Don’t rush to change SB110,insurance costs stabilizing
By RUSSELL MONBLEAU
Published: Sunday, May. 15, 2005
Health insurance costs have been a grave concern to everyone in New Hampshire in recent years. In attempting to address the issue, the governor and Legislature are about to make a big mistake.
Gov. John Lynch and several state representatives and senators have promised to repeal Senate Bill 110, the legislation blamed for skyrocketing group health insurance premiums. There are several proposals being discussed that would pretty much gut the 17-month-old law.
However, as with several aspects of SB 110 which were naively included in the first place, the fallout from the proposed solutions will be catastrophic to the health insurance market iThursday, November 04, 2004 9:38:15 PMoptions and greater competition. The second goal was to help stabilize premiums, which had been increasing by 15 percent to 18 percent every year.
SB 110 consisted of the following objectives:
- The first was to allow health insurance to rate on risk assessment, just like every other insurance product. This had been disallowed for health insurance when New Hampshire went to “community rating,” the legislation in the 1990s that forced all but a handful of carriers out of New Hampshire.
- The second objective was to allow carriers to rate by industry, on the basis that some industries present greater health risks than others.
- Third, carriers could increase premiums in certain zip codes where the cost of delivery of services was proven to be higher.
- Fourth, the age factor formula was changed from 3:1 to 4:1, meaning that the premium ratio for the oldest people could be now be four times higher than the youngest, rather than three times higher.
- Last, once the first-year rates were set, carriers would be capped at 25 percent annual premium increase for trend factors, that is, proven costs of providing insurance. This would cover potential increases in service contracts, cost of drugs, etc.
So, what went wrong in 2004?
Group renewals in 2004 under the new law had mixed results. Approximately 25 percent of the New Hampshire groups saw enormous increases in premiums, running anywhere from 35 percent to as high as 117 percent. About half the groups received normal increases averaging around 17 percent. The remainder saw either very low increases or in some cases, decreases in premiums.
The two areas hit hardest were the Seacoast and the northern tier where the zip code factors were the worst. Most of those politicians calling for a total repeal are from the Seacoast area.
What went right with SB 110?
Only 17 months into the new law, several new carriers did in fact re-enter our market. They brought with them new product innovations, such as group Health Savings Accounts and Health Reimbursement Accounts (HSA and HRA) designed to help manage insurance costs. Several other carriers are poised to re-enter, however their plans are on hold now as Concord debates the new proposals.
In addition, the three original carriers have been motivated to evaluate their own product offerings and all of them are developing plans to introduce their own versions of HSAs and HRAs.
Furthermore, rate increases are beginning to stabilize, with my personal list of small group accounts averaging less than 5 percent, including several decreases, so far in 2005.
Lastly, for the first time since 1996, small groups north of Concord have more than one company to choose from.
What is the real risk?
Concord is discussing several changes to group insurance laws. They include outright repeal of SB 110, return to community rating, and a high-risk pool funded by a premium tax.
Repeal will return us to 2003 with three group carriers, and two of those will become questionable as to their intentions to remain. A single-payer system, that is, one carrier for the whole state, has been a proven insurance disaster wherever it has been attempted in the past.
Community rating is a twisted expression of “out of the fire into the frying pan,” and then back into the fire. We know it was a disaster in the first place; why even think about returning to that?
Two of the new carriers in the state have already indicated they will leave our market the very day that community rating is voted back in.
The “high-risk pool” would be intended to offer some relief to the most ill of the group employees, however, at a high price to the insured groups. The plan would be funded via a premium tax, which would raise rates for everyone.
What should Concord do?
- First of all, revert to the 3:1 age ratio. The naïve belief was that the new ratio would mean that the youngest would be paying one-quarter instead of one-third of the rate for the oldest. Reality was that the young stayed pretty much where they were and the oldest took an automatic 33 percent hit.
- Second, the zip code factors, as high as a 15 percent surcharge, are being driven by the contract negotiations with carriers by a handful of hospitals, most notably, in the coastal area.
If Concord really wants to study something, that would be a great place to begin. Elimination of that one aspect alone would bring instant relief to some of the harder pressed groups.
Be a little more patient. SB 110 is starting to produce some intended results. More time is needed before the final results should be tabulated. The law is certainly due for some tweaking, but the danger of overreacting is very high and the results of that could well be catastrophic.
In fairness to Concord, politicians typically only hear the bad news. That’s no excuse for bad research, however, they need more balanced input. It is up to us, the citizens, to let them know how we feel.
Russ Monbleau of Milford is an independent insurance producer, specializing in small-group employee benefits.