as folks were jumping back and forth between having insurance and paying the fine, depending upon their current health status.

Here, in Virginia, we have guaranteed-issue (through Anthem BCBS) for those who can't pass underwriting, although it is quite expensive as you might expect since only those who can't pass underwriting buy it, creating immense adverse selection. However, if you have gone without insurance for more than 63 days, there is a waiting period for pre-existing conditions, so it is harder for someone to game the system the way they did in Massachusetts.

 

[dgoldenz]

I hope you are right, but I'm not so sure. My understanding is that when the mandates and subsidies take effect (2014), the fine will be only $95, rising to $750 in 2016. Compared with even the subsidized cost of insurance, these fines will probably not be much of a deterrence to not buy insurance, especially if you can then buy guaranteed-issue insurance after you get sick. This was a big problem in Massachusetts, as folks were jumping back and forth between having insurance and paying the fine, depending upon their current health status.

Here, in Virginia, we have guaranteed-issue (through Anthem BCBS) for those who can't pass underwriting, although it is quite expensive as you might expect since only those who can't pass underwriting buy it, creating immense adverse selection. However, if you have gone without insurance for more than 63 days, there is a waiting period for pre-existing conditions, so it is harder for someone to game the system the way they did in Massachusetts.

The mandate penalty is a joke. Until the mandate penalty is equivalent to at least ~50% of the average health insurance premium, you will always have adverse selection. The penalty needs to outweigh the marginal benefit of not having it. However, that will never work because everyone would complain about it even more than they are now with the joke of a mandate being talked about.

I used to not filter my insurance leads for people who currently have insurance (I do now) and it was amazing how many pregnant and sick people were looking for insurance after it was too late.


I also live in Virginia. Anthem's guaranteed-issue policy is very expensive ($400-1000 per month depending on age/benefits) and has a 12-month exclusion for pre-existing conditions. The benefits are also nothing to write home about (e.g. $1 million lifetime max). As you said, this leads to very adverse selection. The 12-month exclusion at least prevents people from jumping on and off the plan when they have health issues though. Nothing in this bill has any mention about a 6-month or 12-month pre-existing waiting period.

 

[ziggy29]

The mandate penalty is a joke. Until the mandate penalty is equivalent to at least ~50% of the average health insurance premium, you will always have adverse selection.

That is exactly what has befallen the Massachusetts plan. The penalty for being uninsured is way too weak relative to the cost of being insured.

 

[Martha]

Off topic, but FIRE's post reminded me of this issue. One thing I recently discovered in the Senate version of the bill is that the temporary risk pool to cover uninsurable people will have a six month waiting period before you can enter the pool. The senate says it is to prevent people from leaving employer insurance and jumping into the pool. But the problem is that it applies even if you are uninsured or way underinsured. The house version doesn't have this limit. I hope this get changed. I know a number of people who would buy insurance if they could but their state doesn't have a pool or it is unaffordable. In this case, it wouldn't be gaming the system if nothing else was available for the person. Potential for gaming is there in the future (if they jump on and off) but deal with that in a different way, through the mandate system. If you don't comply with the mandate and can, then a six month pre-existing condition exclusion could be put in place.

Complicated isn't it.

 

[samclem]

Groups have bargaining power and individuals do not.

I'd like to see the whole issue of "bargaining" go out the window. If underwriting were eliminated and insurers were required to provide the same rate to all prospective clients in states/regions they serve, then who you work for, what club you belong to, etc would become irrelevant. And, the whole issue of recision and cherry-picking is eliminated. Again, this only works with an individual mandate (which may prove to be unconstitutional, but that's a separate issue).

 

[Gotadimple]

I'd like to see the whole issue of "bargaining" go out the window. If underwriting were eliminated and insurers were required to provide the same rate to all prospective clients in states/regions they serve, then who you work for, what club you belong to, etc would become irrelevant. And, the whole issue of recision and cherry-picking is eliminated. Again, this only works with an individual mandate (which may prove to be unconstitutional, but that's a separate issue).

Sam,
Why is it unconstitutional? I don't follow.

What you are describing is a group plan for individuals. Some states call this a community pool. In some states, this is the pool used to provide health plans to small employers.

The problem is that there is no uniform way for individuals to join a group plan. Which may be what you are referring to. With the eventual elimination of pre-existing conditions and guaranteed issue, a big reason for "cherry-picking," or medical underwriting goes away. Underwriting is only in place to deny access to coverage for existing conditions.

