Crain’s Health Pulse
May 19, 2016
Showdown Ahead: Insurers Want State to Approve Big Rate Hikes
After a tumultuous year in the New York insurance market, health plans have requested large premium increases, as many seek to improve their financial performance after sustaining millions in losses.
Insurers selling plans to individuals requested a 17.3% average increase and those selling small-group plans asked for an average 12% rate hike for 2017.
For the past three years, insurers have requested rate increases, and the state Department of Financial Services has cut those hikes down to a level that is more palatable to consumers much to the chagrin of the health insurance industry. In past years, the state Health Plan Association has called those cuts "irresponsible."
DFS' decision on the current rate hikes will be closely watched. The agency was blamed, in part, by the insurance industry for the collapse of Health Republic Insurance of New York, which was shut down by regulators last year. It is also the first rate hike that will be decided under Maria Vullo, who was appointed acting DFS superintendent in January.
Insurers pointed to rising utilization and health care prices, especially drug prices, as contributing to the need for higher premiums.
With those factors in mind Paul Macielak, HPA’s president and chief executive, is hopeful that this year’s rate-setting process will be different. Last year, insurers requested an average increase of 10.4%, which DFS slashed to 7.1%.
"The chickens are coming home to roost," he said. "Plans are sustaining significant losses. That behooves DFS to be realistic in terms of the rate-setting process.”
Several notable insurers requested large increases for 2017. UnitedHealthcare, which has pulled out of insurance marketplaces in many other states, asked for a 45.6% increase to premiums. Though UnitedHealthcare is the largest U.S. insurer, it signed up just 2% of individuals who purchased individual plans through the New York State of Health last year.
CareConnect requested a 29.2% increase on average. That type of one-time correction is necessary, especially as the federal reinsurance and risk corridor programs are phased out, removing a safety net many insurers relied on, said Alan Murray, CareConnect’s president and chief executive.
"If we had all the data we had for the 2017 submission three years ago, our premiums would have been 30% higher three years ago," he said. “This is the first time we have the ability to price based on our real experience in the market.”
Oscar, the venture-capital darling that recently raised $400 million in a financing round from Fidelity, asked for an 18.4% average increase. In a letter to insurance brokers, the Manhattan company said its rate hikes ranged from 8% to 30% around the state. Oscar lost $92.4 million on its New York operations in 2015, and another $38.7 million in the first quarter of 2016.
Oscar sought to explain the planned rate hikes to insurance brokers in an email sent Wednesday morning.
"There are three main reasons for higher premiums: Medical costs have gone up, government programs that helped cover our costs are ending and our members needed more care than we expected," the company wrote. "We don't like raising premiums for our members, but the economics of this market demand as much."
May 18, 2016
With Rising Costs and Decreasing Federal Help, Insurers Ask for Big Rate Increases
By Dan Goldberg
New York State insurers selling plans on the individual market are asking the Cuomo administration to raise average premiums by more than 17 percent, a consequence of rising medical costs, decreasing federal funding and misplaced assumptions about the health of consumers.
The new rates would take effect in January, the fourth season for Affordable Care Act plans.
These are only proposed rates, and the state’s Department of Financial Services has the final say over premium increases.
Last year, insurers requested an average 10.7 percent increase, but that was eventually reduced to 7.1 percent. In 2014, insurers requested a 12.5 percent increase on the individual market, which was later reduced to a 5.7 percent hike.
Rate increases do not necessarily mean consumers pay more for their plans. That's because the vast majority of people shopping on New York's health exchange receive federal subsidies in the form of tax credits, which are based on level of income and the price of the second lowest silver plan.
Anyone who qualifies for a subsidy and signs up for one of the two least expensive silver plans should be protected from premium increases.
That’s one reason the Obama administration has encouraged people to shop around.
But that encouragement may have had unintended consequences. Insurers calculate premiums based on who they expect to insure. But the market is experiencing a lot of churn as people move from one plan to another and enter and exit the market. Insurers do not always have a stabile population, making it very hard to calculate how much their customers will cost. That, in turn, makes it difficult to know what to charge.
