Koller OKs 10% hike in BCBSRI rates

(Updated, March 19)

PROVIDENCE – R.I. Health Insurance Commissioner Christopher F. Koller said Thursday he has approved rate factors that would boost the premiums of all three commercial insurers in Rhode Island. But he only gave one, Tufts Health Plan, the full requested hike.

For Blue Cross & Blue Shield of Rhode Island, which had sought to raise small- and large-group rates by an average of 11.4 and 14.6 percent, respectively, Koller approved hikes of 9.8 and 9.9 percent, respectively. (Small groups are those with 50 or fewer employees.)

Koller substantially reduced the allowed rate hikes for UnitedHealthcare of New England, which had sought to raise small-group rates by an average of 11.5 percent and large-group rates by an average of 10.6 percent; Koller settled on 6 percent and 6.3 percent, respectively.

Tufts Health Plan, which had already raised its rates by 8.5 percent last year and sought to adjust the hike to 9.3 percent for both small and large employers, got what it requested.

In all cases, what Koller approved are rate factors – the underlying calculations of medical, prescription-drug, administrative and other costs and how much they are expected to rise in the coming years. Those factors lead to base rates that insurers then adjust based on the makeup of each covered group and, in the large-group market, also on claims experience.

All the rate hikes will go into effect this year, though the timeline for each insurer is a bit different.

The Blue Cross and Tufts small-group hikes will take effect on May 1, while their large-group hikes won’t kick in until July 1. Both of United’s hikes take effect July 1.

In a news release, Koller noted that he had recommended reductions to the hospital inpatient and outpatient pricing and utilization inflation rates in both United’s and Blue Cross’ rate factors; he also reduced Blue Cross’ allocation for administrative costs.

“The status quo is not working, and the cuts in these rate factors ensure that health plans will need to be engaged in changing it,” Koller said. “The rate factors represent a balance between compensated providers, affordable health insurance premiums and solvent insurers.”

But Koller also reiterated a point that insurers and policymakers alike have been making: that premiums are being driven up primarily by a growing use of medical services and by provider price hikes.

The R.I. Health Insurance Advisory Council “has made it clear” that it expects insurers to tackle that problem by helping change how providers are paid, Koller said, and “these rate factor decisions reflect that. So will future decisions.”

The insurers can accept the adjustments or request a formal rate hearing.

Blue Cross President and CEO James E. Purcell issued a statement saying that while his company is “gratified” that Koller recognized the need for an increase, “we were disappointed with the decision.”

“The simple fact is that the medical costs that we pay on behalf of our members – payments to doctors, hospitals and pharmacies – is increasing faster than our premiums,” he added. “As a result, [Blue Cross] will book a loss of approximately $100 million for 2009.”

Purcell also noted that in May, Koller’s office will require insurers to submit their rate filings for 2011, and since Blue Cross “obviously cannot sustain losses of this magnitude indefinitely,” it “will have no choice but to file for another increase at that time.”

Purcell said the company does understand that the rate hikes will be hard on employers, and he stressed that Blue Cross is “taking bold steps” to improve the quality and reduce the cost of care in the state through initiatives that boost primary care. In addition, the company is “committed to aggressively improving the efficiency of our operations,” he said.

UnitedHealthcare of New England CEO Stephen Farrell issued a statement saying the company understood the pressure the recession has put on individuals, and like Purcell he said most of the blame for rising medical costs rests with providers.

“The cost of coverage in our state, and across the country, is largely driven by increased demand for medical services along with rising prices for hospitals, physician services, prescription drugs and medical devices,” Farrell said. “Our ability to keep health care affordable will require that we better understand and control these many factors that are driving up the cost of health care.”

Tufts did not immediately respond to requests for comment.

Additional information is available at ohic.ri.gov.