Insurance companies want a rate increase

[Chris0nllyn]

Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.

Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase.

A study of 11 cities in different states by the Kaiser Family Foundation found that consumers would see relatively modest increases in premiums if they were willing to switch plans. But if they switch plans, consumers would have no guarantee that they can keep their doctors. And to get low premiums, they sometimes need to accept a more limited choice of doctors and hospitals.

Sylvia Mathews Burwell, the secretary of health and human services, said that federal subsidies would soften the impact of any rate increases. Of the 10.2 million people who obtained coverage through federal and state marketplaces this year, 85 percent receive subsidies in the form of tax credits to help pay premiums.

Blue Cross and Blue Shield of New Mexico has requested rate increases averaging 51 percent for its 33,000 members. The proposal elicited tart online comments from consumers.

In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

“Our enrollees generated 24 percent more claims than we thought they would when we set our 2014 rates,” said Nathan T. Johns, the chief financial officer of Arches Health Plan, which covers about one-fourth of the people who bought insurance through the federal exchange in Utah. As a result, the company said, it collected premiums of $39.7 million and had claims of $56.3 million in 2014. It has requested rate increases averaging 45 percent for 2016.

Federal officials have often highlighted a provision of the Affordable Care Act that caps insurers’ profits and requires them to spend at least 80 percent of premiums on medical care and related activities. “Because of the Affordable Care Act,” Mr. Obama told supporters in 2013, “insurance companies have to spend at least 80 percent of every dollar that you pay in premiums on your health care — not on overhead, not on profits, but on you.”

In financial statements filed with the government in the last two months, some insurers said that their claims payments totaled not just 80 percent, but more than 100 percent of premiums. And that, they said, is unsustainable.

At Blue Cross and Blue Shield of Minnesota, for example, the ratio of claims paid to premium revenues was more than 115 percent, and the company said it lost more than $135 million on its individual insurance business in 2014.

http://mobile.nytimes.com/2015/07/0...g-rate-increases-for-2016.html?_r=1&referrer=

And that goes on and on in the article.

 

[This_person]

http://mobile.nytimes.com/2015/07/0...g-rate-increases-for-2016.html?_r=1&referrer=

And that goes on and on in the article.

Clearly they misunderstood the purpose of the ACA was to lower costs. Obama will surely step in and correct their misunderstanding.

 

[Chris0nllyn]

Clearly they misunderstood the purpose of the ACA was to lower costs. Obama will surely step in and correct their misunderstanding.

According to Obama, it's up to consumers to force companies to lose money if it mean little to no cost increase to them.

President Obama, on a trip to Tennessee this week, said that consumers should put pressure on state insurance regulators to scrutinize the proposed rate increases. If commissioners do their job and actively review rates, he said, “my expectation is that they’ll come in significantly lower than what’s being requested.”

Of course, state regulators, some of them at least, know this isn't sustainable and are actually telling companies to raise the rates more than they are asking.

Health Net, for example, requested rate increases averaging 9 percent in Oregon. The state approved increases averaging 34.8 percent. Oregon’s Health Co-op requested a 5.3 percent increase. The state called for a 19.9 percent increase.

“We share the concerns expressed through public comment about the affordability of health insurance in Oregon,” said Ms. Cali, an actuary. But, she added, “inadequate rates could result in companies going out of business in the middle of the plan year, or being unable to pay claims.”

 

[Hijinx]

According to Obama, it's up to consumers to force companies to lose money if it mean little to no cost increase to them.


Of course, state regulators, some of them at least, know this isn't sustainable and are actually telling companies to raise the rates more than they are asking.

No one can say this is an unintentional consequence.
Obama and the ACA tossed out all the rules of insurance regulation when they passed the ACA.

If it gets high enough we will go for single payer.

The end game.

 

[Hodr]

I like how the Arches Health Plan chief uses an example of 24% higher than expected claims (resulting in 29.5% higher liability costs) to justify asking for a 45% rate hike.

Always have to make an extra buck off of the consumer.

 

[This_person]

I like how the Arches Health Plan chief uses an example of 24% higher than expected claims (resulting in 29.5% higher liability costs) to justify asking for a 45% rate hike.

Always have to make an extra buck off of the consumer.

Do you understand that the 24% is of the number of expected claim, 29% is compared with the expected outgo, and 45% is compared with the premium cost? You get that they're not percentages of the same things, right?

 

[Chris0nllyn]

I like how the Arches Health Plan chief uses an example of 24% higher than expected claims (resulting in 29.5% higher liability costs) to justify asking for a 45% rate hike.

Always have to make an extra buck off of the consumer.

In case you missed this quote in the OP.

Federal officials have often highlighted a provision of the Affordable Care Act that caps insurers’ profits and requires them to spend at least 80 percent of premiums on medical care and related activities. “Because of the Affordable Care Act,” Mr. Obama told supporters in 2013, “insurance companies have to spend at least 80 percent of every dollar that you pay in premiums on your health care — not on overhead, not on profits, but on you.”

In financial statements filed with the government in the last two months, some insurers said that their claims payments totaled not just 80 percent, but more than 100 percent of premiums. And that, they said, is unsustainable.

