MICHIGAN BUSINESS

Affordable Care Act rates may jump 17.3% in Michigan

JC Reindl

Detroit Free Press

Health plans sold on Michigan's insurance exchange could see an average 17.3% increase next year, and if recent history is any guide, state regulators could approve the insurance companies' rate hike requests without many — if any — changes.

The rate increases would mean a financial hit for taxpayers in general and the 345,000 Michiganders who buy their health insurance on the Healthcare.gov exchange, created under the Affordable Care Act, also known as Obamacare.

"We really try our hardest to keep coverage affordable, but some of the costs are very difficult to manage when you have pharmacy companies going out with 800% increases on the price of their drugs in a year," said Marti Lolli, senior vice president of commercial markets for Grand Rapids-based Priority Health, which is asking for an average 13.9% premium increase for its 2017 individual market plans.

Insurance companies in Michigan have been getting their way in rate cases lately. Last year, the state's Department of Insurance and Financial Services granted every insurer the exact rate increase requested for individual market plans. Those increases averaged 6.5%.

The reasons might be surprising for some: The proposals aren't judged on affordability but on a set of rules and actuarial equations. It might seem like cold math, but state regulators say certain basic financial conditions have to be met, such as determining whether a company can afford to competitively price its health plans and stay solvent.

Rhonda Fossitt, senior deputy director at Michigan's Department of Insurance and Financial Services, said rate reviews occasionally result in a lower increase, but they more commonly find reasons for concern that a premium might be too low for an insurer to afford.

"Quite honestly, I think we get more concerns from the actuaries about companies that may have some solvency issues and maybe their rates aren't high enough," Fossitt said.

The especially large rate increase proposals for 2017, however, will spark an extra close look, said Kevin Dyke, the state's top insurance actuary.

"Until this year, Michigan had not had significant double-digit rate increases," Dyke said. "With the magnitude of the changes this year, I think we'll be taking a closer look at the (actuarial) reports to ensure that we're comfortable they've done a thorough job in reviewing, and may even circle back with some actuaries and ask some questions."

Insurance companies say rate increases are not an attempt to profiteer, but a reflection of market realities, such as the high inflation of health care costs each year, especially for certain prescription drugs. Some insurers also say they've been losing money on plans sold on Michigan's exchange, including Blue Cross Blue Shield, which projects a small loss this year for its individual plans.

The double-digit rate hike requests are also a reminder that the Affordable Care Act was primarily designed to extend health insurance coverage to more people — not necessarily to contain the ever-rising costs of private coverage. Most people who buy insurance on the Healthcare.gov marketplace do not pay full sticker price because they qualify for the ACA's tax credit subsidies.

Of the 14 insurers with individual market plans, 10 are seeking increases exceeding 10%. They include a proposed 13.9% average increase by Priority Health, 18.7% by Blue Cross Blue Shield of Michigan, 16.8% by Health Alliance Plan and 39.2% by Humana.

State regulators are also learning as they go. Even though the ACA dates to 2010, the marketplace didn't sell individual coverage until the 2013-2014 enrollment period, giving actuaries limited data.

Similarly large rate increases were common in the years before the law was passed by a Democrat-controlled Congress and signed by President Barack Obama in 2010. The law proved extremely polarizing politically because of its mandates and penalties. It was narrowly upheld by the U.S. Supreme Court.

Among its more controversial provisions, the law mandated that people buy insurance or pay a penalty, banned bare-bones insurance plans, raised taxes on high-income households, among others. It also gave states the option of expanding Medicaid eligibility to more lower-income people.

The ACA eliminated lifetime benefits limits, stopped insurers from rejecting people with pre-existing conditions and allowed children to stay on their parents' insurance policies until age 26.

Tax credits common, but some pay full freight

In Michigan, 83% of all consumers on the exchange qualify for tax credit subsidies. The average monthly premium for those individuals increased just $4 last year to $106 per month, according to the U.S. Department of Health and Human Services.

The tax credits are based on a percentage of an individual's income and family size and offered to those with incomes up to 400% of the federal poverty line (currently $47,080 for individuals and $97,000 for a family of four.) That means if the sticker price of one's insurance premium goes up, so will the government subsidy.

Yet Michiganders such as Tim Lee, 61, of Escanaba, whose household makes over the tax credit thresholds, must bear the full cost of their health plan and whatever increase gets enacted next year.

Lee, a retired mechanical engineer, noted how Blue Cross Blue Shield is the only insurance option for individual plans in the Upper Peninsula. (Blue Care Network of Michigan is to start offering individual plans in the U.P. in 2017).

