California’s rate regions to play larger role in health premiums

HealthcareCostsWhether it’s the densely populated Southern California coast or the mountains   of rural Northern California, geography is going to play a larger role in the   cost of health insurance under the federal health care overhaul set to take   effect next year.

Health insurers are facing new rules and restrictions on how they set prices   as part of the Affordable Care Act’s aim to expand coverage to millions of   Americans. No longer can insurers deny coverage because of a preexisting   condition or place lifetime limits on medical care. While a person’s age will   remain a factor in setting rates, older customers cannot be charged more than   three times what younger customers pay.

California also has rejected an option under the federal law that allows   health insurance companies to charge smokers up to 50 percent more for their   premiums.

All this leaves geography as one of the few ways insurers can adjust   premiums. The premiums will not be set for most consumers under the law until   summer, although estimates are available at the website of California’s   health benefits exchange, www.coveredca.com.

The federal government has proposed that a state should not create more than   seven geographic rating areas to prevent insurers from charging excessively   high premiums in certain areas.

To accommodate California’s size and diversity, the state’s health exchange   is proceeding with 19 regions with the understanding that its plan eventually   will receive federal approval.

To complicate matters, state lawmakers are scheduled to convene a special   session next week, during which the Democrats who dominate the Legislature  could come up with their own number.

“Should there be one rate for all of California, every zip code or  something in between?” said Anthony Wright, executive director of Health   Access California, which advocates for low-income families.

It’s still too early to say just how much of a determining factor geography   will be in setting premiums.

But one health plan rated the difference between east and west Los Angeles   County by a factor of 50 percent, which could mean a difference of hundreds of dollars for a family of the same size and whose members are the same age.

Health plans argue that 19 rate-setting regions are necessary in California   because premiums should reflect the underlying costs of care. Those costs   include regional wage rates, number of hospitals and the amount of   competition in the area for providing medical services.

Health policy experts say different regions carry different risks for disease   and access to treatment. For example, the Central Valley has higher incidence   of asthma because of its poor air quality.

But consumer advocates are concerned that smaller regions will give health   plans the opportunity to target poor, rural or less healthy communities with   higher rates, similar to how insurance companies have charged higher auto   rates in some communities deemed higher risk.

California needs to balance the social benefit of spreading risk – defined as   having healthy people subsidize care for those who are less healthy – against  having people paying their own medical costs, said Marian Mulkey, director of the Oakland-based nonprofit California HealthCare Foundation’s health reform   initiative.

“There’s probably some Goldilocks, just-right balance between there, but it’s extremely hard to find,” she said. “And that’s why this is a sticky conversation and difficult to navigate.”

California Secretary of Health and Human Services Diana Dooley said having   seven rating regions is “completely unrealistic for California.”   The state is moving ahead with 19 regions with the understanding that the   federal government will allow it.

“We’re going to be making adjustments to this, certainly in the first   few years and maybe over the course of the decade,” she said. “When   we see how this performs after a year or two, we may come back and make   changes to those rating regions.”

The U.S. Department of Health and Human Services is currently reviewing   comments and plans to issue a new rule soon.

At this time, there is no geographic standard for setting premiums. Health   plans typically have used nine rating regions in California because they also   can use so many other factors in determining premiums, said Charles Bacchi,   executive vice president of the California Association of Health Plans.

Health insurers had argued that California needs many rate-setting regions because the state is asking them to switch to a standard benefit design next year.

While it will allow consumers to make direct comparisons of health plans,   insurers say the standardization of benefits could drive up premium costs.   That is because it restricts the amount and the number of ways they can   charge people for co-pays, co-insurance and deductibles.

Associated Press –     February 16, 2013

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