'Average' rates miss point

An editorial on this page nearly three weeks ago discussed the 56 percent increase in cumulative profits -- from $7.8 billion to $12.2 billion -- taken by the nation's five largest health insurers in 2009 when many Americans were struggling through the Great Recession's job layoffs, furloughs, frozen salaries and loss of health-care insurance. Indeed, the five companies recorded that massive increase in profits while simultaneously dropping insurance for 2.7 million individual-pay and commercial group customers, as the Great Recession's job cutbacks and lost work took their toll.

We noted then that the 39 percent rate hike for 2010 scheduled by California's Anthem Blue-Cross, which had raised so much national controversy, was not so dissimilar from the 35-to-39 percent rate hikes that BlueCross-BlueShield of Tennessee had proposed last year for "some" of its commercial group customers.

An insurer's rebuttal

The company's CEO, Vicky Gregg, subsequently ran a paid ad in this newspaper on Feb. 23 generally lamenting the thrust of our editorial and the "erroneous information" regarding its reserve fund and its rate increases. She pointed out that the giant insurer's statutory reserves were $903 million -- not the "almost $2 billion" figure we had erroneously cited. And she noted that the "average renewal rate for (BlueCross-BlueShield) groups was 7 percent."

We regret the error on the reserve fund figure. Though the company's reserves have been well over $1 billion in some previous years, we failed to get the correct 2009 figure. In fact, the company's $903 million figure is for 2008. It has not yet released the 2009 figure.

As for the "average renewal rate" of 7 percent for the company's commercial groups cited by Mrs. Gregg, her figure does not fully define the company's rate picture, nor does it refute our statement that "some" commercial groups were offered renewal rates of 35-to-39 percent, as reliable sources had told us.

Extreme highs, lows

Indeed, in an editorial board meeting with this newspaper last Tuesday, BlueCross-BlueShield's chief actuary officer, Jim Srite, acknowledged that group rate renewal quotes ran the gamut, from a 41 percent increase for one example group to 30 percent proposed decrease to another example group.

In all, he said, the company's 2009 rate renewal increases offered before benefit changes to small, intermediate and large group customers averaged 10.9 percent, 12.8 percent and 9.8 percent, respectively. Renewal increases offered before benefit changes were greater than 18 percent for 25 percent of the groups, and less than 2 percent more for the bottom quartile.

High buy-down costs

Policy premium offered to the company's 87,000 individual-pay policies ranged from no increase to a 14.9 percent increase, he said. Significantly, company officials also acknowledged that most group policy customers "bought down" their policies from an 11.4 percent average increase to a 4.6 percent average increase by accepting higher deductibles and co-pays. Such buy-downs often result in higher out-of-pocket costs, along with increased policy costs, for employees' share of premiums.

Mrs. Gregg's exceptions in her Feb. 23 ad notwithstanding, the average 11.4 percent increases in policy costs the company proposed for its various groups before benefit changes is not at all comforting. Even if most customers escaped the more extreme multiples of the company's increases, the average increases were still four to five times the rate of general inflation -- average wage increases -- in 2009.

Along with the varying and unpredictable range of rate increases for various groups, that goes to the heart of the problem regarding the costs of medical insurance with which ordinary Americans must now contend.

Whether one is in a small, medium or large group, or forced to buy individual policies, the slicing, dicing and unpredictability of insurance and health care costs has become frightening for most Americans. Group policy costs, as Mrs. Gregg noted, vary so widely -- from very high to relatively low, and from year to year -- because a group's health factors and demographics can change so abruptly.

Insurance roller-coaster

In BlueCross-BlueShield's groups (small: 2 to 25 people; intermediate, 26 to 150; large, 150-plus) a few expensive heart operations or cancer illnesses, or a significant change in the age of group members from young to older, can shift the cost experience of the group dramatically, and spike policy prices.

That variability seems to us to beg a state or federal mandate for "community rates," under which the health risks and costs are spread broadly under uniform rates for all, the way insurance originally was conceived to be. Several states require companies to use the more level, inclusive and predictable community rates, but most do not. That failure drives insurers for competitive reasons to cherry pick the healthy with cheaper policies, and set prices progressively higher for remaining groups with unhealthier populations. None can set a community rate by itself and survive the cherry-picking of their healthier members.

A risky time-out

Mrs. Gregg also notes another common problem that drives up insurance costs: Younger, healthier people may decide not to carry insurance because they see no immediate risks to their health. Even if they carry insurance, they may not be as inclined as older, unhealthier colleagues, to take their company's interim Cobra policy in the event of a lay-off. And in many places around the country, that is driving up health insurance costs for both employers and insurers stuck with unhealthier Cobra populations.

Insurers, including Mrs. Gregg, logically explain that as a reason for rate increases. We see it as a reason to require insurance-purchase mandates as a matter of logical cost-sharing over time to sustain the nation's health care capacity, which virtually everyone will need at some point in the life.

Lastly, Mrs. Gregg blames the continuing, rapid rise in health care costs on health-care providers' push for higher compensation. However, BlueCross-BlueShield's administrative overhead costs, versus the percentage of premium dollars they use to pay providers (79-to-85 percent) is about on par with many for-profit insurers. As a non-profit, the company should be leader in the ratio of reimbursement vs. administration cost.