The costs of health-care coverage remain far from cheap and are still on the rise. Even with the rate of increases slowing, most premiums are climbing at several times the rate of inflation, and each year are getting tougher for employers and consumers to absorb.
Moreover, the efforts of the Blues to cut premiums aren't the only reason for growing price competition in managed care. Commercial insurers have been eager to find growth in a fairly stagnant market for new members, and have been pitching premium increases that more closely match the estimated rise in medical claims costs -- and in some cases, undercut it.
But because of the Blues' influence on the industry, the question of how low the nonprofits will go in setting premiums is a wild card in calculating premiums and profits for the industry in the coming year.
In some especially competitive markets, employers are seeing a real break in pace after several years of double-digit increases. In Maryland, premiums for small employers climbed an average of 5.5% in 2003, the smallest increase since 1997, thanks to moderating medical costs and a decision by CareFirst BlueCross BlueShield, the state's largest insurer, to forgo premium increases on some products this year, according to the Maryland Health Care Commission.
More slowdowns could be in store. Though premium increases are less, the amounts insurers pay out in medical costs to hospitals, doctors and other providers also are slowing as more plans require consumers to pay higher deductibles and co-payments. That could leave the nonprofits at the end of 2004 with reserves that are still too high in the eyes of regulators. And if pressure on prices intensifies in the next several months, it will be even harder for for-profit companies to preserve their profit margins.
"The impact on premiums and the industry could be more than many people have anticipated," says Matthew Borsch, an analyst at Goldman Sachs.
Increased competition already is giving employers more clout in negotiating prices. In Buffalo, N.Y., where three nonprofit Blues compete, premiums on average are climbing between 6% and 8%, compared with increases of between 12% and 22% a year ago, according to the Niagara Insurance Group, an employee-benefits consultant in that area.
Hebeler Corp., a Buffalo-based maker of custom-fabricated piping systems, says that when it initially was negotiating rates for this year, its Blue health plan, Univera, asked for a 15% boost. After quick negotiations, the plan agreed to 10%, says Jim Breyer, Hebeler's vice president of finance. "They knew we were shopping around," he says.
So far, most insurers still are pricing premiums to maintain healthy profit margins to guard against underwriting losses. But as competition heats up, "we've seen a few cases of pricing that's not only aggressive, but quite possibly irresponsible," says Steve Lewis, vice president of sales and marketing at FitzMaurice Cos., a New York-based employee-benefits consultancy.
A recent one, he says, involved a midsize Texas-based employer, which over the past two years has experienced higher medical claims and layoffs while losing some of its healthier employees. While those factors pointed toward much higher premiums for the company this year, a nonprofit Blue plan offered a premium cut that was "so far below the rest of the market, we advised them they should take it," Mr. Lewis says.
A number of for-profit insurers, including UnitedHealth, Cigna Corp. and Humana Inc., have loudly declared in recent months that they won't sacrifice profitability for the sake of buying business by cutting premiums. But many are finding it tough to increase health-plan membership amid lackluster job growth and cutbacks in employee health benefits.
Not including Cigna, which has been losing members as it restructures operations, the 10 major public managed-care companies have set the ambitious goal of collectively adding 3.2 million members this year, adding to the roughly 67 million members they claim now. That will be difficult to achieve without lower prices, says Goldman's Mr. Borsch.
It's especially tough for for-profit insurers exposed to heavy nonprofit Blues competition, such as Humana, based in Louisville, Ky. Last month, the company lowered its projections for second-quarter earnings, citing more-heated competition and, in some areas, irrational pricing, both by publicly traded rivals and nonprofits.
"It's clear there are some companies who are now clearly pricing for market share," said Mike McCallister, Humana's chief executive, in a recent conference call with analysts.
With health-care costs soaring, along with the number of uninsured, some lawmakers and regulators are arguing for caps on the Blues' reserves and seeking greater control over rate increases. A wave of such legislation could have a longer-lasting impact on premium prices.
In Pennsylvania, for instance, a series of class-action lawsuits alleges that the four large Blue Cross and Blue Shield insurers there have violated their nonprofit charters by stockpiling combined cash reserves of more than $3.5 billion while boosting premiums an average of 10% to 15% a year.
In North Carolina, regulators have floated a bill to limit how much Blue Cross and Blue Shield can build up reserves and when it would have to issue rebates. After a series of public flaps over corporate excesses at Blue Cross and Blue Shield of Rhode Island, state legislators have introduced a package of bills that would give regulators more control over its profits and pricing.
Blue plans argue that they've reaped robust profits from offering competitive insurance products and that unlike publicly traded commercial insurers, their reserves in good years are all they have to protect their viability in the lean ones, or in a catastrophic event.
"These things tend to even out," says Bob Greczyn, chief executive of Blue Cross and Blue Shield of North Carolina. Though the North Carolina Blue's reserves rose 52% to $743 million in 2003, he says they were just enough to cover 3.7 months of estimated claims and operating expenses. By state law, he adds, the carrier is required to hold reserves of between three and six months. In 2002, after a string of weaker profits, its reserves had actually fallen below the three-month level. "We've just gotten past that," he says.
Reproduced with permission of the copyright owner. Further distribution or reproduction without permission is prohibited. Wall Street Journal, New York, NY; June 21, 2004. Vanessa Fuhrmans, Staff Reporter
3.27.2006
3.27.2006
