Health insurance rates for small businesses in 2018 stand in sharp contrast to the state of the individual market in Michigan.
As rates for individual health policies sold on the public health exchange go up an average 26.8 percent with the federal government no longer providing cost-sharing subsidies, the small group market follows trends of recent years with relatively moderate increases and, in some cases, decreases for 2018 by some carriers.
The rates approved late last month by state regulators continued a period of moderation and stabilization for Michigan’s small group market that Jeff Connolly of Blue Cross Blue Shield of Michigan attributes to a number of factors.
Most notable is the issue guarantee in the federal Affordable Care Act that requires health insurers to sell a policy to anyone seeking coverage, regardless of health status. Prior to the federal health reform law, Blue Cross Blue Shield was the only insurer of last resort in Michigan and often was left insuring the costliest population. That changed with the federal health reform law.
“Before the ACA, it was more challenging for us here in Michigan,” said Connolly, Blue Cross Blue Shield’s president in West Michigan. “When the ACA passed, it leveled the field. It allowed us to play on an even keel with the competition.”
Connolly also credits the emergence of value-based contracting in recent years that pays hospitals and doctors based on outcomes, rather than volume. Blue Cross Blue Shield most recently signed a value-based reimbursement contract with the eight-hospital Detroit Medical Center and now has more than 80 percent of its payout to hospitals with such agreements. The value-based contracts are designed to eliminate waste, drive up quality and reward the best care providers.
That and other initiatives are affecting the medical claims trend at Blue Cross Blue Shield, which received approval from the Michigan Department of Insurance and Financial Services for a 6.3-percent increase in small group policies. Blue Cross Blue Shield covered more than 192,000 people through small group policies in 2017.
“The way we work with our provider community has really helped mitigate the trend inherently in health care in Michigan,” Connolly said.
Blue Cross Blue Shield’s HMO subsidiary, Blue Care Network, received approval for a scant 0.2 percent increase for 2018 policies. Blue Care Network covers more than 89,000 people at small employers in the state.
Grand Rapids-based Priority Health, with more than 40,000 people in the small group market, gained approval for a rate increase of 2.2 percent. Priority’s fully-insured subsidiary, Priority Health Insurance Co., which covers nearly 9,000 people, received approval for an 8.4-percent increase.
Sixteen health plans participate in Michigan’s small group market, which covers nearly 412,000 people combined. In West Michigan, much of the market is covered by Blue Cross Blue Shield or Priority Health.
Meanwhile in the individual market, the state approved increases of 31.7 percent for Blue Cross Blue Shield and 22.6 percent for Blue Care Network. Priority Health received approval for a 19-percent increase on individual policies.
The small group increases are consistent with the moderation that market has experienced over the last few years, said Rob Fowler, CEO of the Small Business Association of Michigan. Fowler credits Michigan’s Medicaid expansion in 2014 with a “significant portion” of the moderation.
As the Medicaid rolls expanded, hospitals incurred less bad debt that was shifted to people with coverage, which was then reflected in the rates from insurance carriers, he said.
“We know how this works. People showed up in the health care system and they had no coverage. They still get health care and the hospitals pass it along” to those with coverage, Fowler said.
A couple of prior reports offered some insight into how the cost is shifted.
The Michigan Health & Hospital Association annual community benefits report issued in June indicated that bad debt incurred when patients cannot pay their bills declined to $425 million in 2015 from $561.8 million in 2014, the first full year of Medicaid expansion in Michigan.
The Ann Arbor-based Center for Healthcare Research & Transformation a month later estimated that the cost of uncompensated care at Michigan’s 88 hospitals declined from $627 million in 2013 to $332 million in 2015. Bad debt alone dropped to $269 million from $408 million.
UNKNOWNS ON THE HORIZON
Connolly agreed that Medicaid expansion was “one factor” in the rate stabilization for the small group market.
As open enrollment is in full swing for 2018, Connolly cannot say whether the trend of the last few years is sustainable. Much of the future could hinge on what Congress and President Trump do with the ACA, he said.
“I would be cautious of the unknown,” Connolly said. “It’s highly contingent on what other changes will be made to the regulatory environment.”
There’s also the issue of costly specialty drugs to treat complex diseases that “continue to drive a significantly greater piece of the pie,” he said. The rising costs driven by specialty drugs have eased somewhat in 2017 from the prior two years, although the issue clearly is not going away anytime soon.
“Many issues out there are potentially looming relative to some of the drugs coming on the market that are going to be likely more successful in treating the patient, which is great, but the offset is significantly greater costs,” Connolly said.