Staggering Health Insurance Premiums Right Around the Corner, Predicts Premera Vice President

Don’t Expect Premiums to go Down With Health Care Reform – Some Customers Might See Increases of 50 to 70 Percent

By Erik Smith
Washington State Wire

Jeff Roe, senior vice president for employer and individual markets at Premera Blue Cross, and CEO of LifeWise Health Plan of Washington.

OLYMPIA, July 12.—If you think the cost of health insurance is going to go down under health care reform, think again, says the CEO of Washington state’s largest individual-insurance health plan. Many purchasers of individual insurance plans may see premiums rise 50 to 70 percent.

It was a statement Tuesday that hushed the room at a health care policy conference sponsored by the Washington Policy Center at the Doubletree Inn at Seatac. The policies that drive those numbers are no secret. They are embedded in the Affordable Care Act, which has been the law of the land since 2010. But with the Supreme Court’s decision last month to uphold the law it has become clear that health care reform is coming. Jeff Roe’s statement might be taken as a word of warning. Fasten your seatbelts. It’s going to be a bumpy ride.

“This is massively bigger than we appreciate, and may be bigger than we are capable of pulling off successfully,” said Roe, senior vice president for employer and individual markets at Premera Blue Cross and CEO of its affiliated company, LifeWise Health Plan of Washington. Someday, he said, the nation might be able to “look back and see if we landed safely and squarely and whether it is a step forward. Today I think the answer is unknown.”

Roe’s comments created a buzz at the conference, where most attendees had some connection with the health industry or state policymaking circles. Given the complexity of the new federal law and the raft of new state laws designed to implement it, it has been difficult for anyone outside the insurance business or regulatory arena to translate it to a bottom-line number. But Roe’s figures, based on an analysis of his own company’s book of business, tied it all together. They challenge one of the central assumptions many have had about the new system that is just around the corner in 2014. Many figure that competition on insurance “exchanges,” the new state-by-state marketplaces for insurance policies, is going to drive costs down. In fact, costs are going to go up, and for the typical buyer of individual insurance policies, the increase might cause the jaw to drop.

At the very least, Roe argued, state policymakers now implementing health care reform need to avoid decisions that would further drive up the cost of insurance.

Richer Benefits

Reasons for the increases are all a bit technical, as is seemingly everything associated with the new law. A key point is that right now, most people who buy their own insurance policies, rather than obtaining them through their employers, try to minimize premium costs by buying policies with larger deductibles and copayments. But under health care reform, insurance policies will have to provide a richer level of benefits. The typical LifeWise customer purchases a policy with an actuarial value of 0.4 – meaning that the aggregate percentage of medical costs that are paid by the health plan rather than the customer is 40 percent. Under health care reform, plans that are sold on exchanges must have a value of at least 60 percent. So that means the benefits package has to be 50 percent richer.

Under the federal law, insurance companies can offer policies outside the exchange as well. But the Washington Legislature passed a law this year that essentially says insurance companies must provide the same policies outside the exchange as they do within it – because without the rule, state regulators argued that customers would flee and buy less-expensive insurance on the open market.

Add the effect of the mandates and taxes that are embedded in the act, and the fact that insurance companies will not be able to deny coverage to those with a pre-existing condition. Then add the fact that customers now served by the state’s program for high-risk customers will be entering the general insurance population. It becomes clear that the cost of the typical insurance policy will go higher, Roe said.

And the law doesn’t provide much relief. The law will offer subsidies in the form of tax credits to those who make less than 400 percent of the federal poverty level. But most current purchasers of insurance policies will not qualify, and for those who do, the subsidies may not be enough to offset the cost. That’s because the subsidies will be set on a sliding scale based on income.

“I think it is staggering that in fact the Affordable Care Act increases the per-person cost of health care from $9,000 to $14,000,” he said. “I find that just staggering. To focus in on two costs, though, I think really drives home that point.

Big Premium Increases

“The first is that in the individual market, we expect the cost of premiums to go up anywhere from 50 to 70 percent. Staggering amounts, and I can build that up for you this way.

“Our most popular plan in the market is our WiseEssentials Rx plan. It is a catastrophic plan with an actuarial value of 0.48. The minimum in the market allowed under the ACA is 0.6. So just on that basis it is a 25 percent increase.

“We expect the uninsured to add 15 percent in additional costs, because we know that they are less healthy than those in the system today, and if we get entrants from the high-risk pool, we can expect costs to go up another 11 percent.

“And then there is the insurer tax, which is 2 ½ percent. There is the exchange assessment, which could be as much as 5 percent. There is the Rx [drug] and device tax, which is 1 percent.

“So put that all together, compound it, and you are easily at 55, 60, maybe even 70 percent. Those are enormous increases.

Few Qualify for Subsidies

“And by the way, we talk about the subsidies and the benefits those subsidies provide. The fact is, there is a huge portion of the population that will not benefit from the subsidies.

“Seventy-five percent of our LifeWise Washington membership today is above 400 percent of the federal poverty level and will see no benefit from subsidies.”

In the small-group marketplace, meanwhile, where many employers purchase insurance, Premera estimates that risks will increase 7 percent to 9 percent, Roe said. “So there is another 7 to 9 percent in costs.”