 

[Hodr]

So let me get this straight. Given that I have to spend 80% on raw materials cost (no overhead, or profit):

If I charge a customer $1.00 for a candy bar, my costs should be $0.80, leaving $0.20 for overhead+profit.

If I later find out that my costs were 29.5% higher, for a total of $1.04 I should be charging $1.30 ($1.30*0.80=$1.04).

$1.30 is 30% higher than $1.00, not 45%.

 

[Chris0nllyn]

So let me get this straight. Given that I have to spend 80% on raw materials cost (no overhead, or profit):

If I charge a customer $1.00 for a candy bar, my costs should be $0.80, leaving $0.20 for overhead+profit.

If I later find out that my costs were 29.5% higher, for a total of $1.04 I should be charging $1.30 ($1.30*0.80=$1.04).

$1.30 is 30% higher than $1.00, not 45%.

It's a good thing the ACA forces for-profit companies to send their customers a refund check if they make too much money.

 

[This_person]

So let me get this straight. Given that I have to spend 80% on raw materials cost (no overhead, or profit):

If I charge a customer $1.00 for a candy bar, my costs should be $0.80, leaving $0.20 for overhead+profit.

If I later find out that my costs were 29.5% higher, for a total of $1.04 I should be charging $1.30 ($1.30*0.80=$1.04).

$1.30 is 30% higher than $1.00, not 45%.

No.

If you believe you need to produce candy bars to accommodate a pool of 100 people, and 124 show up, you are now at 24% over your expected base of people.

If you think handing out candy bars will be 1 candy bar per person, but five people take two, you expected 100 candy bars, and now you're expected to provide 129 candy bars, or 29% over your expected outlay of candy bars.

If you charges each person per candy bar, and you were staffed to hand out 100 because you were expecting to hand out 100, but you had to hand out 129 candy bars, your manufacturing costs are likely to have gone up more because you had to hire more personnel to process the 29% more bars as well as the fact that some people are now taking more than just the one bar each, the cost spread out over the people paying is going to go up by more than 29%. Each person costs more, on average, because many people are taking more than just one bar, you see, and the administrative costs rise when you're not expecting to do the extra work. Overtime costs, increasing the infrastructure to handle the calls, a new parking lot for the new employees, etc., etc.

 

[Larry Gude]

Clearly they misunderstood the purpose of the ACA was to lower costs. Obama will surely step in and correct their misunderstanding.

Isn't that the courts job, to tell us what the legislation really meant?

 

[GURPS]

I don't know how much more of this reduced cost healthcare I can afford

 

[This_person]

Isn't that the courts job, to tell us what the legislation really meant?

How could I forget that. You are correct!

 

[Larry Gude]

How could I forget that. You are correct!

You've heard the classic lawyer joke? "What do you want it to be?"

 

[Hodr]

Each person costs more, on average, because many people are taking more than just one bar, you see, and the administrative costs rise when you're not expecting to do the extra work. Overtime costs, increasing the infrastructure to handle the calls, a new parking lot for the new employees, etc., etc.

So those things are known collqually as overhead. As was previously mentioned by Chris0nllyn that number, along with the profit, is constrained by law to be at or below 20%.

You can list them individually or make up non-linear relations (such as a 1% increase in the cost of resources equals a 10% increase in the cost of overhead), but if things are constrained the way that was claimed previously, the math must still come out the same in the end.

I understand your knee-jerk reaction is to argue against my point regardless of validity because I didn't start my post with "Obamacare is the devil", but the fact is that there were only three variables. The costs, the increase in cost, and the overhead+profit. And we were given two of those, while the other is constrained by law. I was just pointing out the incongruity.

I don't really give two ####s about Obamacare, the government has been in control of my healthcare for quite a while. I was just trying to make the point that the insurance companies are always happy to take advantage of a situation and attempt to gouge (or if I am being generous, make their initial claims are high as an initial point for bargaining).

 

[Chris0nllyn]

So those things are known collqually as overhead. As was previously mentioned by Chris0nllyn that number, along with the profit, is constrained by law to be at or below 20%.

You can list them individually or make up non-linear relations (such as a 1% increase in the cost of resources equals a 10% increase in the cost of overhead), but if things are constrained the way that was claimed previously, the math must still come out the same in the end.

I understand your knee-jerk reaction is to argue against my point regardless of validity because I didn't start my post with "Obamacare is the devil", but the fact is that there were only three variables. The costs, the increase in cost, and the overhead+profit. And we were given two of those, while the other is constrained by law. I was just pointing out the incongruity.

I don't really give two ####s about Obamacare, the government has been in control of my healthcare for quite a while. I was just trying to make the point that the insurance companies are always happy to take advantage of a situation and attempt to gouge (or if I am being generous, make their initial claims are high as an initial point for bargaining).

Regarding the ACA, the MLR has more than those variables. Also, to complicate it a bit more, states have asked for (and got) waivers. Maine, specifically is at (I believe) 65%, not 80% (or 85% for large companies).

Point is, it's up to the state commissions to give the final thumbs up to these rate increases. The fact that the state actually says "Hey, we know you asked for 9%, but you should take 15% in case you end up losing more money this next year" speaks volumes.