-- Rita

 

[lets-retire]

Unfortunately, allowing a separate group market (employers) makes the insurance cost problem worse and one thing I really wanted to see from reform was separating insurance from employment. Groups have bargaining power and individuals do not. That remains an issue with the individual market, along with the inherent instability of a market where people may come and go depending on whether they are employed.

If understand the bills correctly the insurers can not charge more or less based on the number of people in a pool so the employer market and the single market will be priced the same. The only thing I read that can be factored into the cost of insurance is age, region, and number of people in a family to be covered.

 

[Martha]

I'd like to see the whole issue of "bargaining" go out the window. If underwriting were eliminated and insurers were required to provide the same rate to all prospective clients in states/regions they serve, then who you work for, what club you belong to, etc would become irrelevant. And, the whole issue of recision and cherry-picking is eliminated. Again, this only works with an individual mandate (which may prove to be unconstitutional, but that's a separate issue).

Agree, except I believe that it is constitutional under the commerce clause and the right to tax to promote the general welfare. (Rita, SamClem and some others believe that the mandate to buy insurance may be unconstitutional.)

 

[Razor]

Why do they stay in Maine if they can't make money there?

 

[Martha]

If understand the bills correctly the insurers can not charge more or less based on the number of people in a pool so the employer market and the single market will be priced the same. The only thing I read that can be factored into the cost of insurance is age, region, and number of people in a family to be covered.

Thanks. I should go back and review but I am too sick of it to do it until we have a final bill.

 

[samclem]

Sam,
Why is it unconstitutional? I don't follow.

It is not clear that the constitution gives the government the power to compel individuals to purchase a good or service from another private entity. Sure, states can mandate that people buy liability insurance if they drive on public roads, but driving on public roads is a priviledge, not a protected right. In this case, the law requires everyone to buy this product just because they are alive. There's apparently no precedent for this, the SCOTUS has not issued any rulings that support this. States are different. What the CBO said in 1994:

A mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action. The government has never required people to buy any good or service as a condition of lawful residence in the United States.

Here's more (pardon the repeat here--it's the same ref I provided earlier to a Heritage Foundation paper).

What you are describing is a group plan for individuals. Some states call this a community pool. In some states, this is the pool used to provide health plans to small employers.
The problem is that there is no uniform way for individuals to join a group plan. Which may be what you are referring to. With the eventual elimination of pre-existing conditions and guaranteed issue, a big reason for "cherry-picking," or medical underwriting goes away.

Right. That's what I was trying to say: everyone is in the same group plan (community rating)

Underwriting is only in place to deny access to coverage for existing conditions.

Well, I'd (more charitably) say that underwritng is in place to allow insurers to make a fair appraisal of the price that should be charged for a policy--but in practice it usually boiils down to a binary decision.

What we're talking about with these schemes is finding a way for the healthy to subsidize the unhealthy. Some people want to do it through taxes, some through insurance rates.

 

[Gone4Good]

It is not clear that the constitution gives the government the power to compel individuals to purchase a good or service from another private entity.

Just one more reason to favor a single payer system.

 

[Gone4Good]

This issue IS about the regulations in place forcing bad business onto the books and the government then giving Anthem a big "eff you".

By "bad business" do you mean "insuring sick people"?

 

[samclem]

Just one more reason to favor a single payer system.

Are those the only choices? "Unconstitutional" and "bad"? I'm optimistic we can do better.

 

[Gone4Good]

Are those the only choices? "Unconstitutional" and "bad"? I'm optimistic we can do better.

As far as I can tell, those are the choices.

I'm certainly open to listen to alternatives, but every one I've heard so far comes with its own set of unworkable problems.

And is the current solution with its complex regulation of private companies, who will be working tirelessly to circumvent those regulations, individual mandates and complicated subsidy formulas really a better alternative to a single payer system. I don't see how.

 

[ziggy29]

By "bad business" do you mean "insuring sick people"?

I'd say the bad business is "insuring sick people while allowing adverse selection." And as long as being insured is optional, they'd be right.

Many of the insurers are on record saying they'd support reforms eliminating pre-existing condition exclusions and underwriting IF it came with a universal coverage mandate that eliminates adverse selection.

 

[Gone4Good]

I'd say the bad business is "insuring sick people while allowing adverse selection." And as long as being insured is optional, they'd be right.

I'd take it a step further.

If your goal is to maximize profits, then insuring sick people is bad business . . . period. And that is a problem that will not change under any regulatory scheme.