Pete Spell is accustomed to annual premium increases for the individual health insurance plan he buys from Blue Cross and Blue Shield of North Carolina.
But this years notice gave him a jolt. Instead of a typical 4- to 8-percent increase, Blue Cross estimate for next year would raise his monthly premium two and a half times, from $127 to $325, for a similar policy.
That was a bit of shell shock, said Spell, a 31-year-old accountant who lives in Davidson. My paycheck didnt go up 200 percent.
Im a young, healthy male, he said. I basically have insurance for that unknown thing that could happen.
About 160,000 Blue Cross customers in North Carolina have been receiving such insurance notices in recent weeks, prompting widespread anxiety among customers who fear theyll be priced out of the market. The letters went out to Blue Cross customers who purchased individual policies after the passage of the Affordable Care Act in 2010; the new law mandates standard coverage that includes some benefits older policies didnt.
The Blue Cross notices do not explain how the rates were calculated. But the nations new health care law, by creating public insurance databases, offers a revealing glimpse into industry practices that for years had been tightly guarded corporate secrets.
North Carolina has among the most expensive health insurance costs in the nation, and rates vary widely across regions of the state. The cheapest area for Blue Cross premiums, which includes Durham, Orange and Chatham counties, is still above the national average in terms of cost. Meanwhile, Blue Cross most expensive area is in the costliest 10 percent of rating regions nationwide, according to the Kaiser Family Foundation.
Mecklenburg and surrounding counties will have some of the states highest health insurance premiums, based on a review of plans offered by Blue Cross and Coventry Health Care of the Carolinas, the only two private insurers participating in the online marketplace created by the new federal law.
State residents have paid significantly different prices for health insurance for years, based on where they lived, but few outside the insurance industry knew about it. Now the Affordable Care Acts transparent data trove reveals that when it comes to health insurance, geography is destiny.
The variance in premiums reflects many regional differences, such as medical service costs, health status of the population, the number of uninsured, level of hospital usage, efficiency of hospital operations, and the negotiating power of hospitals and insurance companies.
If Pete Spell lived in Durham or Chapel Hill, hed have the benefit of North Carolinas lowest insurance rates. In that case, premiums could be about $30 a month less.
Im the one who is making up the shortfall so that all these uninsured people can get insurance coverage, Spell said. It kind of blows my mind. Its just an additional tax on the middle class.
Location, location, location
Under the new law, more than 1 million North Carolinians are expected to shop for health insurance or face fines for lack of coverage.
Some Blue Cross customers now experiencing sticker shock may find financial relief with subsidies or cheaper policies through the online exchange created by the Affordable Care Act. But some will not be able to avoid steep increases .
Geography is one of just three factors on which insurance companies are allowed to base rates, along with tobacco use and, to a limited extent, a persons age. Gone are the days when insurers could jack up costs for older people and women, or turn away people with pre-existing conditions.
Even though insurers are not allowed to consider the consumers health when setting regional rates within a given state, North Carolinas 2014 rates closely track regional health trends. Thats because insurance rates are influenced by the doctors and hospitals that treat local populations and negotiate reimbursement contracts with insurance companies to reflect those treatment costs.
Insurance data for 2014 shows that within North Carolina, the costliest insurance rates will often be charged to those who can least afford it: those in poorer counties that have typically one rural hospital and a concentration of uninsured patients who drive up system costs. The most expensive rating area for Blue Cross plans includes Gaston, Lincoln and Cleveland counties, each with a single hospital.
The hospitals in Cleveland and Lincoln are owned by Carolinas HealthCare System, a $7.5 billion system that operates about 40 hospitals and dozens of doctors offices in the Carolinas. The Gaston hospital is operated by CaroMont Health, a $539 million hospital system that owns physician practices across the region.
The cheapest Blue Cross insurance rates in the state are concentrated around the metropolitan area that includes Durham and Chapel Hill, an affluent region with a large population of people with insurance.
The premium difference between the most expensive region and the least expensive region is about $180 a month for a family of four, or more than $2,265 a year, for the same Blue Cross policy.
Those price differentials are forcing insurers to explain why they charge so much more in rural areas, justifications that until now had been made confidentially to the insurance regulators who approved the rates as sound.
With all this transparency and data, we are all learning a lot of things we didnt know before, said Blue Cross CEO Brad Wilson.
The rate disparities also point to a troublesome aspect of the nations health care law, which awards federal subsidies to offset insurance costs based on household income but does not take into account that insurance costs can swing wildly from county to county.