An Important Qualifier

It should be noted that the premium-increase figures cited by Roe will not apply to everyone, points out Premera spokesman Eric Earling. There are plenty of variables. Certainly those who already are buying more-generous insurance policies will not see so great an increase. Perhaps it is safer to say simply that premiums will rise profoundly. But that’s the central message. Under health care reform, insurance premiums aren’t going down, and it’s something people better plan for.

In his presentation, Roe noted that insurance companies aren’t making the fat profit margins that many assume. In Premera’s case, it is 1 percent to 2 percent. Though 85 percent of the premiums collected go to medical services, leaving 15 percent, Roe said most of the remainder is consumed by such expenses as administrative costs, distribution costs and premium taxes.

Guaranteed Issue an Issue

He pointed out that the biggest insurers have been losing money on the individual market. Last year LifeWise lost $11 million, Regence lost $23 million and Group Health lost $6 million.

Premera attributes about one-third to one-half of the losses to regulatory policies that have eroded the rules surrounding the state’s high-risk insurance program. Basically, health plans in Washington state utilize a questionnaire that is designed to screen out the highest-risk patients, about eight percent of the population. They are eligible for the separate state program, which is subsidized by taxes on insurers. But regulatory changes have exempted about 40 percent of new insurance enrollees from the questionnaire. That has big implications for the new world of insurance that is around the corner in 2014, when “guaranteed issue” becomes the norm.

Roe called for more transparency in medical costs, mechanisms that would make consumers responsible for their medical-care choices, and rules that would penalize customers who drop insurance when they don’t need it and try to re-obtain it when they do. If regulators attempt to suppress rates, he said the state risks a repeat of the meltdown that took place in the late ‘90s, when insurers lost hundreds of millions and pulled out of Washington state’s individual insurance market. Premera, like other insurers, argues against efforts by the Office of Insurance Commissioner to consider companies’ surpluses in setting rates – essentially requiring them to take money out of the piggy-bank in order to keep rates low. The companies argue they may need it because of all the uncertainties ahead.

“The industry is in a perilous place right now, and I think given the additional costs that are on the horizon related to benefit increases, at minimum, it is going to be a real challenge going forward,” Roe said. “And it is why we say we need to have all parties represented here [at the conference] and in government to make the system more efficient than it is today, and in the process more affordable.”

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  • Lyonsfamily4

    Exactly why Obamacare won’t work. the notion that the ‘fair market’ will take its course and drive down costs is ludicrous. One, healthcare is not a market, it is a social need. Two, mandating insurance just gives corporations like Premera the green light to ‘pass on costs’ to payers. Meanwhile they have no responsibility to give transparent explanation of what those costs are. Just try finding Jeff Roe’s salary for example. And think for a minute about how often your mandated car insurance policy has lowered in your lifetime. And for the fun of it, ask your grandparents how much they paid the hospital to deliver you… mine paid $75. My daughter cost in excess $7500 to be born. Then ask your doctor how much s/he charges for an office visit to a non-insured person vs. the charge to an insured person. Mandated extortion.

  • olyjt

    Translation-the ACA, which insurance companies have already indicated is well down he list of cost drivers (see their own documentation), isn’t the real reason for premium increases.  We need greater surpluses and larger CEO salaries.

  • http://www.facebook.com/jan.angel.71 Jan Angel

    You may find this article interesting – -this is the conference I was at I told you about earlier.

  • http://www.facebook.com/jan.angel.71 Jan Angel

    This is one of the articles that came from the conference I referred to earlier.

  • maddawgg

    Every person who is against affordable health care for all citizens of the USA are more than likely republicans who will never agree with anything the black man in the oval office puts forward as policy or law.  These are the republicans who cheered when someone suggested that a  person would die without as they call it, “Obamacare”.   Human beings are a stain upon the earth and the corporate and republican breed are the biggest stain of all.

  • Daisy

    How’s that Hopey-Changey thing workin’ for ya?

  • sickoffraud

    Ummm…the CEO of the ins industry

    AMERICAN EQTY INVT LIFE HLDG
    Wendy C. Waugaman
    2011
    $1,136,381

    AET
    AETNA INC
    Mark Bertolini
    2011
    $10,556,335

    AFL
    AFLAC INC
    Daniel P. Amos
    2011
    $14,627,880

    AGO
    ASSURED GUARANTY LTD
    Dominic J. Frederico
    2011
    $9,583,509

    AGP
    AMERIGROUP CORP
    James G. Carlson
    2011
    $6,170,317

    AIZ
    ASSURANT INC
    Robert B. Pollock
    2011
    $9,389,340

    ANAT
    AMERICAN NATIONAL INSURANCE
    Robert L. Moody Sr.
    2011
    $18,944,550

    CI
    CIGNA CORP
    David M. Cordani
    2011
    $19,085,567

    CIA
    CITIZENS INC
    Harold E. Riley
    2011
    $1,037,651

    CNC
    CENTENE CORP
    Michael F. Neidorff
    2011
    $10,473,912

    CNO
    CNO FINANCIAL GROUP INC
    Edward Bonach
    2011
    $3,560,969

    DFG
    DELPHI FINANCIAL GROUP INC
    Robert Rosenkranz
    2010
    $8,080,671

    FAF
    FIRST AMERICAN FINANCIAL CP
    Dennis J. Gilmore
    2011
    $4,579,426

