• Dealing with difficult health choices

• Employers, individuals face tough choices on health coverage

HAGERSTOWN — Maryland’s largest health insurer posted one of its lowest profits ever last year — even as some of its clients are seeing their highest insurance bills ever.

CareFirst BlueCross BlueShield, which covers nearly 3.4 million people in Maryland, northern Virginia and Washington, D.C., cleared $9.3 million — about “one-tenth of 1 percent” of its $6.6 billion in revenue, said its chief spokesman, Michael Sullivan.

“The simple fact of the matter is health care premiums and what companies pay for health insurance are driven by health care costs,” Sullivan said.

In the Maryland-Virginia-D.C. region, “health care costs rise at an average of between 8 (percent) to 12 percent per year,” Sullivan said.

So the problem is not insurance company profits, as some allege, but rather those costs, he said.

“We believe that something must be done to reduce the underlying health care costs,” Sullivan said. “That’s where there’s not enough discussion in federal health care reform.

“Question is, how do you reduce what health care costs?”

Report: Maryland’s costs grow faster than U.S. average

Marylanders spent about $35.8 billion on health care services, including hospital care, practitioner services, prescription drugs and long-term care, in 2007, the most recent year for which such data is available.

According to a report issued in March by the Maryland Health Care Commission, state residents spent an average of $6,374 per person for health care services in 2007.

On average, health care spending per person rose 7 percent per year from 2003 to 2007 in Maryland, the report said. That was slightly higher than the national average of 6 percent per year, it said.

Spending for hospital care has risen the fastest, accounting for about one-third of total health care expenditures in 2007, the report said.

Also growing fast are expenditures for the administration and net cost of insurance, it said.

“In 2007, Marylanders spent $3.1 billion for the administration and net cost of insurance, equal to $559” per person, according to the report.

“Per capita, Marylanders spent about 10 percent more in this category than the national average, in part reflecting higher rates of private insurance coverage in the state,” the report said.

From 2003 to 2007, it said, this cost “grew at an average annual rate of 8 percent in Maryland, twice as fast as the national average.”

Researcher: Premiums up more than costs nationwide

Across America, health care costs are rising, but not as fast as health insurance premiums, according to an official at Georgetown University’s Health Policy Institute in Washington, D.C.

“Insurance rates have been going up steadily every year at double digits because insurance profits are increasing,” said Karen Pollitz, the institute’s research director for private health insurance.

To make her point, Pollitz pointed to a national study by the Centers for Medicare & Medicaid Services, in the U.S. Department of Health & Human Services.

The study shows health care costs throughout America increased 6.1 percent in 2007.

“And the years before that, (they increased) 6.7, 6.8, 6.9 ... You have to go all the way back to 1990 to find the last year that we saw double-digit growth in health care cost,” Pollitz said.

“And yet, we see double-digit growth in insurance premiums all the time,” she said.

The study also gives a breakdown of national health care expenditures.

Among them, Pollitz noted, is the net cost of administering private health insurance.

“In one particularly interesting year, 2002, health care spending grew 9 percent. The cost of administering private health insurance — 16.8 percent,” Pollitz said. “When you look across the last 30 years, the cost of health insurance is rising faster, significantly more. It’s data.”

Revenue vs. expenses

Unlike many insurers, CareFirst is a not-for-profit company, Sullivan said.

“When you take a look at the industry as a whole, that’s different than when you only examine not-for-profit,” he said.

CareFirst is part of the national family of BlueCross BlueShield companies, some of which are for-profit, he said.

But at CareFirst, “at the end of the year, we seek to make a profit margin — we call it net income — we seek to have a net income that’s somewhere between 1 (percent) and 2 percent. It’s what we make after all expenses,” Sullivan said.

In all, “85 to 86 cents of every dollar we take in goes right back out to pay for health care for our members,” he said.

Most of the rest of every dollar pays operating expenses and goes into a reserve fund, Sullivan said. Reserves are used to improve service and “to make sure we have the ability to pay our members, regardless of what their health problems are,” he said.

The reserve fund, which is invested in stocks, dropped dramatically last year, Sullivan said. “A lot of that had to do with what happened in the financial market, but, on top of that, the H1N1 (virus)” played a role with regard to medical costs.

So during 2008, when revenue totaled $6.6 billion, CareFirst’s profit was $9.3 million, he said.

During 2007, total revenue reached $6.1 billion and CareFirst’s profit was $180.5 million, or 2.96 percent of that.

In 2006, CareFirst posted a profit of $164.3 million, or 2.99 percent of its $5.5 billion in overall revenue.

Effect of rising premiums

In 2007, CareFirst told the Western Maryland Consortium, a work-force development agency based in Hagerstown, that to keep its current health insurance plan, it would have to pay 16.4 percent more.

In 2008, CareFirst said the premium had to go up again. This time, it wanted 22 percent more.

And this year, for the policy year that began this month, CareFirst said the premium had to increase again. This time by 19.5 percent.

The consortium, which has 18 employees in Washington, Allegany and Garrett counties, agreed in 2007 to raise its deductibles in 2008 to include prescriptions in the higher-deductible plan, and now, to go to a health maintenance organization plan, all to make the increases more affordable.

It wound up with increases of 6.9 percent in 2007, 16 percent in 2008 and 8.4 percent in 2009.

Peter P. Thomas, executive director of the consortium, said he had to stay with CareFirst because his staff needs the coverage it provides in all three counties.

But, he said, having to grapple with such increases has been tough.

“BlueCross BlueShield just continues to squeeze and squeeze and squeeze, taking away coverage and raising premium,” Thomas said. “You have to continue to wonder why it’s costing so much for so little.

“It’s double digits every single year and even when you go to the lesser plans, you’re still knocking it down to a sizable increase, as opposed to an outrageously large increase.