MetroPlus, the insurance arm of New York City Health + Hospitals, best exemplifies this problem. In 2015, MetroPlus lowered its rates 5.5 percent and offered the lowest price in New York City, the only area it serves. But its population turned out to need far more medical care than was expected. MetroPlus reported that year-over-year medical claims were up 49 percent and prescription drugs costs were up 124 percent.
“The market is still very volatile, and people are not hooked on one plan yet,” said Ram Raju, president of New York City Health + Hospitals. “There is a lot of shopping going on. When [we] set the rate, we need to be financially responsible, especially given the present circumstances of Health + Hospitals.”
MetroPlus, which has 20,000 members, is asking for a 20 percent premium increase. Even if that increase is granted, it would still keep MetroPlus among the least expensive plans in New York City.
Crystal Run, which has fewer than 500 members, is asking to nearly double its prices, telling state officials it needs to correct "assumptions made for 2016 regarding provider contract pricing and utilization of medical services that were inaccurate."
UnitedHealth, which has 8,000 members, is seeking a 45 percent rate increase. The nation’s largest insurer has pulled out of most exchanges, including in New Jersey, but plans to try another year in New York. The company, which did not respond to a request for comment, explained in its filings with the state that it has been undercharging, assuming its enrollees would be less expensive than they turned out to be.
“The rate filing we have made is seeking an increase mainly related to the high cost of the individual enrollees and the inadequacy of the current rate level,” the company wrote.
That’s somewhat surprising, given that UnitedHealth was already one of the most expensive options on the state’s exchange. If rates are accepted as proposed, UnitedHealth would offer the most expensive plan in New York State in 2017. But the company got far less than it asked for last year, when it asked to increase its rates 22 percent but was approved only a 1.7 percent increase.
The state’s Department of Financial Services has touted its reduction in rates as protecting consumers, though those may have also had unintended consequences.
The state health plan association, which represents insurers, pointed to”prior year losses resulting from cuts imposed by the Department of Financial Services,” as one reason rates are spiking this year.
Alan Murray, CEO of CareConnect, the insurance company started by Northwell Health, is asking for a 29.91 percent average rate increase, but he believes this to be a one-time market correction. If the state grants these requests — or presumably increases close to these requests — Murray said he expects yearly growth to return to the mid-single digit level.
There are reasons to believe Murray is on to something, and that this year is unique.
Most obviously, insurance companies are dealing with the end of the federal government’s reinsurance program, which provided a backstop to insurers that lost more than a set amount. In 2016, reinsurance payments reduced premiums by approximately 4 to 6 percent, according to the Kaiser Family Foundation.
Additionally, with three years of claims data now available, it has become clear that insurers overestimated the health of people who purchase Affordable Care Act plans and underestimated how much these people would cost. In short, it has been far more expensive to insure this population than most anyone thought. Murray believes one large increase should correct for that mistake.
One factor unique to both 2017 rates and New York is the state’s Basic Health Program, which began in January, 2016. Health Insurance Plan of Greater New York, a subsidiary of EmblemHealth, pointed to the Basic Health Program — which provides free, or low cost, insurance to people with incomes lower than 250 percent of the federal poverty level — as one reason it is requesting a 14 percent increase. The group qualifying for the Basic Health Program tended to be healthier, which means those who remained in the individual market were more expensive to insure.
Fidelis, also known as the New York State Catholic Health Plan, has 59,000 members and is asking for an average increase of 8.13 percent, among the lower proposed rate increases. The company, which has traditionally been one of the less expensive options on the state’s exchange, is promising a broader network, which adds to the cost of their plans.
Nearly all insurers cited rising medical costs, particularly pharmaceuticals, as a key culprit in the need for rate increases.
HealthNow New York, looking for a 6.07 percent increase, said prescription costs account for nearly 20 cents of every premium dollar. The company estimates spending on so-called specialty drugs to quadruple by 2020.
Bob Hinckley, the senior vice president at Albany-based CDPHP, is looking for an increase of 11.2 percent. He said that as health care costs continue to increase, premiums will follow suit. And the fastest growing component of health costs is pharmaceutical costs.
“It’s really the entire market,” Hinckley said. “Clearly specialty pharmaceuticals … are increasing dramatically in costs. But so are generics. So it’s a fact that the spiraling costs of pharmacy have an affect on rates.”
— Additional reporting by Josefa Velasquez and Addy Baird