Blues to cut rate hikes
11/09/2003
After several years of double-digit premium increases, Blue Cross and Blue Shield of Massachusetts is doing so well financially that the insurer said it will significantly reduce the rate hikes it charges companies and their employees. Blue Cross, the state's largest health insurer, will increase average annual premiums by slightly more than 9 percent for small employers in managed care plans starting this month and into 2004. That's down from increases of more than 16 percent during the first half of 2003. Large employers will see similar premium breaks, said chief executive William Van Faasen. "Our balance sheet is finally working for us," he said. "All of this is occurring at a time when our customers are looking for relief from rate increases that have been 15 percent a year and sometimes higher." With 2.5 million members, Blue Cross had considered giving customers a rebate instead, Van Faasen said, something Blue Cross in Tennessee is doing. But Van Faasen said the company decided a rebate was too difficult to administer, and Blue Cross couldn't be sure all employers would pass it on to their workers. Most employers and their employees were bracing for double-digit premium increases again in 2004, and Blue Cross's decision reflects a trend many insurers are seeing: The rapid rise in medical costs is slowing. Over the past two years, employers have been charging workers higher deductibles and copayments for medical care, which has dampened demand for expensive imaging tests and brand name prescription drugs. Health plans also put in place preventive care and other programs that have reduced costly hospital stays. "Going from 16 percent to 9 percent probably will make a big difference for employers," said Richard Lord, president of the Associated Industries of Massachusetts, a business lobbying group. "This will save employers money they thought they were going to be spending on health care. And everybody is so used to double-digit increases, that a single-digit hike will make a big difference psychologically." Employers renew their contracts with health plans throughout the year, but the vast majority sign new agreements to begin Jan. 1. As of this month, with the smaller increases, an employer pays a yearly average of $4,140 to cover a single person and an average of $10,884 to cover a family for the most popular Blue Cross HMO plans. Most employees pay a portion of these premiums. Executives at Tufts Health Plan also said that premium increases will be slightly lower next year, and that the insurer will charge some small employers hikes below 10 percent. Harvard Pilgrim said premium increases for January will be slightly lower as well, in the 11 percent to 13 percent range. Harvard Pilgrim spokesman Alan Raymond said that since insurers only disclose average premium increases, making comparisons is difficult. "We have competitive premiums," he said. "It remains to be seen how this will play out on a case-by-case basis in the market." Blue Cross's decision also reflects growing pressure from consumers on nonprofit Blue Cross plans across the country, many of which are growing richer at a time when the number of uninsured Americans is rising and employers and workers are increasingly struggling to pay their health insurance premiums. In Massachusetts, for instance, Blue Cross expects to report that its net operating profit climbed 10 percent to 15 percent in the 2003 third quarter over the $73.6 million it earned the prior year. The insurer's cash reserves -- which are a cushion for unexpected financial difficulties -- have more than doubled since 1999 to $823 million in June. Tufts and Harvard Pilgrim Health Care, which are each about one-third Blue Cross's size, have reserves of $300 million and $210 million, respectively. The rising level of reserves is causing trouble for some Blue Cross plans elsewhere. Consumers are suing Blue Cross plans in Pennsylvania, saying their cash reserves are way too high for nonprofit organizations. BlueCross BlueShield of Tennessee is posting such good results that it is giving employers a 4.8 percent rebate on their annual premiums, or around $50 to $200 per insured employee. Blue Cross and Blue Shield of Massachusetts has received criticism, too. Boston Mayor Thomas Menino was furious last spring when Blue Cross dramatically raised premiums at a time the state cut financial aid to cities and towns. Blue Cross hit Boston with a 19.7 percent rate increase for HMO Blue, and Menino made a personal appeal to Van Faasen. Van Faasen wouldn't budge and the city awarded all of its managed care business to Harvard Pilgrim Health Care. At a hearing before the Division of Insurance in September, Health Care for All, a nonprofit consumer advocacy group, objected to Blue Cross's plan to raise premiums 12 percent to 20 percent for senior citizens enrolled in Medex, a Blue Cross product designed to bridge the gap between Medicare and the cost of medical care. Van Faasen said he was not experiencing pressure from any particular groups. Dawn Touzin of Community Catalyst, a Boston consumer advocacy group, said the country's Blue Cross plans suffered during the early 1990s as members left to join health maintenance organizations. But eventually Blue Cross plans designed their own HMOs. In recent years, as consumers left HMOs that restricted their access to expensive physicians and hospitals to control costs, Blue Cross plans benefited. "The Blues plans across the country are all doing well, so people have started to examine their behavior," she said.
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