BCBS NC says premiums to rise faster in NC

I meant to write a few thoughts about Blue Cross/Blue Shield of NC reporting that they believe premium costs will increase more for their customers in NC than what the CBO projects for the nation as a whole yesterday, but didn't get to it.

First, the big picture. There are 160 Million Americans with insurance they get from an employer. There are 14 Million who purchase their own insurance. CBO says that premium costs for those getting coverage from employers will increase by 0-3% if the Senate bill becomes law. Not much change. However, CBO says that individually purchased policies will increase by 10-13%, but that the amount of coverage will also be much better, with better defined as covering more due to benefit package standards in the Senate reform legislation (essentially making individual coverage policies on par with what people getting insurance from a job now get).

BCBS NC says that they think premiums in NC for individual purchase customers will increase by 53%--quite a difference. They also note larger premium increases in the small business market than what CBO finds (32%).

A few thoughts on this.
(1) Right off, let me say I totally agree with one thing that BCBS notes. Total premiums and the amount that an individual has to pay for their health insurance are not the same thing. They are both important, but not the same thing. From the standpoint of the nation as a whole, we should be worried about increases in premiums, regardless of who pays the premiums (you, employer, subsidy via reform) because if we spend a dollar on health care, we can't spend it on something else. All else equal, we would like to spend less. If you can't afford insurance now but will be able to later that is good for you and the country (if you think expanding coverage is important); that is one of the main points of all this. I say this because CBO finds (and I wrote about in the News and Observer) that about 6 in 10 persons newly insured via the exchanges under reform will qualify for premium support based on their income, making it cheaper for them (but not reducing the total cost of the premium). But, the full premium is still being paid, just partly or in some cases mostly, by the federal subsidies.

(2) CBO has an unassilable reputation. So, BCBS NC is not going to get much traction in saying a private consulting firm hired by them or an insurance association plus their claims works shows something different. Meaning, most people aren't going to believe them unless they already want to believe their message because it fits into them being opposed to reform. Could CBO be wrong and Oliver Wyman correct? Of course, but there will be very few who would believe that CBO is just wrong and they are just correct (esp by this much).

Update: in fairness, the BCBS NC report is not saying CBO is wrong--they are arguing NC will be different. But, several folks wrote me immediately when BCBS NC published last week saying see, CBO is wrong. My point is that only people who want to reach that conclusion (CBO cooking the books) will conclude that based on the BCBS NC claim that premiums will rise faster in NC than national average .

(3) It is important to keep in mind that CBO has done a national average projection, and of course there would be variation state to state. An average is produced by examples above and below the average. So, even if CBO were correct, you would still expect to find that some states had higher premiums than average per CBO and others lower. Setting aside the fact that the difference is quite large, there inevitably will be differences across states relative to a national average. The next step would be to ask why might the NC experience be different?

(4) As I think about why might the NC experience be different from a national average, I would look at these possibilites:

a. Demographics in NC v. other states. This would be things like obesity and smoking. I doubt that these sorts of differences would produce this sort of difference. I wouldn't think that NC would be that much different from a national average, though I do believe we are above average in terms of obesity.

b. Intensity of how diseases are treated. Practice patterns is a phrase that describes how medicine is practiced in a given area. It points out the well shown fact that the same condition is not treated the same way in different parts of the nation. Atul Gawande popularized this notion in this New Yorker article in June, 2009 when he showed that two towns in Texas with very similar populations had huge differences in per capita Medicare expenditures ($7,500 for one, $15,000 for the other). The point is that if BCBS NC is purchasing care on behalf of patients that is somehow more intensive than in other states (more tests, labs, etc.) that would be shown via higher premiums. Higher health care costs, leads to higher premiums.

c. Prices. This is how much BCBS NC is actually paying for service X. For example, if BCBS NC paid more for an endoscopy (just an example) than another insurer in another state, this could help explain a difference if this occurred systematically. BCBS NC negotiates prices with providers: doctors, hospitals, health systems. So, if they were paying higher prices than average, their negotiating practices could explain a difference. But, given they have a strong market share in NC, you wouldn't epect them to be worse than average at negotiating prices.

d. How big a change new insurance regulations represent for North Carolina. CBO notes that one reason premiums will rise in the individual market after reform is that the insurance has been expanded....more things covered and less out of pocket cost given you get sick...for a higher premium. BCBS NC notes differential current regulation--and therefore differential changes from status quo to Senate bill--explains most of the difference.

