The basic cost of a health care plan for an individual or small business in Massachusetts will increase, on average, by only a small amount in the beginning of 2014, according to rates recently approved by the state Division of Insurance.
State officials point to the new rates as an example of Massachusetts' success in curbing the growth in health care spending.
“I think it means we’re continuing to make progress in holding down health care costs,” said Barbara Anthony, undersecretary of the Massachusetts Office of Consumer Affairs and Business Regulation. “It is one of the lower quarters that we’ve seen if you look over the past three years.”
However, as the state begins to implement parts of the national health care reform law, the change to the “base rate” used to calculate health insurance premiums is only part of the picture. The base rate does not include a part of the law that could have the biggest impact on rates for small businesses. The new numbers also reflect a large variation in price changes among different carriers – something experts say is likely caused by the Affordable Care Act and will be even greater once the final premium rates are known.
“(Looking at the base rate is) like looking at the foundation of a house and expecting somebody to think that’s what the whole house is going to look like,” said Joshua Archambault, director of health care policy for the conservative Pioneer Institute. “It’s just the foundation. The story of the Affordable Care Act in Massachusetts is one of big winners and losers. Some people’s premiums will go down and some people’s premiums will go up.”
The “base rate” refers to the basic amount of money a health care plan will cost, before taking into account “ratings factors,” things like age, geography or the size of an insurance pool. The base rate reflects the prices set by doctors and hospitals, changes in the amount of health care that is delivered, and fees and taxes charged by state and federal government.
According to the Division of Insurance, the average base rate for health insurance premiums in the individual and small group market will increase by 1.9 percent in the first quarter of 2014. That is the third-lowest quarterly increase since mid-2011.
That number does not reflect an across the board trend, but indicates a few insurers posting large decreases in their base rates, while most show modest increases. Blue Cross Blue Shield Massachusetts, the state’s largest insurer, reported a drop of nearly 25 percent, while Boston Medical Center Health Net Plan and Neighborhood Health Plan reported decreases of nearly 10 percent. However, nine of the 14 insurers who reported their rates said they will increase premiums, generally by between 4 and 5 percent.
The modest average increase is consistent with a trend of low single digit increases since mid-2012, following a period of much larger increases. Experts point to different explanations: lower cost contracts between insurers and providers; less use of health care services; new plans offered by insurers that are cheaper but have higher deductibles or co-pays or limited networks; and attempts by insurers to move away from a fee-for-service payment model.
Anthony also pointed to the passage of legislation aimed at lowering the state’s high health care costs. A 2012 health care cost containment law set a yearly target for growth in health care costs that is tied to economic growth. The bill requires doctors to give patients binding cost estimates, provides money for technology like electronic medical records, and requires insurers to set up alternative methods of paying for care, rather than traditional fee-for-service. In 2011, the legislature passed a law requiring insurers to spend a certain percentage of premiums on health care costs, limiting spending on overhead.
However, one difference in 2014 is the implementation of parts of the Affordable Care Act. Eric Linzer, senior vice president of public affairs for the Massachusetts Association of Health Plans, said the new law is leading to the variability in rates.
“There are costs associated with the Affordable Care Act, and the impact of those costs varies widely depending upon the plan,” Linzer said.
The base rate numbers for 2014 reflect a new “risk adjustment” factor included in the Affordable Care Act, in which insurers that cover a higher risk population get additional money, taken from those who cover a lower risk population.
Jim Kessler, general counsel at Health New England, which is predicting a 4.3 percent increase in its base rate, agreed with Linzer that the variance points to the ways in which the risk adjustment and other factors will impact different plans. “There are a bunch of other miscellaneous costs that will have different effects on different carriers,” Kessler said.
Sharon Torgerson, a spokeswoman for Blue Cross Blue Shield Massachusetts, said the company’s large drop in base rates reflects lower cost provider contracts, a move toward a new model of payment that is not fee-for-service, the growth of less expensive insurance products and less utilization of medical care during the recession. She said the numbers also include new Affordable Care Act rules such as risk sharing and benefit changes, though there is still uncertainty regarding how the new law will impact the final rates for any given customer. “Increases for specific small businesses customers and individuals will vary depending on the plan selected and their specific demographic profiles,” Torgerson said.
The base rate numbers do not reflect a provision of the Affordable Care Act that limits the number of ratings factors an insurer can use. That change is added on top of the base rate, and is likely to cause premiums to drop further for some and rise for others.
Kessler said particularly once that factor kicks in, “Even though the average stays where it is, the difference between people who benefit the most and suffer the most is quite large.”
A study commissioned by the Massachusetts Association of Health Plans and Blue Cross Blue Shield of Massachusetts, estimated that once all the factors are taken into account, the Affordable Care Act will raise premiums for individuals and small groups by an average of 3.7 percent in 2014. The cost of premiums will vary widely, with some insurers showing a 20 percent decrease and others a 26 percent increase, with wider variations for individual buyers.
Anthony stressed that no individual or business has to stick with an insurer whose rate is too high. “If you’re a company or an individual, and you see your insurance bill going up in ways you’re not happy with, you need to go to the Connector or back to your broker or to another company, and shop around for a product and deal that’s better suited to your needs,” she said, referring to the Health Connector, Massachusetts’s insurance marketplace.
Jon Hurst, president of the Retailers Association of Massachusetts, said the low increase in base rates is a good sign, but businesses need to see the final numbers. “These (base rate) numbers are important in that overall costs are moderating and that’s a good thing, but the bottom line costs of what small businesses are seeing in monthly premiums, we won’t see for another month,” Hurst said. “For budgeting and affordability from the point of view of small employers and employees, those are the real numbers we need to see.”
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