Blue Cross & Blue Shield of Rhode Island, the state’s only health insurance
carrier taking individual subscribers, is facing tough scrutiny and intense
public opposition to a request to raise its direct-pay rates by an average of
16.9 percent.
The hike, effective Jan. 1, would be the first since July 2003, and would result in rates averaging $321 per person per month – from a low of $120.90 for a healthy man under 25 with the cheapest plan, to a high of $861.31 for comprehensive coverage for a person over 65 who doesn’t submit to a health screening.
Blue Cross is now losing money on its direct-pay plans, with a $1.8-million deficit expected by Dec. 31, according to chief actuary Michael J. Recorvits. Should the state Department of Business Regulation refuse to approve a rate increase, Blue Cross would lose another $6.5 million next year, he said.
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Blue Cross officials stress that no costs associated with the loss of the state employees’ health care contract – estimated at $9.2 million for next year – or with former CEO Ronald Battista’s controversial severance package, are built into the rate request.
But at hearings on Nov. 5 and Wednesday at the Department of Business Regulation, subscribers furious about the proposed hikes made it clear they don’t believe Blue Cross, and they see the state’s decision to switch to UnitedHealthcare as a sign that the insurer is bloated, inefficient and overpriced.
“I think there’s been a lot of mismanagement of funds at Blue Cross,” said Bart Ritota, a small-business owner and one of the most vocal protesters at the hearings.
George Goodwin, a self-employed Providence resident, called the proposed hike “exorbitant,” far surpassing the inflation rate “and, in fact, contributing to inflation” because of how it increases everyone’s overall expenses.
Elizabeth Kelleher Dwyer, the DBR official running the hearings, said the department had received more than 100 letters and e-mails about Blue Cross’ request, all opposing it. Many referred to Battista and to other controversies involving Blue Cross, and even those that didn’t attack the insurer said the hikes were simply unaffordable.
As Bernice Hanrahan, 63, of East Providence, said at the first hearing: “Come on, where are we supposed to get this money?” She’s hanging on until she can get Medicare, she said, but “these payments are going to kill me well before any illness does.”
Direct-pay subscribers, about 13,500 people, make up about 2.1 percent of Blue Cross’ enrollment, and would still be only about 2.25 percent if Blue Cross loses its Superior Court appeal of the state employee contract award.
Blue Cross offers three plans: Direct Blue, the most comprehensive; Direct Blue Economy, with larger deductibles; and HealthMate Direct, with upfront deductibles of $2,000 per member or $4,000 per family and reduced benefits. Along with the rate hike, Blue Cross is also seeking to add a fourth, more limited product called BlueCHiP Direct, which would cost about 35 percent less than Direct Blue.
While large employers’ group rates are set based on each group’s profile and claims history, direct-pay subscribers are rated all together. To cut costs for the youngest and healthiest, Blue Cross sets rates for two separate pools: a “basic” one that pays the community rate, and a “preferred” one that gets differentiated rates for men (who usually cost less) and women, in age bands, subject to a health screening.
The difference between “basic” and “preferred” rates can be substantial; a man age 30 to 39 will pay 2.3 times more, for example, for Direct Blue, the best package, in the “basic” pool than if he can get into the “preferred” pool.
But if the group that testified at the DBR hearings is representative, direct-pay subscribers may be older than the typical Blue Cross group subscriber, and the fact that 54 percent of the direct-pay policies are in the “basic” pool – even though the insurer allows eligible people to switch anytime – suggest they may be sicker overall, too.
In the first nine months of 2004, Blue Cross documents show, “basic” subscribers paid $23 million in premiums and incurred almost $24.9 million in claims. “Preferred” subscribers offset those losses to a great extent, but not enough to prevent a deficit after adding administrative expenses.
The proposed rate hike would generate an extra $7.5 million, Recorvits testified, and the vast majority would go to claim-related expenses, including $2.8 million for hospital reimbursements, $1.5 million to cover the growing use of lab, radiology, surgery and other extra-expensive services, and $1.3 million for prescription cost increases.
Administrative costs, the main focus of public protest about the rate hikes – and of Kelleher Dwyer’s questioning to Blue Cross officials – only account for $624,000 of the proposed hike, Recorvits said.
And on that front, Blue Cross has said it’s willing to cut back. Assistant Attorney General Genevieve M. Martin, who acts as a consumer advocate on insurance matters, reviewed the Blue Cross rate filing and couldn’t find ways to cut the claims side of the estimates, but did push for a cut to administrative costs total premiums by 1 percent, or $519,810. Blue Cross acquiesced, meaning if DBR approves its request, rates would rise by 15.8 percent, on average, rather than the 16.9 percent originally sought.
But citing the need for substantially more “affordability,” both Martin and Kelleher Dwyer have made it clear that they would like Blue Cross to not just trim expenses, but to re-examine how they set direct-pay rates in general.
A new law passed this year requires nonprofit health companies such as Blue Cross to include in their mission “to provide affordable and accessible health insurance to a comprehensive range of consumers, including business owners, employees and unemployed individuals” – the sort of people who get direct-pay plans.
Kelleher Dwyer asked Blue Cross officials why that shouldn’t be interpreted to mean that direct-pay subscribers shouldn’t be rated separately anymore, but rather with either all Rhode Island subscribers, or with a bigger pool.
Blue Cross officials uniformly objected to so-called “community rating,” saying they don’t believe the law mandates it and it would make them uncompetitive in a market where no other provider bothers with the money-losing direct-pay clientele (with the rate hike as adjusted, Blue Cross would lose an estimated $420,000 next year).
“I would also say community rating would result in significant increases for a lot of people,” said Blue Cross lawyer Normand Benoit. “It would be a classic spiral, because we would lose a lot of younger people.”
The hearings are scheduled to continue tonight, Monday, Nov. 15, at 6 p.m. at the DBR, 233 Richmond St.