Controlling healthcare, or more specifically, health insurance premiums, could have been combatted by allowing greater competition and reducing governmental regulatory burdens that were in place. Instead, we're allowing the govt., which has literally ####ed up the entire way, to take control by forcing a for-profit company to cap their profits. That's absurd. But, the whole idea is to move to a single payer system. If they'd have said that form the beginning, it'd be no big deal (well, it still would be) but this whole system is a farce.

Oh, and correct me if I'm wrong, but paying employees isn't exactly "overhead". That would be direct labor. Overhead would be things like incentives to salesmen for selling insurance, accounting fees, advertising, rent, repairs, taxes, utilities, travel, etc. For a company the size of, say, Blue Cross Blue Shield, those expenses can be costly.

Couple that with state requirements like statutory reserves, which insurance companies are legally required to hold.

 

[This_person]

So those things are known collqually as overhead. As was previously mentioned by Chris0nllyn that number, along with the profit, is constrained by law to be at or below 20%.

You can list them individually or make up non-linear relations (such as a 1% increase in the cost of resources equals a 10% increase in the cost of overhead), but if things are constrained the way that was claimed previously, the math must still come out the same in the end.

I understand your knee-jerk reaction is to argue against my point regardless of validity because I didn't start my post with "Obamacare is the devil", but the fact is that there were only three variables. The costs, the increase in cost, and the overhead+profit. And we were given two of those, while the other is constrained by law. I was just pointing out the incongruity.

I don't really give two ####s about Obamacare, the government has been in control of my healthcare for quite a while. I was just trying to make the point that the insurance companies are always happy to take advantage of a situation and attempt to gouge (or if I am being generous, make their initial claims are high as an initial point for bargaining).

Your implication was that a 29% increase in outgo combined with a 45% increase in cost implies the companies are reaping a 16% increase that is unwarranted. My response is that the percentages are not of the same thing, so those two values are meaningless to determine if the company is unfairly increasing costs.

Now, while the law mandates the maximum amount of profit and overhead this particular industry is allowed to obtain (what other industry has that?), they are seeing that the companies are taking losses, not profits. As in, if they don't increase more than the gap, they're going to continue to have more outgo than income. That doesn't work to stay in business. So, another part of that 45% is simply to become a profitable business again instead of a bankrupt one.

 

[Tilted]

Hodr - You are right to some extent. The basic point you make about the relationship between increased claims costs and the increased premium pricing needed to account for them is valid. theres more going on though, or at least in some cases there is. I'll have to look closer at what Arches Health Plan in particular is claiming to make sense of what it means.

And your point about overhead costs - basically, non-medical benefits expenses - being constrained by law is quite correct. They can only rise so much as a portion of the total premium. But what I think is going on - not necessarily with Arches, but with some coverage providers - is that they are trying to make sure they give themselves that full 20% on as many plans as they can in order to make up for the risk that, on some plans, their premium pricing doesn't end up giving them the full 20%. So they're tending to overshoot the 'right' (I'll explain what I mean by right if it isn't obvious) premium price rather than undershoot it. If the premium ends up being too high, they'll just have to tprefund the difference. One of the problems is that the Medical Loss Ratio requirement applies on a plan basis, not on a company basis. So on plans where they lose money or don't make as much (after medical expenses) as they'd like or should, they're stuck with that result. But on plans where they make more, they have to give some of it back. Traditionally the pricing takes into account both the possibility that actual medical costs will be higher than expected AND the possibility that they will be lower, the potential upside profit in the later cases makes up for the reduced profit or loss in the former. Of course, the bigger the plan pools can be the less likely either one of those things happens, the more likely they are to be accurate with their medical cost expectations. But when you have to have a lot of smaller plans, you increase the risk that some of them have too-high medical cost ratios (as well as the potential for the opposite, but now you don't get to keep that extra profit that comes when that ratio is too-low). So they need to set premiums a little higher to reduce the chance of that happening.

I hope that makes sense, I didn't do a good job of explaining it. But basically the situation is this now: For a given coverage provider, when they lose on a plan (by premiums not being as high as it turns out was needed), they just lose on that plan - they aren't refunded their loss (or don't have the small profit subsidized). But when they win on a plan, they don't get to keep all the winnings, they have to return some of them. Normally, winning on some plans would offset losing on others to result in a certain amount of overall profit. But that isn't true now, not to the extent it would be without the MLR requirement. Further, having more plans with lower average participation increases the chances of losing and of winning - it means the chances that they miss on pricing, in either direction, is greater. So, to make up for those changed realities, part of the strategy is to overprice to reduce the chances of losing on particular plans, and then just refund what they have to on the plans where they win by too much.

One more component of the situation is that many of their customers (when it comes to exchange-bought coverage) are less price conscious when it comes to premiums because they are getting subsidies, so long as the premium price meets certain criteria the cost to the customer is the same (or, in any case, fairly low) because the law caps how much they have to pay for the premium. That makes it a little easier for coverage providers to try to overshoot somewhat, as I described, when it comes to pricing.