OLYMPIA, June 5.—Some 45,000 Washington residents will need to find new health coverage Aug. 1 because of a regulatory standoff between state Insurance Commissioner Mike Kreidler and one of the state’s largest insurance companies – a curious case where a new state mandate for prescription drug coverage may backfire in a big way.
Kreidler has put his foot down on one of the state’s most popular insurance plans – a relatively inexpensive catastrophic health-insurance policy offered by LifeWise Health Plan of Washington, an affiliate of Premera Blue Cross. Kreidler says it can no longer cover generic drugs alone. It has to add costly brand-name drugs if it wants to offer a prescription-drug benefit at all.
Fine, says Premera. It’ll just drop the drugs.
That’s the simple way to explain a high-handed power play that has left thousands of Washington health-insurance customers scrambling for new insurance. Kreidler is blaming Premera and Premera blames Kreidler. But the standoff has left insurance brokers agog, and it is a big problem for their customers. For those who need an individual insurance policy with drug coverage it can mean an additional expense of $200 a month or more. Many may simply forgo drug benefits – or drop insurance entirely.
“I don’t know what I’m going to do,” says Tina Allen, a 52-year-old Bellevue seamstress who has been on the LifeWise WiseEssentials Rx program for the last two and a half years. She’s facing a health-insurance premium that will rise from $371 a month to somewhere north of $500 if she wants drug coverage – and she needs it.
“This is just one huge mess to be thinking about. And it sort of makes you wonder what to expect with health care reform coming in. It seems like we don’t have any say in it.”
Generic-Only Plan is Popular
The WiseEssentials Rx plan, which will be terminated Aug. 1, was the only “catastrophic” insurance plan in Washington state’s individual-insurance marketplace that that offered any sort of a prescription drug benefit at all. Other such policies – defined as those with deductibles of $1,840 or more – don’t cover drugs, either brand-name or generic. The high deductibles make the catastrophic plans relatively cheap, and the one-of-a-kind drug benefit was one of things that made this particular plan popular.
After the policy came on the market in the fall of 2009 it quickly rocketed to 45,000 members. And the success didn’t go unnoticed. Earlier this year the state’s other big insurance companies, Group Health and Regence, filed requests with the insurance commissioner’s office to offer new policies on the individual market that removed coverage for brand-name drugs. That’s when Kreidler’s office said no to the whole idea. Generic-only policies, in its view, are a poor excuse for prescription coverage.
“It meant most of the individual market would have no plan that covered brand-name drugs, so at that point we made a determination that it is actually interfering with the delivery of medical services,” said spokeswoman Stephanie Marquis. You might think you have drug coverage, Marquis explains, but what happens if you need drugs for rheumatoid arthritis? AIDS? Multiple sclerosis? Certain cancers or mental illnesses? There aren’t any generic drugs available for those, and if you’re paying from your own pocket the ticket can be enormous. It’s an illusory benefit, the office maintains.
The insurance commissioner’s office issued a rule Feb. 15 declaring that as of Aug. 1, generic-only prescription-drug plans are no longer acceptable. Companies can require customers to try generic drugs first. But they have to cover the costlier brand-name drugs if generics don’t work, or if no generic drugs are available.
Premera’s response? It just said no to drugs.
Means Big Premium Increase
Premera began notifying its 45,000 WiseEssentials Rx customers a month ago that it was dropping the plan. They could move to another LifeWise catastrophic plan with no drug coverage, with a slightly lower premium. Or they could buy a “comprehensive” policy with a lower deductible and full drug benefits. But the cost for the typical customer will be substantially higher – in the neighborhood of a couple hundred bucks a month.
“When a letter like that one goes out, our phone starts ringing off the hook,” says a Seattle-area insurance broker who speaks on the condition that her name not be used. She ran the figures for Washington State Wire. A non-smoking male, age 49, would pay $316 a month under the current WiseEssentials plan, with an $1,880 deductible. Moving to the company’s comprehensive WiseAdvantage plan, which will offer full drug coverage starting Aug. 1, a plan with an $1,800 deductible will cost $473. Older customers seeking to continue drug coverage will see an even bigger premium increase.
