Policy Price

The Sept. 23 deadline for compliance with several health reform benefit mandates brought negative impacts for several Blue Cross and Blue Shield plans. Most notably, Blue Cross and Blue Shield of North Carolina agreed to refund 5.8 million to members enrolled in individual coverage, citing the health reform law’s grandfathering provisions as the catalyst. And other Blues plans have blamed the reform law for withdrawals from the child-only coverage market and for premium rate hikes in other lines of business, drawing criticism from regulators.

Under an agreement with the state insurance commissioner, BCBSNC said it will issue a one-time refund to 215,000 members. CEO Brad Wilson said at a Sept. 20 press conference that the funds are coming out of the company’s “active life reserves,” which are “portions of the premium that we set aside in the early years of a policy to keep premiums more stable over the life of the policy, as customers’ medical expenses rise.”

Under the health reform law’s grandfathering provision, “policies purchased or substantially modified after March 23 of this year will end in 2014,” Wilson said.
“Therefore, the reserves held for these products will cover a much shorter period of time, which allows for these funds to be released.” He explained that refunds will equal a little more than 1.5 times an individual’s monthly premium. A policyholder who pays 0 a month will receive a check for 0.

Yet BCBSNC also requested an average 7% rate increase for Blue Advantage PPO customers in August. The insurer said when it filed the proposed increase that it was the lowest since 2007, and that 28,000 customers would see decreases in their rates. The insurance commissioner approved a 5.37% increase.

So why the need for increases when the insurer’s pockets are overflowing? Lew Borman, spokesperson for BCBSNC, says the issues were decided in separate discussions. “The rate filing was an annual filing, an annual discussion. The premium issue was separate.” Premium increases, he asserts, “are based primarily on medical trend….The active life reserves come from 2010 and the rate filing is for 2011.”

But one analyst contends the issues are, in fact, linked. The North Carolina Blues plan “apparently has excess statutory capital,” says Brian Wright, an equity analyst at Collins Stewart LLC in New York. “There are two ways to reduce the excess. One way is to price premiums lower than they would be so that capital is degraded away.” The problem with that method is that “consumers would get a false sense of what was actually happening with underlying health care inflation,” he says. BCBSNC chose the second way to reduce excess, which is to give customers refunds on prior years’ premiums. That way, Wright says, “consumers receive the same benefit on a dollar basis, but do not get the false impression that medical inflation is lower than reality.”

There is some precedent for Blues plans returning excess capital to policyholders through premium givebacks. In 2003, a slowdown in the rate of increase in health care spending left many not-for-profit Blues plans with unexpectedly high reserves and brought intense scrutiny from state regulators. The result:

Blue Cross & Blue Shield of Rhode Island said in October 2003 that it would distribute million to customers, hospitals and other providers via premium rebates and increased reimbursements. The insurer decided to use a “rate holiday” to return million to employers. Each employer group would get a 5% discount on one month’s premium payment. Another million would be used to increase physician reimbursement, and the last million was distributed to hospitals in Rhode Island.
BlueCross BlueShield of Tennessee said in October 2003 that it would refund million in premium payments to fully insured group and individual members starting in December 2003. Any enrollees or businesses that had fully insured Tennessee Blues coverage for at least one month during 2003 were eligible to receive about 4.5% of premiums back, in the form of a check mailed in December 2003 or a credit on their statement for January 2004. The Tennessee Blues plan did not include providers in the giveback program.
Horizon Blue Cross Blue Shield of New Jersey said in February 2004 that it would distribute .8 million to small businesses, .9 million to senior Medigap members and .3 million to individual enrollees under age 65. In addition, the insurer said it would commit million to provide computer hardware and software to a number of New Jersey hospitals and physicians.

Meanwhile, some Blues plans and other insurers have withdrawn from child-only coverage, citing issues with reform provisions related to pre-existing condition exclusions. The insurers said they no long would sell such policies as of Sept. 23,

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