New York State has approved the biggest health insurance rate hike since Obamacare was implemented in 2014.
Individual rates will jump an average of 16.6 percent in 2017 and small group rates will go up an average of 8.3 percent, the state Department of Financial Services announced this month.
But subscribers of Care Connect, the insurance plan owned by Northwell Health, will see their rates rise by even greater proportions next year: 29.2 percent for individual plans and 23.2 percent for small group plans. The small group premium increase is significantly higher than the 16.8-percent hike the company had requested.
“I don’t recall ever seeing that before,” said Riverhead insurance broker Karl Washwick, who said he has about 1,000 Care Connect small group customers. Many had been enrolled in Health Republic — the failed health insurance co-op established under the Affordable Care Act that was abruptly shut down by the state last year — signed up for Care Connect this year, Washwick said.
The company has offered some of the most affordable health insurance plans available, which helped make it one of the fastest-growing insurers in the country. It saw a more than 350-percent spike in new members over the past year, according to an Aug. 6 press release. It has more than 29,000 individual subscribers and 70,000 small group members this year. Its small group membership grew from 5,000 in 2015 to 70,000 in 2016, Care Connect president and CEO Alan Murray said in an interview today.
Murray said the 29.2 percent increase in the individual plan premium represents “a one-time price correction to accurately reflect the true cost of the actual enrolled population.” The need for corrective action was “further compounded by the reinsurance program and the risk corridor program phasing out,” Murray said, referring to two of the three premium stabilization mechanisms built into the Affordable Care Act. They both end this year.
But the third mechanism, which is permanent, is the cause of Care Connect’s higher-than- average increase in small group rates for 2017: the risk adjustment program.
Risk adjustment methodology ‘fundamentally flawed’
The federal risk adjustment program was designed to protect insurance companies that happen to enroll a higher-risk population. Insurance companies who enroll a healthier — thus less expensive — population pay into the risk adjustment pool, while the insurance companies who enroll less healthy — and more expensive — members are paid from the pool. The amounts paid into the pool and paid out of the pool are determined by the state and built into the approved rates.
“The risk adjuster by design was put in place to dissuade insurance companies from targeting a healthy population,” Murray said. “In essence, it says if you end up attracting a healthier population than your competitors you will pay into a pool to offset that risk that your competitors have. From a policy perspective, it makes a lot of sense.”
But the methodology employed to calculate the companies’ risk factors is “fundamentally flawed,” Murray said.
In reality, the risk adjuster is not so much a measure of actual risk as it is of how adept insurance companies are at coding and reporting their subscribers, he said. Insurance companies that are larger and have been in the market for a long time have a longer experience history and know their customers better than newer companies — and the volume of their data has a real effect on the statewide number.
Murray points to state average risk score data as proof that the risk adjuster is influenced by how experience is being reported by insurers. In the individual market, New York’s average risk score in 2015 was a little higher than the state average risk scores. But in the small group market, New York was an outlier — based on its risk scores it has the sickest small group membership in the country.
“New York just isn’t that sick,” Murray said. “By almost all of the clinical criteria, all clinical indicators, New York is pretty close to the average.”
The way the risk adjustment program works, the insurers have an incentive to report higher risk data because it means they will receive large payments from the risk adjustment pool, rather than having to pay into the pool. So Oxford, for example, which has about a 50-percent share of the New York small group market, will receive $350 million from the risk adjustment pool. Care Connect will have to pay in about $13.5 million. That payment is reflected in the state-mandated rate.
Murray said he’s spoken to Department of Financial Services officials, the governor’s office, officials at the Centers for Medicare and Medicaid Services as well as members of Congress about the problem. “I’ve been talking about it with everyone who will listen,” he said.
“We are doing everything possible both to educate and suggest improvements. We need the public to understand and ask our government to do the right thing,” Murray said.
State: rising healthcare and pharmaceutical costs drive rate hikes
The Department of Financial Services acknowledges that the federal risk adjustment program has “caused significant shifts in dollars among plans, requiring some insurers to make substantial payments under the program.” The department has previously raised concerns about the federal risk adjustment program in New York, according to its Aug. 5 press release announcing the new rates. “DFS is examining possible future actions to address disparities caused by the program in New York” to better achieve the goals of the risk adjustment program, the agency said.
The main drivers of premium rate increases, according to DFS, are underlying medical costs. Inpatient hospital and drug costs account for the largest share of medical expenses (more than 40 percent), followed by ambulatory surgery (12 percent) and diagnostic testing/lab/x-ray (11 percent). The largest growth in spending occurred in drugs, with very large increases attributable to Hepatitis C drugs (54 percent unit cost increase and 14 percent more use of the drug).
The Department of Financial Services said it reduced insurers’ requested 2017 rate increases by more than 28 percent overall, which will save policyholders more than $302 million.
“More than 50 percent of consumers buying plans through the NY State of Health will receive a tax credit offsetting the increases in premiums, and for some the credit will result in lower actual premiums,” Department of Financial Services Superintendent Maria Vullo said in a press release announcing the 2017 rates.
Insurance broker Randal Morreale, of Neefus Stype Agency in Aquebogue, said he wonders whether East End consumers will stay with Care Connect, which is still working to build a provider network on the twin forks. If the new premiums “level the playing field somewhat,” people might be inclined to switch back to another insurer like Oxford, which has a broader provider network.
But Murray says even with the premium increases, Care Connect’s rates remain competitive. “We were about 35-percent more affordable. After these rate increases we’ll be about 20-percent more affordable,” he said.
Correction: A previously published version of this article erroneously stated that New York’s small group risk score was five standard-deviations sicker than the national average. It also stated that Oxford’s receivable from the risk adjustment pool was $350 million, which has been corrected to $315 million.