He said he pays $671 a month for his "bronze premier" plan that has a hefty $6,300 deductible, which means he generally must spend that much out of pocket before insurance kicks in. So he wasn't happy to learn that Blue Cross wants to raise its individual plan rates by 9.6% to 19.2% next year, or an average of 18.7%. The proposed increases would affect 116,000 covered individuals, including Lee.

"Frankly we can afford it, which is why we're not getting any subsidies," said Lee, whose wife qualifies for Medicare. "But it still is a kick, to say the least."

More for Medigap

Those who buy individual market plans aren't the only Michigan consumers facing big rate hikes next year. Nearly 200,000 seniors can expect to pay more for their Medigap supplemental health insurance plans when Blue Cross goes forward with a long-awaited rate increase that does away with the program's historically below-market rates.

Insurance companies generally gave the same justifications to state regulators last month when they submitted their 2017 rate increase requests: unrelenting health care inflation; exploding prices for specialty drugs like for hepatitis C; higher-than-anticipated claims from the newly insured, and the expense of covering people who sign up for an individual plan and then drop it once they get a pricey procedure done.

Blue Cross says it has been losing about 20% of its annual customers in the months following the conclusion of each open enrollment period. This was unexpected. "They just get the services and then drop coverage and end up paying a partial penalty at the end of the year," said Rick Notter, Blue Cross' director of individual business.

The full ACA penalty this year for skipping insurance is $695 for an adult or 2.5% of household income, whichever is greater.

Another big factor is that 2017 marks the expiration of the health care law's temporary "reinsurance" program that distributes money to health plans whose members have very high medical claims.

Priority Health, whose Obamacare plans cover 113,100 Michiganders, says the end of reinsurance accounts for more than 6 percentage points of its requested 13.9% increase next year. The skyrocketing price of some drugs is another big reason for the proposed increase, said Lolli, the Priority executive.

"Every year medical costs go up, and the main driver we are seeing right now is specialty medication," she said. "The drug companies are increasing their prices even for drugs that have been in the market for a couple years, and we're seeing this for generic drugs as well."

Michigan consumers aren't the only ones facing significantly higher health insurance premiums. The Avalere Health analysis of 2017 rate requests for individual plans in 14 states, including Michigan, found that the average "silver" plan (the second cheapest class after bronze) would rise 11% in 2017.

There have been few reports of blatant profiteering by insurance companies in the individual market. It has been more common for insurance companies, such as UnitedHealthcare, the nation's largest health insurer, to pull out of the individual market citing higher-than-expected financial losses.

To guard against high profits, the ACA mandates that insurers spend at least 80% of their individual market premium dollars on actual claims and not on executive salaries or administrative overhead. Companies that break that "medical loss ratio" rule must issue customer rebates.

Insurers in Michigan had a negative 5.6% underwriting margin in 2015 on their individual market plans — meaning overall they lost money, according to the Michigan Health Market Review report by consultant Allan Baumgarten.

Nevertheless, Michigan still has a considerable amount of competition and insurance options on the exchange, although less so in rural areas, said Joshua Fangmeier, a senior health policy analyst at the Center for Healthcare Research & Transformation, an Ann Arbor-based think tank. A total of 199 different plans are proposed for 2017.

Getting it right

The rate review process in Michigan has been under way since June 20, when insurers had to submit their 2017 filings for individual plans to the state's insurance department. Dyke, the chief actuary, said insurers have often sent their requested rates at the last minute so that competitors couldn't adjust their rates in response.

The complex filings are then reviewed by seven outside actuarial firms that write up reports recommending approval or disapproval. The actuary reports are then reviewed by the department's internal analysts. They focus on whether the rates are properly justified and if the insurance companies can support the actuarial assumptions underlying them, he said.

"It really doesn't matter the magnitude of the rate increase," Dyke said. "We just want to be sure it's right — that it produces a reasonable rate where the premiums are reasonable related to the benefits being offered."

"We like to think we wouldn't have any excessive rates after our review," he added later.

Baumgarten, the health care industry consultant, said state-level insurance regulators generally adopt one of two guiding philosophies in rate review: consumer advocacy or a fiscal focus in which "we protect the public by making sure the insurance companies stay solvent."

In most states, a rate increase request is "sort of the starting point for the negotiation" with regulators for determining the final, approved rate, Baumgarten said. Sometimes it results in a higher rate to guard against insurers going bankrupt.

Once the state finishes its review, the 2017 rates will be sent to federal regulators at the Centers for Medicare & Medicaid Services, commonly called CMS, and given a final look before the plan offerings go up on the Healthcare.gov exchange for open enrollment that begins Nov. 1.

Dyke said he was unaware of any instance in which federal regulators second-guessed Michigan on individual plan rates.

"If the state deems it to be a reasonable rate, it would be hard for CMS to say it's not reasonable," he said.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter@JCReindl.