“It’s clear something has to change. There’s no question that insurance reform, whatever way it comes about, is overdue.”

Paying the price

Mike Cumberland, an insurance broker with Hagerstown-based Keller Stonebraker Insurance, said facing such rate increases is becoming usual for employers throughout the area.

Keller Stonebraker sells others’ insurance products to companies and individuals. Basically, its commissions are tied to a flat rate, regardless of how much premiums increase.

“For a number of years, a lot of employers have been growing increasingly frustrated at the state of the market when it comes to health insurance,” Cumberland said. “We’ve seen a significant increase in premiums.”

He said part of the blame might be rooted in the early 1990s, when Maryland set a minimum standard on the coverage insurers can sell to small firms.

“Making these reforms greatly limited, or restricted I guess, the ability for ... health insurance carriers to remain competitive in Maryland and turn a profit,” Cumberland said. “So we saw a lot of fine companies just exit the state.”

Now, there are a limited number of carriers, especially in Western Maryland, he said.

“Bulk of business is with CareFirst BlueCross BlueShield and United HealthCare,” he said. “They probably have 80 (percent) or 90 percent, and that’s due to the fact we literally have a handful of carriers in the Maryland market, especially in the small market (of companies with) fewer than 51 employees.

“In Western Maryland, the majority of employers have fewer than 51 employees. Oftentimes, they’ve got one choice.”

Cumberland said insurance companies tell him the rapid rise in premiums is “due in part to the influx of new residents in, say, Washington and Frederick counties.”

Years ago, companies here paid about 25 percent to 30 percent of what similar businesses paid in Montgomery County, Md., for health insurance, he said.

“Now, our rates are identical,” he said. “They didn’t lower them in Montgomery County. They raised them in Western Maryland.”

“In talking to carriers, they point to the growth in Frederick and Washington counties. They’re saying utilization is up,” he said, referring to insurance claims.

Cost and utilization

Asked why premiums have increased so quickly, Sullivan also points to utilization as a big factor.

“The fact is, health premiums — what we charge our members or employers — those rates are most directly influenced by rising health care costs,” he said.

“Health care costs are comprised of a couple of things. One is unit costs. What does it cost for an X-ray? What does it cost for a primary physician? What does it cost for a prescription? Those all increase.

“The other component of it is utilization. How often does a member get a prescription filled? How often do they go to the doctor?”

Those are powering the average 8 percent to 12 percent annual increase in health care costs throughout CareFirst’s market in Maryland, Virginia and Washington, D.C., Sullivan said. He said he didn’t know how much it’s rising just in Western Maryland.

Sullivan said utilization is becoming the larger factor.

“We’re seeing a greater increase in utilization than we are in cost,” he said.

Besides this, “another important way of looking at whether we’re setting prices appropriately for our product is, last year, we actually lost money on underwriting,” he said. “Underwriting is the amount of money you took in on premiums versus how much you paid out for health care.”

At the same time, Sullivan said, CareFirst has to be certain its prices are attractive to potential customers.

“We certainly have a direct incentive to keep those prices down,” he said.

Sullivan declined to talk about the premium increases at the consortium.

In general, he said, rates depend on what’s in a policy, how much costs are rising and the usage by people with that kind of policy.

“And what I mean is, if there’s an insurance product in which there’s 100,000 members and organizations that have that product, we take a look at it and we price it based on experience of people in that, how much health care do they consume,” he said.

Under state law, the premiums for broad classes of companies having 50 or fewer workers are to be reviewed by the Maryland Insurance Administration, he said.

Sullivan said his responses must be “cold comfort” to employers facing double-digit increases.

“Our goal is to keep premiums as affordable as we can, taking into account actual realities of the cost of care and then, providing the coverage,” he said.

“It varies for everybody. Are there increases like that? Yeah. Absolutely. But they reflect those factors. Our goal is to try to keep increases moderate. It’s not always possible,” he said.

“And, you know, in some cases, it’s always possible there are premiums out there that still don’t reflect what we’re actually paying for health care.”

But, he said, for employers facing rising premiums, “it’s a reasonable question to ask: Why?”

‘More expensive’ in the U.S.

CareFirst is frustrated, too.

And its complaints aren’t lost on at least one Maryland health care official.

Not enough is being done nationwide to reduce the underlying costs of health care, Sullivan said.

“That’s a problem for everybody,” he said. But especially for Americans because “it’s more expensive in the United States than it is anywhere else,” he said.

And the kicker is life expectancy, infant mortality and other basic health measures are “all worse here than in other advanced nations,” he said.

But what about Maryland’s pioneering step of being the nation’s only state to control the rates charged to patients at hospitals?

“That doesn’t have anything to do with a specialist or a surgeon, who may not be employed by the institution” because the commission doesn’t control such doctors’ fees, Sullivan said. Nor, he said, does it control ambulatory surgery centers, outpatient surgery centers or free-standing radiology facilities.

“So, yes, there is a control mechanism in the state of Maryland, but it’s only a tiny little piece of the puzzle,” Sullivan said.

That’s true, said Robert Murray, executive director of the Maryland Health Services Cost Review Commission.

One weakness, Murray said, is the lack of control over fees charged by such nonhospital providers as physicians, nursing homes, home-health care and hospice care. In 1993, the state studied the idea of setting rates for doctors, but it wasn’t approved, he said.

Murray said another problem is that the state has no way to control the number of people scheduled for treatment.

“Managed-care companies said they were going to control when care was necessary and when it’s not necessary,” he said. “So really, the hope has been that insurers would determine when a procedure should be and when it should not be.”

But “physicians and patients didn’t like that,” he said, so the overall prices have continued to rise as treatment has increased.