Why Higher Health Insurance Rates? No Easy Answers
If you want to know why health insurance companies in Montana are asking for big price increases on some of the policies they sell here next year, there are some easy answers – but they only tell part of the story.
First, let's point out that the price increases we're talking about here affect an estimated 35,000 Montanans. Most people in the state get health coverage through their jobs or government programs, and most of those who don't can get tax credits that keep their premiums low.
But here's Jerry Dworak, CEO of Montana Health Co-op, on why his company needs to raise its average price for an individual health plan by 22 percent next year:
"In 2015 we paid $1.39 [out] for every dollar we brought in," Dworak says. "Obviously you can't do that."
Dworak is saying that when you take all the money their customers paid in premiums in a year, and then subtract everything his company paid out for the medical care they needed, their costs exceeded income by 39 percent.
The two other insurance companies that sell individual health policies in Montana said much the same thing at a hearing before Montana's insurance commissioner yesterday – they all paid out more than they brought in, so they have to raise prices or go broke.
So, the simple answer leads to another question – why are they paying out more than they bring in when they raise prices every year? The answer to that is a mix of both hard numbers, and some voodoo.
We'll get to the voodoo in a minute – here are some hard numbers, expressed by Mark Florian with PacificSource insurance.
"What jumps out," Florian said at the hearing, "is the trend on pharmacy at 12.3 percent, compared to medical - everything but pharmacy - at 6.2 percent."
What Florian is saying is that the inflation rate for the drugs insurance companies pay for went up more than 12 percent in 2015, and prices for medical care in general went up 6.2 percent. That's really high compared to overall inflation, so insurance companies say they have to raise their prices to pay ever-higher medical and drug costs.
And here's where we get into a little bit of the voodoo. Insurance companies have to predict how much drug and medical prices are going to go up next year, and do it when this year is barely half over. That's pretty hard to do when new, patented specialty drugs keep coming on the market. It's not easy to accurately predict how many customers an insurance company might have that need them.
"Y'know, medical research is great, because now people aren't dying, they're living longer," Montana Health Co-op's Dworak said yesterday, but:
"We have a person that's on medication - $60,000 a month to keep him alive - $60,000 a month. And the drug companies know this is the only drug for that particular condition," he said. "The only thing you can do is either pay the price, or the guy dies. So we pay the price, and that has to continue."
So, there's a simple answer – greedy drug companies.
Now, what exactly a fair price for a given drug is is a whole other story, but there's still more voodoo health insurance companies have to get right beyond just how much the price of drugs and medical care goes up: They have to predict how much medical care their customers use in a given year. If they don't use much, it can help the companies take in more money than they pay out, and turn a profit. But if they use a lot, then the companies can go underwater and come back next year asking for big price increases.
Let's pause here for a quick trivia question. Know what the average price increase was for individual health plans in Montana in 2015?
That's compared to the 20 - 62 percent increases they're asking for this year.
This price-setting stuff is "a shot in the dark ... a crapshoot" – and those are the words insurance company executives used yesterday, not me.
OK, one more easy answer for why it looks like insurance prices are going up so much next year. Here's Montana Insurance Commissioner Monica Lindeen:
"How much does a CEO really need to make?" she asked rhetorically when I interviewed her after yesterday's hearing. "How much of a bonus do they really need? Especially when they haven't done that good of a job? Do they really need a bigger bonus?"
To be fair, Lindeen knows that there are multiple, complicated factors that go into setting a fair prices for health insurance, and she says that when it comes to keeping prices down, "there's no silver bullet to get it accomplished."
But she does call out the CEO of Blue Cross Blue Shield of Montana's parent company, HCSC. In 2014 that CEO was paid close to $13 million.
Still, Montana Blue Cross executives yesterday told Lindeen that executive pay accounts for less than half a percent of their administrative costs.
"You don't buy that?" I asked her.
"Well," Lindeen said, "when you look at how much the CEO of HCSC makes, which is about $15 million a year, versus what the average Montanan makes, I guess it is a big issue to me."
Lindeen is running as a Democrat for secretary of state this year, so I'm going to give the last easy answer for why Montana's health insurance prices are set to go up a lot next year to the state's Republican party – which blames her, and especially the Affordable Care Act – which they call Obamacare – for the big price increases.
The health law does have one big provision that makes it hard for insurance companies to keep prices down. Remember the guy that Montana Health Co-op's Jerry Dworak brought up, whose life-saving medication costs $60,000 a month?
Before the Affordable Care Act, insurance companies could keep costs down by simply not selling that guy health insurance at all because of his pre-existing condition.