A year after being denied a 16.9-percent rate hike, Blue Cross & Blue Shield of Rhode Island is seeking approval for a new line of “direct pay” health plans that includes two HSA-eligible plans and omits “Classic” and BlueCHiP products.
The goal of the new plans, which Blue Cross wants to replace existing plans on April 1, is to stem financial losses while providing high-quality coverage that will appeal not just to current subscribers, but to a broader segment of the population, the company says.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
Blue Cross is now losing about $500,000 per month on direct pay, according to pre-filed testimony by Thomas A. Boyd, an executive vice president. The segment already had a $3.6-million deficit as of June 30, he said, and even if the full rate hike is approved, the gap is still expected to grow to $10.3 million by March 2007.
The potential impact on the 14,600 Rhode Islanders now covered by direct pay plans, however, could be substantial as well. If they switch to the specific plans that Blue Cross expects they’ll pick, their premiums go up by 15 to 20 percent, PBN estimates, with some jumps around 30 percent.
Should they opt up rather than down, however – say, from the current HealthMate Coast-to-Coast with a $2,000 deductible, to one with a $1,500 deductible, rather than the $3,000 HSA plan, the jump would be in the 40-percent range.
Conversely, by choosing the most modest of the new plans – especially the HSA plan with a $5,000 deductible – subscribers could cut their premiums by as much as 40 percent (in the single digits for more likely scenarios), though with substantial cuts in their benefits.
To further assuage concerns about affordability, Blue Cross is also offering to spend about $1.5 million per year on a new “premium assistance” program for lower-income subscribers who can’t pass medical underwriting and therefore face the highest premiums.
About 950 subscribers with incomes below 200 percent of the federal poverty line would get rebates averaging about 12.3 percent, and another 1,150 with incomes between 200 and 300 percent of the federal poverty line would get average rebates of 8.2 percent.
“This is hugely innovative – it’s something we’ve never done before,” President and CEO James E. Purcell said in an interview, noting that to his knowledge, no other health plan nationwide has such a program.
The program shows Blue Cross’s commitment to affordability, Purcell said, and while it “isn’t everything, it’s a start of something.”
But in testimony filed with Health Insurance Commissioner Christopher F. Koller, whose office regulates health plans, Boyd warned that the new program will only be launched if the rate request is granted in full, and its future depends on the insurer’s ability to “implement actuarially justified, adequate premium rates” for direct pay and other segments.
The bottom line is Blue Cross must remain financially viable, Purcell said, and denying the 16.9-percent hike last year didn’t help on that front. Expenses actually rose 20 percent, he said, deepening the direct-pay plans’ deficit. Now, he said, “the bill is coming due to pay.”
Koller has not yet scheduled a hearing on the rate request, but he said last week that due to the upcoming holidays, it likely won’t be held until January. Asked for initial comment on the proposal, Koller said he would judge it by the same affordability standards he outlined in a decision late last month about Plan 65, Blue Cross’s line of Medicare supplemental plans.
In that decision, Koller approved a 14.58-percent rate increase, but required that Blue Cross develop, within 180 days, a broad plan to “enhance the affordability of its products.” Specifically, he urged the insurer to develop medical management, claims administration, benefit structures and provider payment structures that focus on primary care and prevention, actively manage the chronically ill and high-cost populations, and control costs while promoting high-quality care.
Koller did note that Plan 65 is a narrowly defined line of business governed by federal rules, while direct pay is “more complicated,” so it would likely get even closer scrutiny.
Blue Cross last increased its direct-pay rates on July 1, 2003. Since then, employers’ premiums for small-group coverage from Blue Cross have risen by about 25 percent, on average, and they will rise by another 10 to 12 percent for 2006, Chief Financial Officer James Joy has said.
Group coverage is not subject to the same level of regulatory scrutiny as individual insurance, however. In fact, UnitedHealthcare of New England and other carriers have said they won’t offer individual policies in Rhode Island because they are so tightly regulated and thus can’t be offered profitably.
Blue Cross is required by law to provide individual coverage and to take all comers – whereas most plans nationwide require medical underwriting, resulting in denials to about 12 percent of applicants in 2004, according to a recent report by America’s Health Insurance Plans, a major trade group.
To balance the needs of the sick and the healthy, Blue Cross has two sets of rates, “Pool I,” which is open to all and costs the same regardless of applicants’ age or condition, and “Pool II,” which requires a health screening and costs much less, with premiums set in 10-year age brackets. (As requested by the state, the new rates would be in five-year brackets.)
But despite the two-tier system, Blue Cross has long said Pool II is effectively subsidizing Pool I, inflating premiums for the healthy and promoting adverse selection – when only people who expect to need health insurance buy it, undermining the benefits of pooled risk.
In the new application, Blue Cross still chose to request Pool I rates that are 3.5 percent lower than actuarially required, Boyd explained in his pre-filed testimony, but rather than continue to lose $500,000 a month to keep Pool I rates as low as possible, a “very inefficient ongoing subsidy,” the company is going to target its subsidies with the new assistance program.
The rate filing also emphasizes all the ways in which Blue Cross is already doing the things Koller wants – promoting preventive care, managing high-cost cases, etc. – with detailed testimony by Boyd about the programs for direct-pay and other subscribers.
Asked how widespread those practices are, Joy said in an interview that they are “significant,” and Blue Cross expects them to grow once everyone is on the HealthMate platform, which lends itself better to managed care than the old plans.
Spokeswoman Kim Keough said such programs are “something that we’ve been working on for a long time,” and Blue Cross is “happy to see” Koller endorsing them as well.
Anyone expecting to see a straight managed-care plan, however, won’t find one in the new direct-pay array. A line of BlueCHiP direct plans proposed last year, which would have had the lowest premiums in exchange for in-network-only benefits, was scrapped this year.
“It wouldn’t have been a good fit with the other products,” Joy said, adding that “when we tested the BlueCHiP product with some of our focus groups here, we found that they didn’t like it very much.”
Michelle Biscotti, director of product marketing, said Rhode Island consumers “just in general have a negative perception of an HMO-model plan.”
Thus the choice of high-deductible plans eligible for HSAs, the tax-exempt health savings accounts favored by President Bush as a way to promote smart health care spending. HSA-eligible plans have narrowly limited benefits until an initial deductible is met, and their premiums are about 40 percent lower than typical PPOs.