I am not really sure how NC current insurance regulations stack up with other states, but if the Senate mandates for minimum benefit packages and the like are relatively larger changes in North Carolina than in others states, that could explain a difference. BCBS NC report says that our premiums are relatively low now because of lower regulation, which means that people in NC buying individual purchase policies will get a bigger expansion of benefits than in other states, for a bigger price if that were true. Further, they are essentially saying that because the consumer regulations in NC are relatively lax, this has been a bad state to be sick in, making you more likley to be uninsurable given any premium that might be quoted for individual policies. They are saying that this could lead to sicker pool of folks ready to uptake insurance while healthy folks don't do to weak individual mandate. The basic story is plausible, it is just not clear to me that our regulations are so much further behind a national average. I'd need to know more about comparative state regs at this time to really be able to say.

(e) Last possibility is that BCBS NC has higher costs of doing business than other insurers. This doesn't seem likely to me. The other possibility is that they could take in more in premiums but pay out less in terms of claims than a national average, but that also seems unlikely now, and won't be possible under the Senate bill since it sets the proportion of premiums that must be paid out in care (85% for group; 80% for individual).

If there were a difference in premiums between national avg and what is expected in NC (and I haven't seen a CBO state by state analysis, nor do I have any inside info on Oliver Wyman analysis but have read what BCBS NC put out) my guess is that a difference would not be primarily due to : (a) demographics. It is hard for me to believe that a difference that large is due to differences in current regs (d) but I may be wrong. But, I am curious if anyone has a sense of how much difference the individual market insurance regs are as compared to the Senate bill across states? I haven't seen anyone do that in a way that is easy to understand.

Other reasons you could expect any state's premiums to be above a national average would be (b) intensity or (c) prices, or more likely a mixture of the two. Now I suspect many reading this discussion are thinking, well since BCBS NC has a large market share (about 7 in 10 group policies in NC, just about all individual policies) that what is most needed is more insurers to enter via the exchanges and competiation bid down the prices. More insurance companies could potentially exert competition and force BCBS NC to learn to run their business more cheaply or lose customers because their premiums would be higher. The exchanges will have a chance to bring that about.

However, there is another type of competition that enters this picture, and it is competition (or lack of it) between providers. If there is a reason that providers in NC (docs, hospitals, health systems) are less likely to be competing, and more likely in economic terms to be colluding, then that could make both intensity and certainly prices be higher. And by colluding, I don't mean executives meeting in clandestine locations to fix prices. I mean simply that it is obvious to the providers that it is not in their best self interest to start up a price war. I really don't know if there are reasons to think that NC might be different from other states in terms of providers not competing. But, my hunch is that there aren't many states with two world class teaching universities right on top of one another (I work at one and have three degress from the other), which are in the center of the sate and so can plausibly be part of an insurance provider network in any part of the state.

I figure that BCBS NC (and every other insurer) has to have one or the other in every network/contract they write in NC, and everyone knows it. So, there is no incentive for UNC and Duke to compete on price. Could that produce this level of premium difference? It doesn't seem likely to me, but if I were trying to diagnose why premiums in NC were higher than a national average, I would start by looking closely at intensity and prices. Finally, the BCBS NC analysis notes that most of the increased premiums in NC will result from the weakness of the indivdiual mandate (meaning penalties much weaker in Senate bill than in House) which they are saying will lead to worse adverse selection in NC than the nation as a whole. The managers amendment, introduced this morning, strengthens the indivdiual mandate by increasing penalties. I am not sure what effect the strengthening of the mandate would have on their projected premiums, but it is stronger than it was when the analysis was done.

A final note in defense of an individual mandate. Every country in the world that has universal coverage either has an individual mandate or a system in which people are automatically enrolled. So, if the goal is universal coverage some day, the degree of individual mandate will have to increase or an auto enroll program of some sort will have to come about if everyone is to be covered. The populist surge against an individual mandate is not actually about the mandate as much as I think it is about the price of insurance (which of course is driven up primarily by the cost of health care). People wouldn't sweat a mandate as much if it didn't cost so much. Once you have everyone in the system, the cost of insurance can stabilize and drop as you get rid of cost shifting due to being uninsured. Getting from here to there won't be simple as long as you use private insurance as the expansion strategy. Hopefully adverse selection won't be as bad as BCBS NC says it will be. They are making this case asking for a stronger mandate. That may be warranted, but may not be politically possible to get a mandate as strong as what they would want. There will be constant tweaks in a reformed system addressing all sorts of issues, including the possibility of adverse selection being much worse in some states than others.