    FFG
    FBL FINANCIAL GROUP INC
    James E. Hohmann
    2011
    $2,079,494

    FNF
    FIDELITY NATIONAL FINANCIAL
    George P. Scanlon
    2011
    $8,631,466

    FPIC
    FPIC INSURANCE GROUP INC
    John R. Byers
    2010
    $3,409,873

    GBLI
    GLOBAL INDEMNITY PLC
    Larry A. Frakes
    2010
    $925,801

    GNW
    GENWORTH FINANCIAL INC
    Michael D. Fraizer
    2011
    $4,292,129

    GTS
    TRIPLE-S MANAGEMENT CORP
    Ramon M. Ruiz-Comas CPA
    2011
    $3,036,786

    HNT
    HEALTH NET INC
    Jay M. Gellert
    2011
    $10,328,479

    HS
    HEALTHSPRING INC
    Herbert A. Fritch
    2010
    $5,383,377

    HUM
    HUMANA INC
    Michael B. McCallister
    2011
    $7,306,861

    IHC
    INDEPENDENCE HOLDING CO
    Roy T.K. Thung
    2010
    $1,013,512

    KCLI
    KANSAS CITY LIFE INS CO
    R Philip Bixby
    2011
    $1,469,941

    LNC
    LINCOLN NATIONAL CORP
    DENNIS R. GLASS
    2011
    $12,702,214

    MBI
    MBIA INC
    Joseph W. Brown
    2011
    $700,000

    MET
    METLIFE INC
    Steven A. Kandarian
    2011
    $10,630,612

    MKL
    MARKEL CORP
    Alan I. Kirshner
    2011
    $672,050

    MOH
    MOLINA HEALTHCARE INC
    J. Mario Molina
    2011
    $4,942,140

    MTG
    MGIC INVESTMENT CORP
    Curt S. Culver
    2011
    $5,589,358

    NWLI
    NATIONAL WESTERN LIFE
    Robert L. Moody
    2010
    $2,930,130

    PFG
    PRINCIPAL FINANCIAL GRP INC
    Larry D. Zimpleman
    2011
    $9,205,527

    PL
    PROTECTIVE LIFE CORP
    John D. Johns
    2011
    $6,436,780

    PLFE
    PRESIDENTIAL LIFE CORP
    Donald L. Barnes
    2010
    $622,756

    PNX
    PHOENIX COMPANIES INC
    James D. Wehr
    2011
    $4,767,704

    PPD
    PREPAID LEGAL SERVICES INC
    Randy Harp
    2010
    $460,998

    PPMIQ
    PMI GROUP INC
    L. Stephen Smith
    2010
    $6,219,601

    PRA
    PROASSURANCE CORP
    W. Stancil Starnes
    2011
    $3,138,829

    PRI
    PRIMERICA, INC.
    D. Richard Williams
    2011
    $2,770,095

    PRU
    PRUDENTIAL FINANCIAL INC
    John R. Strangfeld
    2011
    $23,693,441

    RDN
    RADIAN GROUP INC
    Sanford A. Ibrahim
    2011
    $8,514,555

    RGA
    REINSURANCE GROUP AMER INC
    A. Greig Woodring
    2011
    $7,039,939

    SFG
    STANCORP FINANCIAL GROUP INC
    J. Gregory Ness
    2011
    $4,055,025

    STC
    STEWART INFORMATION SERVICES
    Matthew W. Morris
    2011
    $584,470

    SYA
    SYMETRA FINANCIAL CORP
    Thomas M. Marra
    2011
    $3,104,943

    TMK
    TORCHMARK CORP
    Mark S. McAndrew
    2011
    $8,068,185

    UAM
    UNIVERSAL AMERICAN CORP
    Richard A. Barasch
    2010
    $5,498,537

    UNH
    UNITEDHEALTH GROUP INC
    Stephen J. Hemsley
    2011
    $13,394,832

    UNM
    UNUM GROUP
    Thomas R. Watjen
    2011
    $12,233,703

    WCG
    WELLCARE HEALTH PLANS INC
    Alec Cunningham
    2011
    $4,488,614

    WLP
    WELLPOINT INC
    Angela F. Braly
    2011
    $13,258,142

    WTM
    WHITE MTNS INS GROUP LTD
    Raymond Barrette
    2011
    $3,048,292

    XL
    XL GROUP PLC
    Michael S. McGavick
    2011
    $8,936,065

    Y
    ALLEGHANY CORP
    Weston M. Hicks
    2011
    $7,346,857

  • kim a

    I don’t understand why i’m penalized for being successful and making money. i’m a self-employed individual with my own business and no one “covers” me or pays for my insurance or my family of 4 but me. now i’m expected to pay up to 50-70% MORE in premiums that are already outrageous? this is saddening and disheartening. why work and succeed then? stay mediocre and below a poverty line and get a hand out. ridiculous.