Premera Blue Cross Moderates Warning About Rates

March 22--Premera Blue Cross, the largest health insurer in Eastern Washington, has toned down earlier warnings of "staggering" rate increases that it had blamed on federal health care reform and instead said individual policies could rise by an average of 15 percent.

"It's clearly moving in the right direction," Insurance Commissioner Mike Kreidler quipped when asked about the predictions.

In July, the business-oriented Washington State Wire quoted Jeff Roe, a Premera executive, as predicting rate increases of 50 percent to 70 percent. But this week, Premera spokesman Eric Earling projected increases of 16 percent to 47 percent. By Wednesday, he said projections showed an average 15 percent increase.

Premera's biggest competitor in Washington is keeping mum on potential rate increases.

"We are not talking," said Regence Blue Shield spokesman Rachelle Cunningham, until next year's rates and plans are submitted to the state for approval.

Although both Regence and Premera are nonprofits, each has accumulated a surplus exceeding $1 billion -- more than they need to cover risks, according to Kreidler. Last week, however, the Legislature declined to act on an industry-opposed bill that would have allowed Kreidler to consider the surpluses once he receives and evaluates next year's proposed insurance rates.

Those rates, Earling said, are still being prepared.

But if next year's rates haven't been prepared, what's the story behind Premera's alarming predictions?

Individual insurance policies represent only 5 percent of the market.

And there's a problem with individual policies: they don't cover much, Kreidler said. It's a problem the federal law was designed to fix. It's the fix that triggered Premera's warnings.

Washington state Sen. Karen Keiser, a leader in health care reform in the state, said the buyers of bare-bones individual coverage "buy it thinking they have insurance, then they realize they don't really have insurance, they are going to be bankrupt" when they experience a medical crisis and their insurance won't come close to covering the bills.

According to Earling, the status quo plan used in Premera's prediction was from the most popular of Premera's LifeWise coverage plans for individuals. These plans feature high deductibles, ranging from $1,800 to $10,000 per year. The most popular plan has a $2,500 deductible and covers about 35 percent of customers' medical bills, he said.

Beginning next year, federal law will require no less than 60 percent coverage of customers' costs.

Plus, federal law will require coverage of 10 "essential health benefits" such as maternity care, which often is not covered in individual health plans, Kreidler said.

So while rates could go up, Kreidler said, consumers' medical costs will go down because their coverage will increase. "They're going to have real coverage, for once," he said.

Premera's predictions, Earling said, reflect what it could take to enhance the benefits of Premera's individual health insurance policies so they will meet the minimum requirements in the new federal laws.

Earling also acknowledged that new federal subsidies will reduce the out-of-pocket insurance cost for many. Some will see "a dramatic drop" in premiums, he said. But others, he warned, could see "very significant increases."

Roughly half of those who buy individual insurance will qualify for the federal subsidies, Kreidler said. Available to those with incomes up to 400 percent of federal poverty level ($94,200 for a family of four), the subsidies can be obtained only on the state's soon-to-be-unveiled insurance-buying website.

Those whose income is too high for a subsidy are "a relatively small number but a sensitive one that my heart goes out to," Kreidler said. It's those consumers who could face a rate increase -- which is nothing new in this market segment.

Buyers of individual insurance, Kreidler said, have been hammered with steep rate increases and benefit cuts -- going back to well before federal reforms were enacted.

In Washington, individual health plans raised rates an average of 18 percent in 2008, 16.5 percent in 2009 and 13 percent in 2010. For 2013, before most of the federal law had taken effect, Premera's LifeWise coverage raised rates an average of 22.75 percent, according to Kreidler's office.

So, how will rates actually change for 2014?

If insurance carriers "come in with too high a price," Kreidler said, they'll face tough sledding on the state insurance-buying website, where plans will be standardized for easy comparison and must compete with one another. "We'll see a lot of shopping going on, with people looking at their choices," Kreidler said.

On one point, he and the insurance carriers are in agreement.

They're worried about whether individuals who buy insurance next year will include healthy people or only those who are sick. When Premera forecast average rate increases of 16 percent to 47 percent, the lower number was based on an assumption that lots of people, both healthy and unhealthy, will buy individual insurance next year. The 47 percent forecast was based on an assumption that only sick people will buy insurance next year.

If healthy people were scared away by the fear of high rates, Kreidler said, it could indeed be costly to insure a pool dominated by the sick.

But this summer, predictions will be a thing of the past. By May, insurers must turn in their rate proposals. By July 31, Kreidler has to make his final decisions on the rates. Then the rates will go to the new insurance-buying website, where health coverage plans will compete for the public's business.

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