Young People Pay Less For Health Coverage, Older People Pay More, Under Maine's 'Market-Based' Approach

KHN Staff Writer

Sep 04, 2012 - Kaiser Health News

This story was produced in collaboration with Boston Globe

Even as many states gear up for tougher insurance regulations under the federal health law, Maine lawmakers last year bucked the trend, loosening rules they blamed for some of the highest premiums in the nation.

Proponents promised lower rates for all Maine residents, with increased competition among insurers. But six months after the state’s rules took effect, no new insurers have entered the state – and premiums have gone up for the vast majority of small businesses.

The results have been mixed for individuals: Everyone under 40 saw rate cuts, while most people over 55 received increases, some as high as 18 percent, according to an analysis of state data released Tuesday by advocacy group Consumers for Affordable Health Care, which opposed the law changes. Overall, a little more than half of individuals saw their rates rise, albeit by a relatively low 1.7 percent average.

Both sides say the early results buttress their arguments amid a national debate over the role of regulation in rising coverage costs.

"The data are pretty clear: (The changes) raised rates on the elderly and did not significantly lower them for the young and healthy," said Joseph Ditre, executive director of the advocacy group, which opposed the changes.

But Joel Allumbaugh of the conservative Maine Heritage Policy Center called the early results "promising" and predicted rates would come down as more young people purchased insurance.

Outside experts say the one indisputable conclusion from the state’s experiment may be how difficult it is to reduce premiums across the board just by tinkering with insurance rules.

"Insurance reform [whether in Maine or the federal law] is about ways to make what we charge consumers more fair, but it’s not a means to reduce the cost of insurance," says Robert Laszewski, a former insurance industry executive who now runs an Alexandria, Va.-based consulting firm. "It's simply shifting the cost of insurance to different populations."

Is It A Market-Based Approach?

Lauded by the Maine Heritage Policy Center as an example to Congress and other states to "reverse and replace" the federal health law with "market based approaches," Maine's legislation was expected to attract new insurers and lower premiums, which cost an average of 36 percent more than in other states. In fact, however, the state’s new rules generally mirror the federal health care law, rather than being less stringent.

The law made three major changes: It gave insurers more power to vary premiums, freed them from seeking state approval for rate increases under 10 percent and created a "reinsurance" fund to protect them from their most costly medical bills.

Insurers can now charge older residents up to three times more than younger ones – twice the spread they were allowed under the state’s old rules, adopted in 1993 to insulate older people from higher costs. Because older people generally have higher medical expenses, however, insurers had charged young policyholders more to make up the difference. Only seven states currently have such "community rating" rules limiting how much they can charge older people. That will change in 2014, when the federal law sets a 3:1 ratio for premium variation based on age, just as Maine’s now does.

For states without such rules now, the changes required by the federal law will likely spell higher premiums for young people, and lower premiums for older ones – the reverse of what happened in Maine.

However, the federal health law includes subsidies to help low and moderate income residents, including young people, buy coverage, which could offset the increases.

The report from the consumer group shows that nearly 54 percent of people buying their own coverage from the state’s dominant insurer, Anthem Blue Cross and Blue Shield, saw rate increases, mostly older policyholders.

Anthem has about three and a half times more members over age 55 than under age 40, according to Chris Dugan, director of corporate communications.

"It is hoped that as a result [of the new law], more individuals can better afford to purchase insurance, thus creating a larger, healthier risk pool to the mutual benefit of all enrollees," he said.

Most Businesses Pay More

A Maine Bureau of Insurance report released earlier this year found that 10 percent of small businesses, which are served by several insurers, saw a rate decrease in the first six months, compared with 3 percent of small firms before the law. Still, the vast majority saw rates continue to rise.

"We were given a $75,000 increase, about 32 percent," said Jim Miller, manager of WoodenBoat Publications, a business with 40 employees on its health plan in Brooklin. After Miller agreed to higher deductibles, his increase was reduced to 22 percent.

For policies sold to individuals, the law created a "reinsurance" program, which shields insurers from costly medical expenses, funded by a $4 monthly per person tax on most policies sold to individuals and businesses. Policyholders expected to have big claims are put in the pool, which then pays for at least 90 percent of costs exceeding $7,500.

Without the program, insurers would either see reduced profits or pass the costs onto consumers.

A similar reinsurance effort is included in the federal health law.

In state filings, Anthem credited the program with reducing the average increase for individual policies. Without it, the insurer said, the average increase would have topped 21 percent. Another insurer, Harvard Pilgrim, originally sought a 12 percent average increase, but after "we worked with them on the reinsurance, the final number was a little over 3 percent," said Eric A. Cioppa, the superintendent of the Maine Bureau of Insurance. A third insurer, MegaLife, has a rate increase request of more than 6 percent under review.

"The reinsurance was significant" said Cioppa. "Those are really encouraging numbers."

National Lessons?

Most policy experts caution against drawing broad conclusions from Maine’s experiment. They say it’s hard to argue that the state has deregulated its market, or that its experience reflects what might happen under the federal health law. Even with the changes, Maine’s insurance rules are stricter than what currently exists in most states – and about on par with what will be required under the federal health law.

That isn’t stopping debate.

Ditre and other critics of the new rules say that it’s necessary to address factors that drive medical inflation, such as a payment system that rewards doctors and hospitals to do more, rather than to work efficiently, to bring down the cost of health coverage.

"It will take a lot of things moving together over time to make a difference," said Katherine Pelletreau, executive director of the Maine Association of Health Plans, a trade group. "At this point, the state needs to pay attention to cost drivers," such as wide regional variations in health costs.

Supporters predict that as more young people buy coverage, premiums will go down for everyone.

While no new insurers have entered the state, Allumbaugh noted that Anthem did introduce a new type of policy with premiums up to 60 percent lower than the old plans, state data show. However, the policies don’t cover childbirth and individuals could face as much as $15,000 to $33,500 in annual out-of-pocket costs.

Many state residents already had high deductible plans, he said, adding that the new policies include coverage the old ones didn’t, such as mental health services and a separate, $1,000 deductible for prescription drugs.

"They do provide good coverage and, in some cases, better coverage," than the former policies, he said.

Critics, however, liken the new plans to buying a car that is cheaper, but lacks an engine.

"They leave consumers exposed to significant bills," said Mila Kofman, the state’s former insurance superintendent who resigned in May 2011 and is now a researcher at Georgetown University. Under the federal health law, policies with such high out- of-pocket limits will be barred after 2014.

Overall, said Kofman, the changes in Maine simply allow insurers to "charge older people and those in rural areas" higher rates than they could before.