Little to connect rate hikes, reforms

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National health care reform apparently has little to do with the double-digit increases in health insurance premiums projected in Colorado for 2011.

According to a review by state insurance department actuaries, the reforms adopted this spring account for no more than 5 percent of next year’s premium hikes. A raft of other factors is responsible for 95 percent of the increase, which is expected to be as high as 14 percent.

“I understand it’s different than what we’ve all been hearing,” said Marcy Morrison, the state’s insurance commissioner. “That’s why I wanted to get this out there — these are the facts, the numbers. It’s very simple.”

The reforms in place for next year require insurers to allow policyholders to keep dependents on their policies until they are 26. They also eliminate pre-existing condition requirements, remove annual and lifetime coverage limits and mandate coverage of preventive services without cost sharing.

Health insurers are required to submit rate-increase requests through the Division of Insurance each time they want to increase premiums. Many insurance companies submit their requests for the following year in the fall. The department’s actuaries examined every rate request the department received in September and October.

“I thought it would be interesting to drill down to see if reform had affects on prices,” Morrison said.

What her staff discovered, she said, is that most of the news about reform and insurance premiums is wrong.

“People are making a bad guess about the effect of the laws,” Morrison said. “I’m not an apologist for the Obama administration, but I do believe people need the correct information.”

Morrison is a Republican.

Her insurance division approves rate increases based on a number of reasons. In the “large group” insurance market — coverage plans that are typically offered to the largest employers — insurers can seek premium adjustments based on pretty much anything, though typically the medical claims history of the group is the biggest factor.

Laws in the “small group” market allow insurers to adjust premiums based on the age of lives covered, tobacco use, job type, family size and other factors. In the individual market, insurers can adjust rates based on age, health status, tobacco use and where people live. Health status and age factors typically affect new policies the most.

Insurers also frequently take into consideration health care costs.

“It could be that the costs change, based on contracts with doctors, hospital charges, laboratory services,” Morrison said.

Charitable care and unreimbursed Medicare patient expenses also contribute to the problem.

This year, at least, those costs make up the bulk of the insurance premium increases sought — not health care reform measures that went into effect in September, Morrison said.

“Health care reform has been front and center,” Morrison said. “I was listening to the television, to senators, to congressmen who were all saying high increases were (coming) because of reform. And I said to my people, we need to get the real numbers.”

No other insurance commissioner in any other state has performed a similar study, she said.

Insurance companies agree that reform hasn’t affected premiums — yet.

“Overall, we expect the costs of implementing the first provisions … to have a very modest impact for most of our members in 2011,” said C.J. Moore, spokeswoman for Kaiser Permanente in Southern Colorado.

That is likely to change in subsequent years. Moreover, reform opponents say premium increases don’t tell the entire story, and they complain especially about companies having to bear more of the burden rather than employees.

“(Morrison) doesn’t take into account the out-of-pocket costs of health care reform,” said Linda Gorman, director of the health care policy center at the Independence Institute in Denver. “Companies — Boeing, John Deere, McDonalds — have already said that this is going to cost them millions.”

Gorman predicted insurance companies will raise co-payments or deductibles to make up the money needed to implement reform. She doubted Morrison’s conclusions.

“She’s saying nothing here,” she said. “She said medical trends are one reason for the increases. Does she not think doctors are looking ahead to getting paid less under reform and increasing costs? Of course these costs are going to show up. This report is a red herring.”

Gorman believes insurance companies have been cowed by the Obama administration, to the point where they will add costs elsewhere before asking for more rate increases.

“They are scared to death,” she said. “They’ve been warned. They’re a regulated industry and they’ve been told by the regulators that they will run them out of business if they don’t comply.”

Effect of new federal requirements on Colorado health insurance premiums

Federal health care reforms went into effect in September, but the Colorado Division of Insurance says they have had a minimal effect on rate increases.

Individual Small group Large group
Expansion of dependents to age 26 0.0 %- 0.2% 0.0 %- 3% 0.0% – 0.4%
Elimination of pre-existing conditions for enrollees under age 19 0.0% – 3% 0.0% 0.0% – 0.1%
Removal of annual limits 0.0% – 1.2% 0.0% – 0.8% 0.0% – 0.4%
Removal of lifetime limits 0.0% – 1.8% 0.0% – 1% 0.0% – 0.5%
Prohibit rescission 0.0% 0.0% 0.00%
Cover preventive services without cost sharing 0.2% – 3% 0.0% – 1.2% 0.0% – 1.3%
Overall impact for renewals 0.3% – 4.9% 0.0% – 4% 0.0% – 1.2%
Overall impact for new policies 1.8% – 7.8% 0.0% – 5% 0.0% – 2.5%