growth-chart-300x169-2584357The double-digit premium hikes looming for non-group health insurance consumers in New York appear to be driven more by state and federal government policy than by the underlying cost of medical care.

In their recent filings with the state Department of Financial Services, health plans estimated that their claims would grow between 4 percent and 10 percent in the year ahead – for a weighted average of 6.2 percent.

Yet they’re proposing rate hikes that average 16.6 percent (see chart), which is more than double the medical trend. Plans attributed much of the remaining 10 points to other factors, including rising taxes, shifting regulation, and falling enrollment.

screen-shot-2017-06-13-at-6-09-02-pm-9464364
Source: Health plan filings with the NYS Department of Financial Services

The rate requests for small group plans showed a similar but less dramatic pattern: The average medical trend was 8.7 percent, and the average premium increase was 11.5 percent.

The biggest non-medical factor cited by plans was a provision of President Barack Obama’s Affordable Care Act known as risk adjustment. Under this program, plans with younger and healthier customers within each state are required to transfer part of their revenue to plans with older and sicker customers.

In theory, the program is meant to discourage insurers from cherry-picking the less expensive customers. In practice, it has led to extraordinary costs for some companies. Long Island’s CareConnect, for example, reports that risk adjustment payments for 2016 equated to 49 percent of its small-group premiums and 17 percent of its individual premiums.

The program entails “scoring” the health condition of each insured customer. Younger companies like CareConnect and Oscar contend that this puts them at a disadvantage, because they have less data about their members than their bigger, more established competitors, such as UnitedHealthcare and its subsidiary, Oxford Health Insurance.

In response to these complaints, risk adjustment transfers for 2018 will be trimmed 14 percent by the federal Centers for Medicare & Medicaid Services, and another 26 percent by state officials at DFS.

However, risk adjustment is a zero-sum program. The combined 40 percent cut to the program will save money for companies on the paying end of the program, but also lower revenue by the same amount for plans on the receiving end – which, in theory at least, are serving a sicker, costlier group of people.

The outcomes of this cost shift varied widely. Hardest hit was HealthNow New York, which consists of BlueCross BlueShield of Western New York and BlueShield of Northeastern New York. It requested non-group rate hikes averaging 47 percent – the highest in the state – and blamed half of that amount on changes to risk adjustment.

Similarly, Independent Health Benefits Corp. of Amherst said lost risk adjustment money accounted for 12 of its 30-point percent average increase for non-group coverage.

On the other end of the spectrum, Fidelis Care said its reduced costs under risk adjustment lowered its proposed increase by 10 to 11 percent.

CareConnect said in its filing that it was “gratified” by the relief from DFS, but did not specify the effect on its rates.

Another factor in premium hikes mentioned by some plans was the return of a premium tax imposed by the ACA. Washington lawmakers suspended the levy during 2017. But barring further action, it’s due to return in 2018, adding a percentage point or two to premiums.

A third factor is declining enrollment in commercial coverage through the state’s Obamacare exchange, the New York State of Health. The number of New Yorkers who signed up for commercial individual coverage dropped 11 percent in the most recent enrollment period. This is likely due to competition from the state’s Essential Plan, which costs no more than $20 a month, and disenchantment with the rising premiums and growing deductibles of Obamacare.

As a result of this erosion, Fidelis – the largest provider of individual coverage on the exchange – projected that the remaining population would be 4 percent to 5 percent more expensive.

Several plans also singled out a subcomponent of the medical trend – the cost of prescription drugs as one of their fastest-growing expenses. Excellus BlueCross BlueShield of Rochester projected its overall drug costs would jump 14 percent, including a 23 percent spike for cutting-edge specialty drugs used to treat cancer and other severe conditions:

Substantial savings have been achieved over the years with broad acceptance of competitively manufactured generic medicines. However, that trend of bringing down costs for consumers is being eclipsed by another trend having to do with the cost of brand drugs with patent protection and no generic alternatives.

The proposed rates affect about 350,000 New Yorkers who buy individual coverage (both on and off the exchange) and 1.1 million in state-regulated small groups of 100 employees or less.

About half of those buying individual coverage through the exchange are eligible for federal tax credits that would offset the impact of rate increases.

The requests are subject to approval by officials at DFS. The department dramatically reduced plans’ proposed rates in 2015 and 2016 but, with most plans losing money in the individual market, gave them most of what they asked for in 2017.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

You may also like

‘Clusters’ Drive a Widespread Surge in New York’s Coronavirus Infection Rates

New York's coronavirus infection rates have surged to their highest levels since May, pushing 10 counties – including Brooklyn, Rockland and Orange – above a threshold that the Cuomo administration uses to justify travel restrictions on other states. Read More

A Federal Emergency Rule Is Inflating New York’s Medicaid Enrollment

Strings attached to federal coronavirus relief funding appear to be inflating New York's Medicaid enrollment – and costs – at a time when the state faces unprecedented deficits. Read More

The CDC’s Nursing Home Death Count Is Even Less Complete Than New York’s

The result is that a major public health disaster affecting New York's nursing home residents is not being accurately documented by either of the agencies responsible for protecting them – because state officials are refusing to share the true numbers, and federal officials haven't yet asked for them. Read More

The DOJ’s Probe of Coronavirus in Nursing Homes Appears to Leave Out Most Victims

The U.S. Justice Department's newly announced inquiry into coronavirus in New York's nursing homes comes with a crucial caveat: It will look only at government-operated facilities, which represent a small fraction of the state's nursing-home industry. Read More

State’s Per-Recipient Medicaid Spending Rises to 3rd Highest in the U.S.

New York's per-recipient Medicaid spending has soared to the nation's third highest rate, a sign of fiscal trouble for one of the state's most important programs. Read More

New York Medicaid Spending Is Projected to Jump 6% in Fiscal Year 2021 (UPDATED)

Despite a round of cost-cutting this spring, New York's Medicaid spending is on track to jump by 6 percent this year thanks to a massive influx of federal aid. Read More

New York Has Widened Its Lead in Per-Capita Spending on Medicaid

New York's per-capita Medicaid spending soared to more than double the nationwide rate in 2018, widening its gap with the other 49 states. Read More

New York’s Medicaid Enrollment Surges to an All-Time High

New York's Medicaid program is growing at its fastest rate in six years, with a quarter-million additional enrollees landing in the safety-net health plan during the first three months of the coronavirus pandemic.  Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130
E-Mail: info@empirecenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.