Thousands gaming Mass. insurance system, driving up costs for system

BOSTON – Massachusetts’ health reform has more than doubled the number of individuals buying their own coverage, from an average of 45,900 in 2006 to 107,343 in 2008, but nearly a quarter of individual subscribers are dropping their coverage within the first year.
The Mass. Division of Insurance hired the firm Oliver Wyman to review the state’s small-group and individual markets, which were merged in 2006, after hearing from insurers in the summer of 2009 that they were seeing a spike in utilization among newly enrolled individuals.
In addition, the insurers reported to the state, more people were dropping coverage after having expensive medical procedures.
Oliver Wyman’s report, released last week, confirmed the industry’s complaints: While in 2006, 13.8 percent of individuals dropped their coverage within the first year, by 2008 the ratio had grown to 24.2 percent. More than 17,000 people dropped coverage within six months, including 1,272 “high-cost” subscribers, compared with 364 such subscribers in 2006.
And while in 2006, individuals and small groups who terminated within a year had loss ratios (the share of premium that goes to medical claims) 2.2 percent lower than average for the combined markets, by 2008 that group’s loss ratio was 8.8 percent higher than average.
“This indicates adverse selection may be occurring,” the report says, referring to a phenomenon in which people only get coverage when they’re sick and drop it when they don’t need it – which, in turn, raises costs for the system and drives up premiums.
The report was released as Massachusetts lawmakers are considering two bills that would address this issue. One, sponsored by Senate President Therese Murray, would allow individuals to sign up for insurance only during one month per year. The other, proposed by Gov. Deval L. Patrick, would restrict enrollment to June and December, but allow exceptions for people who have lost their workplace insurance or have had another major life change.
A spokeswoman for Blue Cross Blue Shield of Massachusetts told the Boston Globe that the company believes Murray’s bill “could effectively address the gaming in the system – which we believe is adding as much as $300 million to the health care system in Massachusetts.’’
In Rhode Island, open enrollment in the individual market (known as Direct Pay) is limited to one month per year, except for people who can show they have just lost their group coverage, and Blue Cross & Blue Shield of Rhode Island officials have said they have not seen the same issues as in Massachusetts. The Direct Pay market covers about 14,000 people.
The full report is available here.