The General Assembly is expected to approve legislation this year that would eliminate “health status” as a rating factor for small-group health insurance, a move Blue Cross & Blue Shield of Rhode Island says will raise the majority of companies’ premiums, but that Tufts Health Plan says will make it easier for it to reenter the market.
Currently, state law allows insurers to raise or reduce a small group’s rates by up to 10 percent based on the health status of its members. What precisely “health status” means isn’t defined by law, however, and Health Insurance Commissioner Christopher F. Koller said Blue Cross and UnitedHealthcare of New England each apply the factor differently.
United actually had to change its practices recently, Koller said, because its formula was skewed in a way that disproportionately penalized the sickest groups. But more important, he said, health status is a particularly “subjective” rating factor, and for individual groups, especially the smallest companies, it can lead to substantial rate volatility.
The way the system works is, for the entire small-group market, each insurer comes up with an average rate. Then it adjusts each group’s rates based on demographics. Ultimately, the law allows up to a 4:1 ratio between the highest and lowest rates. In other words, if the youngest, healthiest group pays $200 per person per month, the oldest, sickest group may be charged up to $800.
The impact the formula can make on individual groups can be dramatic, especially if they have few employees and/or turnover.
For a group of five, say, having one person get seriously ill can mean a big jump in premiums. And if you replace a healthy 20-year-old with a sick 45-year-old, you take a double hit. Koller said he frequently gets calls from employers whose premiums have been raised by 30 or 40 percent in a single year due to the combination of overall rate hikes and demographic changes.
Last year, the General Assembly set up a task force to review the small-group and individual health insurance markets and consider merging them, as Massachusetts did. And while the task force did not, in fact, recommend merging the markets at this time, it did call for other changes, including the elimination of health status as a rating factor.
Two task force members, Sen. Joshua Miller (D-Cranston) and Rep. Edwin R. Pacheco (D-Burrillville), introduced bills to do that, and while United mostly stayed out of the matter (lobbyist Jason C. Martiesian said the insurer has not taken a position on the change), Blue Cross testified that the measure would hurt employers.
Spokesman Christopher Medici said Blue Cross believes about two-thirds of employers would see their rates rise, by about 10 percent. Medici also noted that according to a 2006 report from the trade group America’s Health Insurance Plans (AHIP), health status is an allowed factor in the District of Columbia and 39 states, including Rhode Island – but no other New England state – and there’s an “amazing” correlation between its use and lower rates overall.
“We’re trying to engage the decision-makers to carefully consider all the data when they’re making a decision as to whether they support this change,” Medici said.
But neither Pacheco nor Miller accepts the Blue Cross estimates as gospel, and Koller said they don’t make sense if Blue Cross is actually applying the rating factor as it’s supposed to – in theory, he noted, the market average shouldn’t change at all.
The task force that recommended the change did an analysis (available at www.ohic.ri.gov) that showed most groups would not be adversely affected: 38.5 percent of groups’ rates would stay the same, 21.6 percent would see a decrease (for two-thirds of them, of less than 10 percent), and 39.9 percent would see an increase – but for more than half, of less than 10 percent.
Miller said he also considers the health status factor “very discriminatory,” not to mention the impact it can make on employers who get the “jolt” of a huge premium hike.
As recommended by the task force, however, Miller did also include a provision in his bill to protect insurers from losses associated with employer groups with just one member, which have substantially higher medical loss ratios (98 percent, versus 87 percent overall). Insurers could boost their rates by up to 10 percent, as long as they do so for all such groups.
How, precisely, the final legislation will be worded is unclear, but both Pacheco and Miller said they are confident that in the coming weeks, a measure that bans the use of health status in small-group rates will be passed. And as it happens, it comes at a good time for Tufts, which announced last Thursday that it has filed an application with the R.I. Department of Business Regulation to offer health insurance in the state.
The Massachusetts-based insurer hadn’t formally applied to reenter the market as of press time, according to Koller, but is expected to do so soon. And when the company became aware of the Pacheco and Miller bills, it testified in support.
Tufts declined requests for interviews and provided only a statement saying that “we appreciate the positive reception” that Tufts has gotten at the General Assembly and that the insurer hopes “this important legislation” will be approved.
As Pacheco and Miller see it, making it easier for Tufts to serve Rhode Island is a great extra benefit of their bills.
“From what we’ve heard about Tufts and the way they run their business in Massachusetts, we think they’d be a very good competitor to have,” Miller said. •
