Blue Cross’ exit from the individual market raises a potential dilemma for the four other insurers still selling individual policies on and off the exchange.
BY DENNIS DOMRZALSKI
More than 35,000 New Mexicans who had individual health insurance policies through Blue Cross and Blue Shield of New Mexico have to find new policies and new insurers.
The state’s insurance superintendent refused to let Blue Cross have a 51.6 percent rate increase for those plans in 2016, and as a result, Blue Cross is essentially out of the individual market until at least 2017.
Blue Cross said it needed the huge rate increase because it lost $19 million on the individual market in 2014. That happened because more sick people bought its policies than they did policies from other insurers.
Those sick people, in turn, had a lot of claims, and the premiums they paid weren’t enough to cover their medical bills. In the insurance business that’s known as “adverse selection,” and Blue Cross said it got hit hard with it.
Blue Cross’ exit from the individual market raises a potential dilemma for the four other insurers still selling individual policies on and off the exchange. Will they suffer financial losses similar to what Blue Cross did when all those sick people who had Blue Cross plans buy policies from them?
And what of Blue Cross? The company said it plans to be back on the exchange and in the individual market in 2017. That, of course, would be after it shed those expensive sick members – who sought coverage from other carriers.
A question regulators will have to face: Would it be fair to the other insurers to allow Blue Cross back into the individual market after it walked away from its highest-cost members?
The effect Blue Cross’ actions will have on other carriers is up for debate.
Blue Cross President Kurt Shipley said he thinks the other insurers will have trouble absorbing those 35,000 people with their high medical bills, especially because they set their 2016 rates before they knew Blue Cross would leave the market, and they didn’t plan on getting those high-cost people.
But others, including Insurance Superintendent John Franchini, said that Blue Cross might not have had all that many sick people and that its losses were the result of an outdated business model.
Shipley disagrees. “I think it will be challenging for the other carriers because I don’t believe their rates will be adequate for this situation,” he said. “Our rates weren’t enough and their rates won’t be enough to handle that sicker population, either.”
Franchini isn’t buying Blue Cross’ argument. In response to the company’s requested 51 percent increase, he countered with a 24 percent rate. Additionally, he said, Blue Cross’ individual line of business represented only 5 percent of the firm’s total business – which means the company could have spread its losses over its other lines of business.
Franchini believes that Blue Cross’ losses might have been caused, in part, by a business model that relies on fee-for-service payments to providers rather than medical management that attempts to keep people healthier.
“I’m very confident that the four carriers that are still on the exchange will be proactive in managing any chronically ill policy holders that they got from Blue Cross,” Franchini said.
“I believe they [insurers] will be able to improve their [patients’] outcomes. I think they [Blue Cross] want us all to pay for their mistakes,” he said. “They [Blue Cross] refused to request a [rate] hearing and they preferred to just drop their patients and throw 30,000 people out of the markets.”
New Mexico Health Connections CEO Dr. Martin Hickey said his company keeps its medical claims costs down by aggressively managing patients’ care to make sure they stay healthier and out of hospitals.
“Am I worried? In a word, no,” Hickey said. “They [Blue Cross] definitely have some sick people, but so do we. But our business strategy, which is really our health strategy, is managing care very aggressively. That is something the large carriers have great difficulty doing.”
Hickey added that the company is looking forward to gaining some of those Blue Cross members and growing its membership.
Dennis Domrzalski is an associate editor at ABQ Free Press. Reach him at firstname.lastname@example.org