Small businesses can expect larger increases in their health insurance premiums in 2022 than in recent years, even without costs associated with responding to the COVID-19 pandemic figured into the equation.
Both Priority Health and Blue Cross Blue Shield of Michigan, which combined control most of the small group market in West Michigan, attribute their 2022 rate proposals to medical claims trends and the rising costs for prescription drugs, particularly specialty drugs.
Blue Cross Blue Shield of Michigan proposes to increase rates by a statewide average of 7.9 percent for small group policies that renew in the first half of 2022. HMO subsidiary Blue Care Network proposes a 6.9-percent increase.
The 2022 rate proposals to state regulators from Michigan’s largest health insurer reflect medical claims trends outside of the effects of the COVD-19 pandemic, according to Sandra Fester, vice president of Michigan business at Blue Cross Blue Shield of Michigan.
“Factors driving the trend are typical health care drivers such as hospital fee increases, higher utilization and higher pharmacy trends, including specialty drug costs,” Fester wrote in an emailed statement to MiBiz. “While we believe there could be higher costs related to COVID-19 in 2022 due to continued vaccinations, testing costs and treatment, these have not been built into our rates in order to provide market stability with respect to COVID-19 costs.”
The Michigan Department of Insurance and Financial Services last year approved a statewide average 0.9-percent increase for Blue Cross Blue Shield of Michigan small group policies that renewed in the first and second quarters of 2021, and 1.9 percent for HMO subsidiary Blue Care Network.
Grand Rapids-based Priority Health’s 2022 rate proposals filed this month with the state are a little better.
Priority Health proposed a statewide average 5-percent increase across all small group products: HMO, PPO and point-of-service plans, according to Diane Wolfenden, the vice president in eastern Michigan who oversees Priority Health’s small group market across the entire state.
Wolfenden attributes the increased rate adjustments proposed for 2022 to medical claims trends, led by the ever-rising cost of prescription drugs. Priority Health’s claims trend has been running at 4.2 percent in 2021 while the trend for prescription drugs has been 6 percent, after moderating from 9 percent last year.
The cost trend for expensive specialty drugs has been much higher, running “well into the teens, unfortunately,” at 13.6 percent in 2021, Wolfenden said.
“It’s a very small volume of prescriptions, but a very high cost, and as (pharmaceutical companies) introduce more and more of them, it’s having greater impacts to those numbers,” she said.
A financial report by parent corporation Spectrum Health noted that Priority Health’s $59.1 million operating income in the first quarter was below budget and down from a year ago, “driven by higher than expected medical trends in the first quarter due to higher COVID-19 related expenses and rising pharmacy trends,” according to the report.
Priority Health also has seen a “little bit” of care providers raising prices, Wolfenden said.
Priority Health’s 2022 rate proposals compare to the 2.6-percent average statewide increase implemented for Jan. 1, 2021 policy renewals. State regulators are reviewing a proposal for an overall average 4.02 percent rate adjustment for small employers that renew HMO or point-of-service policies in the second half of this year.
Factoring in the pandemic
Like Blue Cross Blue Shield, Priority Health’s proposed 2022 rates do not factor in the costs of the pandemic. Actuaries “don’t feel that they have enough data to actually add in any additional adjustment for these adverse impacts of COVID,” Wolfenden said, citing uncertainty about future vaccination rates and the long-term public health effects of COVID-19.
“We feel like there is COVID in the experience to a certain degree. We don’t feel the need at this point to add anything additional,” she said. “It’s really too early to start building it into rates.”
Setting future health insurance rates for the next year has been a much more complicated process for health insurers after a year dominated by the pandemic. It includes factoring in the costs of treating COVID-19 patients, testing, waiving copays and deductibles, and picking up costs for vaccine administration. Meanwhile, there has been reduced medical claims from last spring’s shutdown as well as a lingering reluctance by some people to seek care.
A decline in medical claims a year ago when hospitals were unable to perform elective procedures and surgeries led health insurers to provide employers premium credits.
“Predicting what’s going to happen in the future in this environment is very challenging, and there are a lot of different dynamics that have to be considered and lot of those dynamics at this point don’t really fit into historical actuarial and underwriting models,” Adam Dee, director of underwriting risk optimization and consultation at Blue Cross Blue Shield of Michigan, said during a recent presentation hosted by Advantage Benefits Group in Grand Rapids.
Those dynamics include ongoing infection and vaccination rates, mitigation policies, the cost of care for COVID-19 patients, a transition to lower-cost telehealth, and the health consequences for those who delayed seeking care for a medical condition.
“We have some things that have emerged that really have never been seen before,” Dee said. “There’s a lot that goes into thinking about what our COVID impacts are going to look like in the future.”
Medical claims trends largely returned to normal months ago, although winter and spring COVID-19 case surges meant continued volatility and uncertainty, Dee said. Michigan is now “on the right track” as vaccination rates increase, he said.
“Claims going forward may be more stable than what we originally thought, however they still are more volatile than what you may have experienced in the past,” Dee said.
In crafting rate proposals for 2022, Blue Cross Blue Shield of Michian sought to use pre-COVID trend expectations and offer rate stability in an environment that remains “very fluid,” said Chris Winkler, director of rating and underwriting.
Blue Cross Blue Shield will continue to evaluate claims trends and adjust accordingly to bring employers rate stability “over the next 18 months or so,” Winkler said.
“There is still a tremendous amount of uncertainty around COVID. We are seeing 2021 progressing with a potential to settle to more typical rates,” Winkler said at the Advantage Benefits webinar.
Since the pandemic began 15 months ago, Blue Cross Blue Shield of Michigan through early this month paid $670.7 million for medical claims for more than 174,000 commercial insurance enrollees and nearly 30,000 Medicare members who contracted COVID-19, according to Kirk Roy, Blue Cross Blue Shield’s vice president for underwriting and actuarial trend.
Blue Cross will continue to rack up costs from claims trends as the pandemic lingers and as some people who had COVID-19 experience lingering health effects.
“There’s still a significant impact on the health care system and on people’s health, and therefore costs,” Roy said.