Thursday, December 13, 2012

Unclear - Breathlessly Unclear - On the Concept

Hank just referenced this LA Times article that is dramatically headlined “Blue Shield of California seeks rate hikes up to 20%.”  The article also suggests Blue Shield “. . . use some of its record-high reserve of $3.9 billion to hold down premiums.”

The headline and article are misleading about rates, and the surplus suggestion is a bad idea that won't go away.

The rate discussion in the article is another example of the sensationalism typical of most media reporting on medical insurance.  The Times actually does supply a little good info  - but you'll find it only if you read past the first few paragraphs. That's also typical of medical insurance reporting,

In the very first sentence Times says:  “Blue Shield of California wants to raise rates as much as 20% for some individual policyholders” I think it’s clear that the Times means fewer than half of these policyholders  The individual market makes up less than 10% of all policyholders.  So fewer than 5% of Blue Cross policyholders are getting a 20% increase.  That’s not sensational, so the Times spun its reporting the other way.

The article goes on to state “In filings with state regulators, Blue Shield is seeking an average rate increase of 12% for more than 300,000 customers.” (the article suddenly falls silent about whether these “customers” are individuals or groups).  OK, how reasonable is 12%?

You must read down to the 13th paragraph (!) of the Times article to find out:

“The insurer said its medical costs for this segment of the business grew 10.6% and what it actually pays is rising 12.5% after adjusting for its portion after customer deductibles.”

Other insurers not only in California but all across the US are experiencing similar rises in their annual medical costs.  So it seems to me an average premium increase of 12% is perfectly reasonable. LA Times chose to sensationalize these mundane facts.  I'm not saying a 12% increase is something anyone will like.  I am saying 12% is reasonable based on the cost of medical care Blue Shield is obligated to pay for.  Remember, medical insurance premiums are high because medical costs are high.  Medical insurance premiums rise because medical costs rise.

LA Times also sensationalizes its discussion of surplus.  It says there are calls for Blue Shield to “use some of its record-high reserve of $3.9 billion to hold down premiums."  Well, are we expected to check our wits at the door when confronted by terms such as "record-high" or big numbers like "$3.9 billion"?

The Times lead source for these calls is Laurie Sobel, a senior attorney for Consumers Union in San Francisco: "Blue Shield is sitting on a huge surplus that is beyond what is required or necessary," and she said "It should be used to hold down rate increases when it hits these extraordinary levels."

Neither Attorney Sobel, nor Consumers Union, knows what level of surplus is the right amount, yet both are quite certain that present surpluses are too high.

Sobel also says the excess surplus “should be used to hold down rate increases”.  As Hank states, that’s a bad idea. It was a bad idea when Consumers Union touted it back in 2010.  It’s a bad idea now

Following CU’s lead, the Times swallows the notion that the BCA and regulatory minimum requirements are sufficient – ignoring the many changes in business conditions (including passage of PPACA and the MLR requirement as Hank notes) that have occurred since those minimums were established.  The shortcomings of the Consumers Union position were noted at InsureBlog back in 2010.

Consumers Union could do a better job of preparing when it advocates on this issue  - and so could LA Times.

One final comment.  One must read to the very end of the Times article  - the 24th and 25th paragraphs – to find this:

“Larry Kirsch, a healthcare economist in Portland, Ore said . . . "There ought to be a reasoned analysis for when is enough," Kirsch said. "There always seems to be a 'sky is falling' story. I say prove it to me."

Kirsch appears to be referring to insurance companies who claim the sky is falling.  But his comment applies with equal force to advocates like Consumers Union and the media who seem always show up with their own breathless claims that the sky is falling.  Kirsch is right though that analysis and proof are necessary to establish appropriate yearly premiums AND for the appropriate level of surplus each not-for-profit insurer should hold.  I’m certain Blue Shield provided a full analysis of their premium calculations in their rate filing with the State.   Perhaps it’s time for an industry-wide, rigorous update of surplus requirements.
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