Plan Changes Are Coming!
Change - It Is A-Comin'...
On 10/1/2010 the new Texas health insurance plans will be issued by Texas health insurance providers. New enhancements to insurance plans are mandated by the Health Reform Act, most notably they must now provide unlimited preventative care benefits paid for at 100% by the insurance firms. Other changes are that insurance companies must now operate with at least an 80% MLR (Medical Loss Ratio). The MLR requirement states that 80% of each dollar received in the form of premiums must be used to pay health claims for their members. Many view the MLR rule an attempt by the government to reduce profit margins and also administration costs of the insurers.
There Is Always A Consequence For Every Action
I have been dreading the coming of this date for several months for a major reason, and that is simply that the consumer was going to foot the bill for these improved benefits. Don’t get me wrong, I like the added coverage and the provision will drive patients to obtain preventative or wellness checkups. In the past we have noted that many of our clients did not see the doctor for these important visits because they feared they might need to pay out of pocket for their exams. On 10/1/2010 this problem will be resolved. Now that we are nearing the deadline and we have new plan descriptions and pricing information available, we can now evaluate the consequences of the legislation.
Nothing Is Ever Free
As of 8/24/2010, many of the plan summaries became available. These summaries highlight the benefits that each plans offer. We can now confirm that all of the carriers we use will offer the preventative care benefit at no cost to their members. What has been the impact on pricing?
Based on a very small sample size (two clients) I have done some analysis to examine the pricing changes and we do find a few interesting results. No matter how granular we get, the quick and easy answer is that everyone will pay more for every plan. As you might expect, there are varying degrees of price increases. These increases are based upon who is applying, which plan they are selecting, and finally which company is offering the insurance.
The greatest price increases are coming to applicants that have children. As we discussed in a previous blog post this month, kids now must be accepted even if they are extremely ill. The effect of requiring carriers to take on this added risk is that every child under 19 now is going to bear the financial burden and will cost more to insure.
I requoted a family that I am working with now and ran the quote for a 9/1/2010 start and also a 10/1/2010 start. The resulting price increases ranged from a mild 2.3% increase for an HSA policy with United Health One (UHC) all the way to an amazing 26.7% increase for a Blue Cross Blue Shield policy.
Single Male Age 38 Results
The single male quote I ran for the same dates produced a range of price changes. This client saw an increase of only 1.4% with Humana and a staggering 21.2% hike with Blue Cross.
It's All About The Children
I think there are several factors at work in the pricing hikes. First as I mentioned, families with children under 19 are going to get hammered! There is not any chance to escape this, so much of the pricing changes are related to the requirement to issue coverage to children with pre-existing conditions.
In Some Cases It's All About The Plan Choice
In a deeper review within each quote I noticed that almost every carrier tried to apply a rate up that was pretty uniform across all plans. I am suggesting that they often charge the same increase for plans that have $5000 deductibles along with those that had $500 deductibles. Blue Cross Blue Shield of Texas was the lone exception to this observation. Blue Cross tended to punish buyers of plans that were cheaper and offered fewer benefits while raising rates less on more expensive plans. The plans that received the greatest pricing increases were the Blue Cross Saver plans. In almost every case the higher deductible plans were hit with 16% or greater rate increase (for both the single male and the family). Going further, we can guess that they need to get compensated for the enhanced benefits and must offset those costs. I think another way to state this is that those Saver plans probably operated with less margin than the other plans like the Select Choice plans and therefore needed premium increases to offset the higher anticipated claims cost.
It's Also About The Company
Finally, I wanted to highlight that several companies didn’t really increase their pricing much. United Health One (UHC) and Humana provided the lowest increases ranging from 1.4% to 6% in both examples. Cigna increased rates in the range of 10%-12% and Blue Cross averaged around 15% to 20% increases.
Why would Humana and United Health increase their premiums less than the competition? I think this is pretty straightforward. Humana and UHC didn’t need to raise rates because they were already significantly more expensive than the other carriers. While our agency has sold many policies at all of the companies I’ve mentioned, Blue Cross and Cigna have earned a significant amount of those polices in past years simply because they were more affordable. Humana and UHC were often priced so high they could not even be considered. Finally, Humana and UHC had to do small tweaks to their plan offerings to accommodate the mandate to offer unlimited preventative care services. Their changes were small because their previous plan offerings were much more generous and provided more comprehensive benefits than Blue Cross. Clients with Blue Cross were saving because they were not receiving the same level of plan coverage. Due to the price increases there will be a narrowing of the gap between firms.
In closing, I’ll bring up one last idea that many health brokerages and agents typically won’t discuss with their clients. In an effort to control costs and meet the 80% MLR targets, all carriers have announced that they are slashing commissions on most health products, with the cuts to new compensation as deep as 50%. What this means is that while your premiums are increasing, your agent is facing an important decision regarding the viability of his health insurance business. Many agents we speak with have suggested that they may simply stop selling policies due to the reduction in income and the unknown circumstances regarding the implementation of the final provisions of the Health Reform Act in 2014. Other agents are beginning to diversify their practices to home and auto coverage sales, or attempting to focus on life insurance.
Our firm represents a significant number of Texans each year and we know that our clients need our guidance, expertise, and commitment to serving them. If you find that your agent no longer is concentrating on your needs, providing on-going service, or participating in the health business please call us, we’ll be here to help even after 10/1/2010!
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As of the publishing of this article, Aetna had not updated its plan summaries and pricing. We did not include their plans in the analysis.