There are a lot of assumptions that had to go in there: How many uninsured will you have buying the products and the health risks of those uninsured, said Patrick Getzen, Blue Crosss chief actuary. What youre seeing is, what are the negotiated deals that you have in those regions; how many providers are there? We have certain regions where there is only one hospital. That makes it tougher to negotiate.
The consolidation of hospitals and doctors offices into large networks has contributed to higher costs, health experts have said. The larger the system, the more leverage it has when negotiating reimbursement contracts with private insurance companies.
The fundamental question is: Why are those premiums higher in those regions than they are in others? said Blue Cross Wilson. The primary reason is the underlying cost of care i.e., the cost of medical services being delivered in that geography is higher than in other regions.
Decisions have impact
There are other factors that could also explain the states higher rates. The new health care law, commonly called Obamacare, raised insurance standards by requiring more generous coverage and mandated policies for people with pre-existing conditions. An estimate from the Rand Corp., prepared this year for the U.S. Department of Health and Human Services, predicted the law could drive up premiums by as much as 43 percent in some states and drop premiums elsewhere.
When North Carolina officials decided not to set up a state insurance exchange, deferring instead to the federal government, they triggered a 3.5 percent service charge, tacked onto North Carolinas insurance rates, to run the exchange.
Additionally, North Carolina officials opted not to expand Medicaid, the federal insurance program for the poor and disabled, and as a result, about 200,000 people who would have qualified for Medicaid will now qualify for insurance subsidies. Those people are widely expected to be in poorer health, prompting insurance companies to boost rates by an estimated 2 percent to compensate for the risk of insuring this population, said Mark Hall, a professor of law and public health at Wake Forest University.
The states decisions not to embrace the health care law likely dissuaded insurers from entering North Carolinas market, inhibiting price competition, said Kerry Hall, spokeswoman for the N.C. Department of Insurance.
Blue Cross is the only insurer that operates on the exchange in all 100 counties, while Coventry is selling subsidized policies in just 39 counties. In the Charlotte area, the counties with two insurers on the exchange include Mecklenburg, Anson, Cabarrus, Catawba, Cleveland, Gaston, Iredell, Lincoln, Stanly and Union.
Coventry officials declined comment about their rates. Coventrys regional cost patterns do not line up exactly with those for Blue Cross.
Carolinas HealthCare worked with Coventry to develop a plan that is mostly exclusive to Carolinas HealthCare doctors and hospitals. But Carolinas HealthCare is included in some Blue Cross plans, and Novant Health, the other system in Charlotte, is also part of some Coventry plans.
Bracing for backlash
Blue Cross, the states largest insurer, has 375,000 customers with individual policies. Under the Affordable Care Act, customers can keep older insurance policies that dont comply with the new law but only as long as those policies were in effect at the time the law was enacted in March 2010.
Blue Cross spokesman Lew Borman said the company notified customers at the time about the new health care laws grandfather clause, but about 160,000 made changes or bought coverage during the past 3 1/2 years. Blue Cross in recent weeks has alerted those customers that the obsolete policies would be discontinued in 2014.
In its letters, the company also cited a premium for a comparable policy, which in some cases is hundreds of dollars a month more than what customers are paying now.
The N.C. Department of Insurance approved the rates this year, but the agency reduced the rates by 10 percent from the levels Blue Cross had proposed. Blue Cross, bracing for a customer backlash, launched a television and online campaign blaming the Affordable Care Act and a host of other factors for the dramatic rate increases.
The greater the convenience and flexibility, and the more stuff, the more it costs you, said Wilson, the Blue Cross CEO.
Premiums arent the only costs customers will pay. They will also have co-pays, deductibles and cost-sharing obligations. Many customers will find that plans with cheaper premiums are more likely to have restricted networks of doctors and hospitals.
Cindy Harris, 51, a Huntersville business consultant, bought her Blue Cross policy in August and is now paying a premium of $320 a month. She was surprised to get the recent notice that said her policy, without maternity coverage, will no longer be available, and a new one with comparable benefits would cost $523 a month.
The letter explained she could no longer decline maternity benefits because the Affordable Care Act requires all polices to cover certain essential benefits, such as maternity care.
Because Harris is starting a new business and her income is low, she may qualify for a federal premium subsidy through the exchange, but she hasnt yet checked because the website hasnt worked properly since enrollment started Oct. 1.
Its very frustrating, Harris said. I had a plan that I was happy with, at a rate that I thought was pretty good. I am taking good care of myself. I finally have my team of doctors that I like going to.
In order to keep the doctors and the coverage I had in place, its going to cost me an additional $200 a month. Its supposed to be affordable care, but its no longer affordable for me.
(Raleigh) News & Observer Staff researcher David Raynor contributed .
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