It looks like Harvard Pilgrim will be raising premiums moving forward but will NOT retroactively bill for April, May and June. Full press release here – Harvard Pilgrim MA DOI Rate Dispute 070210
Good afternoon! I’d like to provide an update for everyone on the current battle between Massachusetts Health Insurance Companies and the Commonwealth’s Division of Insurance on rate approvals and disapprovals while giving small business employers some practical advice and well thought out strategy on how to move forward. But first I’d like to give the back story of how we got to capped rates and why I’m blogging about it today.
In the first quarter of 2010 our Attorney General, Martha Coakley, and her staff were tasked with the job of analyzing what was causing higher than normal rate increases in the past few years for Massachusetts businesses. She and her office completed their analysis and released a report. Here are a few quotes that do a great job summarizing their findings:
”price increases from providers caused most of the increases in health care costs in Massachusetts in recent years, and that prices were correlated to the market heft of providers.”
(Taken from The Telegram & Gazette – http://bit.ly/dlUA0k – in a great article that was printed leading up to the Governor encouraging the Division of Insurance to apply pressure to the insurance companies on behalf of small businesses).
“Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service.”
(Taken from a press release on the Attorney General’s website highlighting the major findings of the report with a link to the full report – http://bit.ly/dbjCU4
While this was going on in January and February, April rates for small businesses were released to brokers and small businesses for review. These rates were higher than usual (even for Massachusetts) with some as high as 30%+. Governor Patrick reacted to this by encouraging the Division of Insurance to use their power to disapprove the rates and mandate caps on insurance companies on behalf of small businesses.
On April 1st, the Division of Insurance disapproved most of the rates submitted for approval for the second quarter (including April 1st rates) for being too high. Here’s a link to the story from the Boston Business Journal:
The insurance companies attempted to get an injunction from a judge to be able to sell their policies at the denied rates until this could all be settled in court. The judge denied the injunction and advised them to follow a defined appeals process. That process is underway and I am awaiting the results.
The insurance companies were also advised to work with their provider counterparts on ways to reduce cost in the system thus bringing down the overall cost of healthcare and eventually premiums. Many of the carriers began meeting with providers to start the negotiations process for contract renewals.
Not long after this process began, I received brokerage updates from most of the major carriers on their progress in these negotiations. Here’s an excerpt of one such update from Blue Cross Blue Shield of Massachusetts:
We feel strongly that all stakeholders must work together to create a solution that improves health care affordability. Blue Cross Blue Shield of Massachusetts will continue to be a leader in this process, but we know that success requires a reduction in medical cost trends. Shared accountability between the government, health plans, and providers is required to achieve more affordable health care.
We started this dialogue with health care providers, recognizing the urgency of addressing contractual payment terms. We look forward to working with them on positive solutions to the affordability challenge. However, we understand that there may be some providers who decide not to participate with us at rates that we believe are fair and reasonable, and are needed by the market.
The last sentence is extremely telling to me as it seems to be a very subtle and polite way of letting us know that if the rates from their contracted providers don’t come down in contract negotiations, than we can expect their HMO networks to shrink to only those providers that meet the cost structure mandated on them by the Division of Insurance.
What does this mean for small businesses in Massachusetts (companies with less than 50 employees)? At the moment, while these mandated rate caps are being used, the rate increases from 4/1/10 and on will be relatively minor compared to years past because the carriers are required to use their 2009 rates for these 2010 renewals. Assuming the census of any given company hasn’t changed drastically, there would only be a minor rate increase for age (since everyone would be a year older).
While this sounds fine and appears to be a victory for small businesses, the battle between the insurance companies and the Division of Insurance is far from over. These flat rate increases that small businesses are receiving for their renewals should be considered interim and likely to change. As I mentioned, the insurance companies are appealing the rate caps and have advised the brokerage community that they’ll do everything within their power to negotiate for higher premiums which could result in a retroactive chargeback sometime in the next 12 months. If not planned for, this could hurt a lot of companies from a budgeting standpoint.
In fact, both Harvard Pilgrim and Neighborhood Health Plan have already been successful in having their capped rates adjusted. Neighborhood negotiated for higher rates but were still below what they originally asked for. They’ve also agreed not to retroactively chargeback their groups (Article on Neighborhood Health Plan from their website – http://bit.ly/dlAsFG ) for the lost premium for the months of April, May and June. Harvard Pilgrim had their rates entirely reversed and has yet to decide if they’ll retroactively chargeback for lost premiums (Article from the Boston Globe – http://bit.ly/8Xq0Pm). But both will certainly be raising premiums on groups to the original levels moving forward.
Since this whole issue began, I’ve received alot of phone calls from existing prospective clients for practical advice on how to andle this issue. So I figured I’d blog about it and provide few potential approaches that Small Businesses can use to eliminate major effects to the P & L while maintaing and possibly even improving employee morale.
In this regard, my advice to small businesses is to approach renewals conservatively while this appeals process is going on by adjusting the employees cost share percentage higher for the interim rates that you’re currently paying or renewing at. As the employer, you’ll be paying the lower interim premiums for the time being and therefore would enjoy some interim savings. You’ll want to bank those savings so that you’ll be able to react to whatever is decided in court over the next few months with your given carrier.
In the worst case scenario where the insurance companies win out (and it looks like they will win based on the Harvard Pilgrim decision) and are able to retroactively charge back their groups, you can use the savings to pay the retroactive charge backs and the employees will not have any change to their out of pocket costs. In the best case scenario where premiums remain at the capped rates, the savings could be reimbursed back to the employees through a change in premium share (or in some other way) or retained/diverted by the company for some other expense.
The last thing you’d want to do is lower the employees out of pocket cost now, get hit with the chargeback a few months later, than be forced to raise they’re out of pocket costs significantly at an unexpected time.
If you decide to keep the employee cost share percentage the same through all the changes in rates, you’ll technically end up in the same place in the end. You just want to make sure the employees are kept up to date and informed on a regular basis as to what’s happening with the legal battle between the State and the Insurance companies so they aren’t shocked if their costs increase later. In my experience, I tend to find that employees can be forgetful when it comes to benefits. (I create the language and draft these communications for our clients when requested).
Questions for readers:
- How have you handled this issue?
- If the rates go up to the originally intended levels, will you be forced to move to a plan with a less inclusive plan design with lower premiums?
- Have your employees been following this and have they had questions?
