Four issues to watch on health insurance

Premiums rising but uninsured ranks hold steady

AT LAST WEEK’S Health Policy Commission meeting, Kevin Beagan, the deputy commissioner of the Division of Insurance, shared some interesting data highlighting the state of our private health insurance markets in Massachusetts during this COVID-19 era.  When you put together some of the data he shared, along with other information that has come out about our state’s health insurers in recent weeks, here are four issues to keep an eye on.

First, there has been no significant change in the ranks of uninsured during the COVID-19 era. The number of people covered by some form of health insurance was down by 10,000 at the end of July compared to March 2020, according to data released by Beagan.

This number reflects about 40,500 fewer people covered by private insurance, likely from job losses that were experienced during the first months of the pandemic, but offset by about a 30,000 person increase of people with governmental insurance.  As would be hoped during difficult economic times, Medicaid enrollment by low-income individuals increased by about 25,000, while 5,000 people became new Medicare enrollees. Some of these new Medicare enrollees presumably aged-in, but others were probably already Medicare eligible and had deferred Medicare enrollment until COVID-19 struck and forced them out of work and onto Medicare.

What is surprising is how well private insurance enrollment has held up.  I would have expected a larger drop in the number of privately insured individuals because Massachusetts, until recently, had the highest unemployment rate of any state in the country. While many people lost their jobs and went on unemployment, it appears their health insurance continued either because companies continued to pay for it, workers continued their coverage through ERISA,  or out-of-work employees with incomes too high to qualify for Medicaid, but able to sign up for a private plan on the Connector—for many, with their premiums subsidized by the government.

All in all, the market seems a lot more resilient than many had expected. At least here in our state, arguably the one most committed to universal coverage, things are holding up for now.

Second, most of our state’s health insurers are making a lot of money during the pandemic. Through the end of June, health insurance profits were up as customers deferred most medical visits because of fears about COVID. Blue Cross Blue Shield of Massachusetts made $150 million in the second quarter and, collectively, Tufts Health Plan, Harvard-Pilgrim, and Fallon took home about $115 million in net profits.

Health insurers are required to return premium dollars to fully insured customers when medical care spending drops below certain thresholds. So when Blue Cross in early August decided to return $100 million to customers, the company was not being charitable. It was just returning money that it was going to have to return eventually anyway, but by doing it now, Blue Cross is helping some businesses with more immediate cash flow issues.

Whether this profitable trend for insurers will continue or not is less clear. In his presentation to the Health Policy Commission, Beagan said insurers are now paying out more to health care providers, presumably as more and more patients take care of deferred health care matters. Beagan is predicting total medical care spending for the year will be down about 5 percent compared to last year, less than the 10 percent predicted in July.

Third, Allways, the insurer owned by Mass General Brigham, is not making money right now. The company lost $2 million for the quarter ending June 30, which is probably not that surprising.  Over half of the firm’s 248,000 or so members are self-insured and pay only limited administrative fees; more than 100,000 of the members come from Mass General Brigham, which placed all of its employees and dependents into plans administered by Allways.

Allways, when it was called Neighborhood Health Plan, tried to win business from the state Group Insurance Commission a few years ago by offering a lower-rate plan with the help of short-term price discounting by Mass General Brigham providers. That effort was scuttled by state employees balking at the notion of losing their traditional health plan administrative choices, and so staff at the Group Insurance Commission backed off the plan.

Allways probably can get by more or less on a break-even basis. The company seems to exist under Mass General Brigham ownership to steal some of the non-medical expense from the premium and use that money to pay higher prices to the hospitals and doctors owned by the Mass General Brigham system.  Yes, Allways would like to grow the number of people it insures, but it can probably survive if it breaks even as an insurer and steers additional revenues to Mass General Brigham’s providers.

In a recent interview, the interim CEO of Allways said the company has set up a limited network arrangement with Newton Wellesley Hospital and its doctors. Allways is offering a number of communities near the hospital a limited-network product with premiums that are 20 percent lower than the company’s other insurance products. I assume that discount is made possible by keeping patients away from Massachusetts General Hospital and Brigham and Women’s Hospital as much as is possible, and perhaps a willingness by Newton Wellesley Hospital and its doctors to discount prices. My guess is Mass General Brigham will watch this experiment and see if the volume of new business taken from other providers makes up for the discounted prices offered.

Finally, health insurance premiums are going up on average about 8 percent in the first quarter of next year. That rate of increase is more than double what was approved for the start of 2020, and will affect nearly a half million customers across our state.  As Beagan noted, the increase is coming even as total medical spending is expected to decline by 5 percent for this year. There are a number of factors contributing to such a projection for a spending increase—including pressure from providers to recoup 2020 losses, telehealth payment parity and expected COVID related testing, treatment and vaccination costs.

While each health plan proposal is different, with about an 8% allowed increase over last year’s premiums, that means that on average, insurance company actuaries are forecasting that medical spending will end up about 13 percent higher in 2021 as compared to where 2020 spending is expected to land–assuming flat administrative costs.

That increase sounds steep—especially since we have entered a pandemic era where wringing out waste seemed to be an essential thing to do.  I worry that insurers are more or less willing participants with the providers to ignore the health care market disruptions from COVID, and simply allow the health care gravy train to get right back on track.   I also worry that the approved level of increase signals to all of the brokers and consultants out there that they ought to tell their self-insured clients to increase prices for their health plan offerings for next year—rather than put pressure on their third party administrators to hold the line on provider price increases—especially the ones likely going to the well healed providers like MGB and Boston Children’s Hospital and their physicians.

The increase seems to suggest that even though people avoided all kinds of care this past spring—some of which was actually needed–there is also a lot of waste that plagues our fee-for-service health care system that somehow people can’t just avoid.

Meet the Author

Paul A. Hattis

Associate professor, Tufts University Medical School
I certainly hope it is not the case that the only way to see a moderation in the growth of health care spending is to get another surge in COVID-19 cases leading to some sort of shutdown again of our health care system. But, sadly, absent big picture policy changes, that may in fact be true.

Paul A. Hattis is a recently retired associate professor at Tufts University Medical School.