Offerings from other insurance companies are in the same general ballpark, the broker says. And what it means is that thousands of LifeWise customers are caught between a rock and a hard place. Either they pay substantially more or they get no drug benefit at all. As for whether the benefit was illusory – consumers certainly seemed to be making a choice. “I feel like the rug has been pulled out from under the customer,” she says.
“This is alarming because this was the one plan I could offer that was reasonably priced, where a customer could have office visits and a generic prescription plan. And that has absolutely been wiped away.
“The plans that offer generic or brand-name coverage are a third [more] to double the cost, and that is not exaggerated – that’s the way it is. So now I’m getting customers calling and saying, what can I do? These plans are too costly. And the only answer I can give to them is that they have to pay more.”
Points Finger at Kreidler
Premera says Kreidler’s new rule is to blame. Spokesman Eric Earling says premiums in the WiseEssentials Rx plan would have had to increase dramatically to cover the cost of the brand-name drugs. Exactly how much, it’s not clear, Earling says, because the company never got to the point of calculating a new rate request. But the percentage at least would have been somewhere in the double digits.
By canceling the program, Premera is abandoning its most popular individual-insurance plan. That leaves LifeWise with a catastrophic policy like the others, with no drug coverage. “We could have attempted to implement a substantial rate increase to add brand-name drug coverage to this plan, but we didn’t want to obligate our customers to purchase it,” Earling said. “We wanted to give them a choice. So that’s what we’ve done, instead of forcibly adding brand-name drug coverage and obligating our members to pay for it.
“They have a choice now, to either move to our comprehensive plan, which will have brand-name coverage – a more expensive plan because it has comprehensive benefits, but it does have the full drug coverage if that is what members are looking for. Or if the catastrophic plan makes the most sense to them, they can stay on that plan.”
Points Finger at Premera
That wasn’t the only choice, Kreidler says in an open letter to LifeWise customers. Premera might have been able to keep costs lower with a generics-first policy, not generics-only, he argues. Premera disputes that: It says the cost of generics-first really isn’t any different than full brand-name coverage, a distinction without a difference.
In his letter, Kreidler says, “I am deeply troubled by the reaction of Premera’s company, LifeWise. Instead of agreeing to provide access to brand-name drugs to those enrollees who need them, they’ve chosen to remove prescription drug coverage from some of their plans entirely. This is the company’s choice and impacts more than 45,000 people.
“Considering that it’s sitting on nearly $1 billion in surplus beyond required reserves and that it’s a not-for-profit company, Premera could certainly afford to make a better decision that is in the best interests of its members and community.”
Insurance Power Plays
The surplus issue is a whole ‘nother can of worms – and it shows that the issue has implications bigger than just one company and its thousands of customers. By raising that point Kreidler is making an argument for a bill he pushed and failed to win this last session, allowing him to consider, when he approves rate requests, the big surpluses insurance companies have socked away in the bank. The three big insurers have a surplus of $2.4 billion, he says, at a time when they have doubled the rates on individual policies over the last six years. Those surplus funds are in addition to the reserves they need to pay claims and meet contingencies. The companies maintain they need the money to meet unexpected costs that might be incurred when federal health reform kicks in. The argument seemed to persuade the Legislature this year – lawmakers rejected his bill.
“This is a perfect example of how dysfunctional and broken the health care system is today without health reform,” Kreidler said. “At the same time that certain insurers are hoarding huge profits, they’re trying to cut benefits and avoid people who need health care. Insurance companies won’t be able to pull this kind of stunt in 2014. They’ll be forced to compete on price and quality, instead of finding new ways to avoid those of us unlucky enough to get sick.”
Others see the new drug-coverage rule as a power grab by Kreidler’s office over the insurance industry. The Association of Washington Business, which offers association health plans through Premera, declared in a newsletter last month that Kreidler overstepped his current authority by dictating the specific types of coverage a carrier may offer. “These decisions are the purview of the Legislature, but this is just one example of the unprecedented power that officials are testing on the public to implement federal health care reform requirements outside of the public legislative process,” it said.
In 2014 all health policies will be required to cover prescription drugs of all types, both generic and brand-name. By that point there will be no question about the authority of the insurance commissioner. Under a bill that passed the Legislature this year, decisions about the content of policies will be more clearly left to the insurance commissioner’s office and the state health exchange board.