What is the real inflation of healthcare services?
Anthem cited rising hospital price inflation as a justification for filing rate increases upwards of 25% for some individual and family plans in California this November. While there is no doubt that healthcare costs are escalating, there may be other reasons beyond pure inflation that is driving Anthem and other carriers to seek rate increases.
Sifting through the numbers
Within the dense proposals to raise premiums submitted to the California Department of Insurance, the carriers must quantify those areas that are driving the premium rates up or down for each benefit category. Additionally, they must separate the Medical Trend Factor by Aggregate Benefit Category into cost increases due to member use of services and increases from inflation.
| Anthem Blue Cross Rate Filings Proposals 2013 | ||||
| Filed with California Department of Insurance | ||||
| Tracking Number | Type | Average Annual Rate Change | Covered Lives | Effective Date |
| HAO-2012-0190 | Individual | 26.0% | 340,085 | 2/1/2013 |
| HAO-2012-0189 | Individual | 24.6% | 296,059 | 2/1/2013 |
| HAO-2012-0185 | Individual | -2.1% | 1659 | 1/1/2013 |
| HAO-2012-0178 | Small Group | -2.1% | 7610 | 1/1/2013 |
| HAO-2012-0177 | Small Group | 6.5% | 52,422 | 1/1/2013 |
| Projected Medical Trend by Aggregate Benefit Category for PPO plans | ||||
| Inpatient Hospital | Outpatient Hospital | |||
| Use | Inflation | Use | Inflation | |
| HAO-2012-0190 | 0.1% | 9.7% | 6.7% | 12.9% |
| HAO-2012-0189 | 0.1% | 9.5% | 6.7% | 12.4% |
| HAO-2012-0185 | 0.3% | 6.7% | 1.4% | 7.1% |
| HAO-2012-0178 | 0.2% | 8.9% | 1.6% | 8.5% |
| HAO-2012-0177 | 8.0% | 1.8% | 5.0% | 4.4% |
| Physician Services | Prescription Drug | |||
| HAO-2012-0190 | 5.2% | 6.7% | 4.7% | 12.7% |
| HAO-2012-0189 | 5.2% | 6.4% | 4.7% | 12.2% |
| HAO-2012-0185 | 0.4% | 2.9% | 0.7% | 5.1% |
| HAO-2012-0178 | 1.7% | 3.8% | 1.5% | 7.9% |
| HAO-2012-0177 | 0.0% | 1.1% | 7.3% | 18.8% |
| Laboratory Tests | ||||
| Use | Inflation | |||
| HAO-2012-0190 | N/D | N/D | ||
| HAO-2012-0189 | N/D | N/D | ||
| HAO-2012-0185 | 0.4% | 4.1% | ||
| HAO-2012-0178 | 0.2% | 5.2% | ||
| HAO-2012-0177 | 0.0% | 1.1% | ||
Member use of benefits
Anthem anticipates, under these rate filings, that Individual and Family Plan (IFP) members will increase their use of of outpatient procedures, + 6.7%, and continue to avoid inpatient hospitalizations, +0.1%. A driver might be the inclusion of maternity coverage as a benefit for all new IFPs in California. Similarly, Anthem projects that IFP members will make more doctor office visits, +5.2% Physician Services. This is most likely because of the no cost preventive office visit benefit from the ACA. The higher rate of the Small Group (SG) members for Inpatient Hospital and Prescription Drug usage is probably a function of lower deductibles within those plans and members with existing conditions that need prescription medications.
Inflation Factors
I am not an actuary or a statistician. However, it is odd that Anthem pegs inflation so much higher for IFP than the two filings for SG. It is worth noting that two SG filings and one IFP have effective dates of January 1, 2013, while the two most recent IFP rate proposals are effective February 1, 2013. Although, the rates charged by hospitals, surgery centers, doctors and pharmacies have all been negotiated by Anthem. The increase of these costs is from higher negotiated rates, excluding emergency care at out-of-network providers.
Uneven inflation rates
Why would the hospital charges for an IFP member be rising faster than a SG member? Anthem claims 9.5% vs. 1.8% inpatient inflation and 12.4% vs. 4.4% outpatient inflation for IFP vs. SG members. The trend of price inflation is similar for Physician Services as well, 6.4% vs. 1.1%. On the Prescription Drug inflation trend, like member use, it is higher for the one SG rate filing. This may be due to SG plans having a better prescription drug benefit and higher utilization.
IFP approaching SG benefit levels
What is interesting is the comparison between SG rate proposals and those for IFP. Premiums for the IFP plans are rising much faster than the SG. This is not necessarily a surprise because of the new Affordable Care Act (ACA) regulations and new laws passed by California. In short, IFP benefits are rapidly approaching the level of SG benefits with the inclusion of coverage for maternity and other mandates.
Are preventive health visits driving costs?
Traditionally, SG rates had always been more expensive for an individual because SG plans were guarantee issue (no denial for pre-existing conditions) and they generally covered maternity. SG plans also usually had a higher utilization rate because members could see a doctor or have an outpatient procedure done without exorbitant deductibles. The higher member use in SG plans has already been factored into the rates. Members of IFP are slowly realizing that their health insurance covers preventive office visits at no cost under the ACA. Consequently, IFP members have been and will be accessing more healthcare services similar to SG members.
Maternity coverage for all
Also worth noting in the rate filing by Anthem was the following description of other factors influencing escalating premiums.
HAO-2012-0189 Individual and Family Plans
22) Describe any changes in enrollee/insured benefits, including but not limited to
hospital inpatient, hospital outpatient (including emergency services), physician
and other professional services, laboratory services, radiology services, and other
benefits (describe), compared to the prior year, associated with the submitted rate
filing, and quantify the impact of each change on each of the rates included in the
filing.
Response: Benefits for these policies have been changed to conform with
legislative mandates for maternity and women’s preventive health.
Please see the actuarial memorandum for this filing.
8. Other Claims Impacts
The following claims impacts are assumed in the lifetime loss ratio calculation:
Maternity Benefits effective on July 1, 2012:
In accordance with Senate Bill 222, chaptered 10/06/2011, all forms must provide
coverage for maternity services. These benefits were added for all forms in this filing
on July 1, 2012 and were described in the previous rate filing (PF-2011-02237). The
impact to claims is assumed to be 5.0% for the Non-Grandfathered Open block.
Additional Women’s Preventive Health Benefits effective on January 1, 2013:
In accordance with the Affordable Care Act and new guidelines adopted by HHS, we
will be providing additional preventive health benefits for women without cost
sharing. The additional cost of expanded coverage is assumed to be $2.06 pmpm for
all projected months (2013 – 2025).
Individual Family Plans morph to Small Group Plans
Inflation is pushing health insurance rates higher. But as IFP policies add more of the essential health benefits contained in the ACA, and become more like a SG policy, it is only understandable that expanded benefits will translated into higher rates. On the bright side, California has relatively stable SG rates even with guarantee issue for folks with pre-existing conditions. These small group plans should serve as a model for the new Covered California health benefits exchange as individual and family plans become guarantee issue in 2014 and have virtually the same benefits the employer sponsored plans have included for years.