When health insurers wait to set rates, companies can't do budgets
Every year at this time, Chuck Fried is faced with a dilemma. The owner of technology firm TxMQ in Amherst must prepare a budget for the next year and get employees to enroll for health coverage. His wife has the same task with her adoption agency, Adoption STAR.
The problem: They usually don’t know how much the health insurance will cost, because the insurers typically haven’t released rates until well into November if not nearly December.
As of now, Independent Health Association and BlueCross BlueShield of Western New York have announced their prices, but Univera Healthcare won’t put out its own until Monday. The Frieds use Independent Health, but may change.
“How do you budget for something when you don’t know what will happen?” Fried said. “You pray is what you do. You guess. You sort of, kind of, assume it’s going to go up by 20 percent.”
Small-business owners across the area have confronted the same challenge as Fried for years, and they’re fed up.
“It is very stressful,” said Holly Anderson Wildermuth, who owns Anderson’s Frozen Custard. “There is no way to budget the increase because we don’t know what it’s going to be.”
And the brokers that represent them share their frustration because they’re helpless, too.
“Small companies are bombarded with significant rate increases, with little time to discover alternative options,” said Anthony Paolucci, account manager at Brown & Brown of New York. “How can small-business owners make a clear and decisive decision on what’s best for their employees, when they are given only days to research any new plan options?”
State law requires insurance companies to file their “community-rated” premiums with the state and publicly report them to employers no less than 30 days before the start of the quarter or year — 44 days if there are changes to the plan. That means the carriers are within their rights to wait.
This year, Independent Health broke with the past and released its rates unusually early: Oct. 24.
“We’ve been not as good as we could be in releasing our rates early and we’ve heard feedback from the marketplace,” said Chief Marketing Officer John Rodgers. “We made a decision that we were going to fix that.”
HealthNow followed suit early this month. And both say they’re committed to doing it again next year — Independent Health is even aiming for Oct. 1.
“Our goal was to get them out there as quickly as possible, to be responsive to business owners,” said Michael Giaquinto, senior vice president of general business at HealthNow New York’s BlueCross and BlueShield of Western New York. “It required a very big effort on the part of our staff internally, but we’re committed to doing this on an annual basis.”
“There should be no reason why we can’t. It’s the right thing to do,” Rodgers said. “The underwriting decides the premium, not us in a smoke-filled back-room. I don’t know if we can go much earlier than Oct. 1, but we’re not going to hold off until the end of October.”
Not Univera
But Univera is holding fast. “We take the full time available to us to get in as much claims information as possible to accurately predict utilization,” said spokesman Peter Kates.
He said an error of just 1 percent could mean a loss of up to $40 million. “Nobody has a crystal ball, but we get the most data we can so we can make the best estimate that we can.”
But employers and brokers say that policy hamstrings businesses, preventing them from properly budgeting, hindering them from making changes or negotiating with the insurer to lower costs, and leaving little time to get employees enrolled.
“You could talk to almost any of them and they’re not happy that the rates come out so late,” said Howard N. Silverstein, CEO of Choice Employee Benefits Group LLC in Williamsville. “I understand it from the [insurance] company’s side, but the consumer is just left hanging.”
Businesses have taken their complaint to a state trade group in hopes of prodding state regulators for relief, such as extending the minimum notice to 60 days.
“The Business Council of New York is aware of small-business owners’ complaints about this and brokers’ complaints about this,” said Bob Madden, vice president and account executive at First Niagara Benefits Consulting in Buffalo.
State officials are sympathetic to the concept. “I don’t think it’s a bad idea,” said Troy Oechsner, deputy state insurance superintendent for the Health Bureau. “Unless someone else gives me some reason why not, I wouldn’t oppose that.”
The problem, which applies primarily to small companies with fewer than 50 workers, stems from the soaring costs of medical care and, in turn, the spiraling increases in premiums. Businesses and consumers are desperate to rein-in double- digit rate hikes every year that drain their profits and salaries, while insurers want to control medical costs and ensure they charge enough in premiums to cover their expenses.
To do so, insurers collect data about claims filed in the previous year and how much they paid out. Actuaries use that information, together with past data, to predict claims trends so they know how much expense to expect for the coming year, and how much to charge.
The companies are constantly monitoring the claims expenses and estimating premiums throughout the year. But since the trends can change quickly from year to year and even quarter to quarter — last winter’s flu costs were unusually high— the insurers want to wait as long as they can each quarter so the final data is as fresh as possible.
“As much as we can anticipate and try to accurately predict what our claims expense will be, the best indicator of future claims is the most recent past,” Giaquinto said.
But that conflicts with the needs of businesses. With just 30 days, there’s not much time to try lowering the premiums by changing plan benefits or considering other plans, and still enroll employees on time. “It’s a huge issue, a very large concern for small businesses in Western New York,” said John Cureo, benefits consultant at Lawley Benefits Group.
State insurance regulators would like to bring back the system of “prior approval” for health insurance, in which all rate increases would have to be OK’d by them before going into effect. That would prevent excessive profiting by insurers.
Such a system had been in effect, but lawmakers replaced it with the “file-and-use” system in 1996, when the 30-day minimum notice rule was instituted. Getting it back is the Insurance Department’s top legislative priority for next year, Oechsner said.
With a return to prior approval, the state insurance department would mandate that insurers submit rate requests and documentation 90 days in advance for regulators to consider. A month later, public notice of the rate request would go out, giving businesses and consumers 60 days’ warning, not 30.
Alternatives
Until then, insurers and brokers say, they are working with businesses to help them prepare and budget as much as possible.
“We are getting an enormous amount of inquiries with regard to high-deductible health plans,” said Kevin B. Gannon, vice president and group division manager for M&T Insurance Agency. “To the carriers’ credit, they’ve come out with some very creative products.”
Brokers also urge employers to move away from Jan. 1 renewals, switching instead to the beginning of the third month in a quarter, such as March 1, June 1, Sept. 1, or Dec. 1. Since rates must be published by the beginning of each quarter, that would guarantee businesses at least 60 days.
“If we don’t get relief, a simple solution is to change your renewal,” Madden said. “If you have a broker that knows how to do this, it will make all the difference in the world.”
