Just weeks after getting state approval to raise large-group base rates by 8.1 percent and 8 percent, respectively, Blue Cross & Blue Shield of Rhode Island and UnitedHealthcare of New England are seeking to raise their small-group rates by an estimated 9.7 and 12.6 percent, respectively.
The two insurers on Aug. 1 filed outlines of the key factors involved in rate-setting with Health Insurance Commissioner Christopher F. Koller, following a new regulatory process that went into effect this year.
The filings don’t include a bottom-line number, but Koller’s spokesman Matthew Stark provided preliminary estimates. The submitted documents cover so-called “trend factors” in inpatient and outpatient health care spending, surgical/medical and prescription drug costs.
In addition, they document each insurer’s monthly net cost per member in each category, medical-loss ratios (the percentage of each premium dollar that goes to pay medical costs), administrative costs and rating methodologies.
The filings are posted on Koller’s Web site, www.ohic.ri.gov. United’s filing is only five pages. Blue Cross filed a document almost four times as large, in two forms: one with all the data sought by Koller, which it requested not be made public, and another with some materials omitted that the company argued constitutes “trade secrets” or are otherwise confidential.
Koller can approve the rates as requested or amend them, as he did earlier this year with the insurers’ rates for groups of 51 and more members.
Those filings, which affected about 400,000 subscribers, initially included requests for a 9.4-percent hike for Blue Cross and an 11-percent hike for United. In June, Koller approved lower increases and gave United 180 days to file a report on how it is addressing concerns about its treatment of local health care providers and how it is directing resources to improve the quality, accessibility and affordability of the state’s health care system.
Neither insurer agreed to an interview about the small-group filings, though each replied, in limited form, to written questions.
Asked about key factors affecting rate trends, Blue Cross noted that it had seen an increase in behavioral-health inpatient utilization, as well as an increase in out-of-state surgical days. Overall, however, spokesman Christopher Medici said, “our anticipated trends compare favorably to recent national trend surveys.”
United CEO Stephen J. Farrell said through a spokeswoman that the insurer doesn’t see cost trends moderating at this time, and while in 2007, “our trend was lower than average,” for next year, “we are returning to normal trend.”
“Unit cost, utilization and the mix of procedures all factor into driving trend,” Farrell added. But small-group rates are also likelier to fluctuate than large-group rates, he explained, because the mix of small-group employers changes more, creating “unpredictability” from year to year. Smaller employers also change insurers more often, he said.
So how do the numbers look?
United is expecting a 12-percent increase in overall medical costs in 2009, including a 14.4-percent increase in inpatient costs, 13.1 percent in outpatient costs, 8.5 percent in medical/surgical spending, and 12.5 percent for prescription drugs.
Blue Cross predicted a 9-percent increase in inpatient costs, 7.9 percent in outpatient costs, 9.2 percent in medical/surgical, and 11.6 percent in prescription drugs – not counting a recently negotiated one-time reduction in total costs that reduces the claim cost increase to 7.4 percent.
Yet while United is seeing its costs rise faster, it’s starting from a lower baseline. In the last quarter of 2007, for example, it spent an average of $39.90 per member per month on prescription drugs, vs. $55.57 for Blue Cross. It also had far fewer inpatient days per 1,000 members, 216.3 vs. 285.2 for Blue Cross.
A key factor that Koller will have to consider in his review of Blue Cross’ filing will be how much the insurer can allocate to its reserves. In the last few years, the company has been forced to reduce its contributions to reserves as a way to moderate premium increases.
As recently as June, in approving large-group rates, Koller continued that practice, allowing Blue Cross to allocate only 1.35 percent to reserves, vs. the requested 2.35 percent (United was forced to reduce its reserve contribution from 3.2 percent to 1 percent).
In its small-group filing, Blue Cross is seeking a 2.33-percent contribution to reserves, noting that if it keeps contributing only 1.35 percent, its surplus “will gradually erode” and will drop below 23 percent of annual premium, the minimum recommended in a report commissioned by Koller’s office. The reserves stood at 24.2 percent of premium revenue as of Dec. 31.
Blue Cross overwhelmingly dominates the small-group market, with a total of 12,306 groups covered in 2007, including 1,536 newly issued policies, versus a total of 2,532 for United, including 455 new policies.
As part of their filings, the insurers also had to report how many groups they signed up for the HealthPact plans, which are based on guidelines set up by Koller’s office to be as affordable as possible and encourage people to stay healthy and use health care resources wisely. Blue Cross reported 96 signups; United signed up 15 groups. The plans became available in October. •
