DFS rule drives premium hikes

by Bill Hammond |  | NY Torch

As health plans across the state announce their requested premium increases for 2018, the Cuomo administration’s policy decisions are taking more blame than Washington’s.

Buffalo’s HealthNow, which is seeking an average increase of 48.8 percent for individual coverage, attributed more than half of the hike to an emergency rule change by the state Department of Financial Services.

Industry officials have also pointed to DFS’s heavy-handed suppression of individual rates in two of the past three years, which led to financial losses that are driving plans to seek bigger increases now.

Rates for large groups of more than 100 employees, which are not regulated by the state, have been relatively stable.

Other states are seeing double-digit increases for 2018, too, in part because of uncertainty about the near-term future of former President Barack Obama’s Affordable Care Act.

The Trump administration has signaled that it will soften enforcement of the ACA’s individual mandate, which could lead healthier people to drop coverage and create upward pressure on premiums. The administration has also threatened to withhold billions in subsidies targeted to plans with lower-income customers, which were authorized by the ACA but challenged in court by the House GOP.

Third, a federal premium tax that was suspended for 2017 is currently due to go back into effect in 2018, which would add about 3 percent to premiums nationwide.

In New York, however, DFS instructed plans to assume that Obamacare will remain fully in effect through 2018, and to calculate their proposed rates accordingly. Plans were asked to outline the potential impact of federal changes in accompanying documentation, but not to reflect them in their premiums.

Thus, the hikes seen so far in New York mostly reflect a combination of state policy choices and the underlying growth of medical costs.

Rate applications were due to DFS on May 15, but officials have delayed posting them on their website – leading to a public rebuke Wednesday from the New York Health Plan Association.

From the published reports available so far, it’s clear that a DFS rule change regarding Obamacare’s “risk adjustment” program was a significant factor for some plans.

To discourage insurers from trying to cherry-pick customers, the risk adjustment program provides for plans with healthier members to transfer a share of their revenue to plans with sicker members. A similar system has been used for years in the Medicare Advantage program.

The ACA program has been a target of complaints from some insurers, mostly newer and smaller plans that faced steep net payments. In response, DFS used its regulatory authority to reduce the transfers – first by 30 percent in the small-group market for 2017, and now by a total of 40 percent for both the small-group and individual markets for 2018. (The 40 percent includes a 26 percent adjustment by the state on top of a 14 percent reduction by the federal Centers for Medicare & Medicaid Services.)

But risk adjustment is a zero-sum program – meaning that DFS’s change benefits some plans at the expense of others. As mentioned above, Buffalo’s HealthNow said lost risk-adjustment funding accounted for more than half of its 48.8 percent average increase in individual premiums.

Likewise, Amherst-based Independent Health told the Buffalo News that the change to risk adjustment accounted for 12 points of its requested individual premium hikes, which averaged 25.9 percent.

Among plans benefiting from the DFS rule change is Long Island’s CareConnect. Despite the relief from risk adjustment costs, however, CareConnect is requesting an average 30 percent increase in individual premiums – and identifying risk adjustment as a threat to its long-term solvency.

Another Albany-related factor in rate increases is New York’s “prior approval” law, as reinstated in 2010, which empowers DFS to regulate prices for individual and small-group health insurance. The department has used the law to significantly reduce requested rates, especially for 2015 and 2016, leading to financial gaps that plans are now trying to close.

Beyond these short-term factors are underlying features of state law and regulation that contribute to New Yorkers paying some of the costliest health premiums in the country.

The state’s Health Care Reform Act, for example, imposes almost $5 billion a year in taxes on health insurance that exist in no other state. They were due to expire at the end of this year, but Governor Andrew Cuomo and the Legislature chose to extend them through 2020 – thus missing an opportunity to lower health-care costs for millions of New Yorkers.

New York also has a long list of existing coverage mandates – which, according to a 2003 industry study, added about 12.2 percent to the price of insurance. Albany has added dozens of additional mandates since then.

In 2007, lawmakers agreed to establish a commission to study the costs and benefits of such mandates. But it was never fully appointed and never met. Earlier this year, Governor Cuomo used his line-item veto to remove unused funding for the panel from the state budget.

Meanwhile, at least 100 additional insurance mandates are pending before the state Legislature.

Beyond policy issues, plans say the major factor driving premiums higher is the ever-rising cost of medical care. Both increasing fees for providers and higher utilization of medical services create upward pressure, offset to some degree by increasing deductibles and copayments.

Insurers say their fastest-growing expense is for prescription drugs, due to the introduction of expensive new medicines and price increases for existing ones.

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