Thousands of Mainers who buy their own health insurance are facing a nearly 23 percent average increase in premiums, the sixth double-digit rate hike in the past six years.

For many, it’s the latest example of corporate greed bankrupting policy holders or forcing them to drop coverage and hope they can avoid getting sick, or at least avoid seeing a doctor.

Even the Obama administration has taken notice, pointing to rapidly rising premiums in Maine and other states as proof of the urgent need for comprehensive national health insurance reforms.

But, as usual in the complex realm of health insurance, there is a lot of disagreement about what is driving Maine’s runaway insurance rates.

Rising health care costs and expensive new treatments and drugs are clearly big, if not the biggest, pieces of the puzzle. And some of the rising price of insurance is the unintended consequence of Maine rules that were meant to guarantee everyone access to affordable coverage, according to Anthem officials and others in the industry.

“A lot of times we’re missing the mark and we’re not paying attention to what the underlying cost drivers are,” said Joel Allumbaugh, president of the Maine Association of Health Underwriters.

Anthem Blue Cross and Blue Shield has proposed a 22.9 percent average rate increase for its 11,000 individual policies, which cover about 20,000 people. Anthem provides health insurance to roughly half of the 40,000 Mainers who buy their own plans because they don’t have coverage through their jobs or are not old enough or poor enough to qualify for government insurance.

For Fred Conti, a self-employed real estate appraiser from Freeport, Anthem’s proposal means his monthly premium would jump from $284 to $347.

Such pricey premiums do not mean Conti has anything close to Cadillac coverage. In fact, the 60-year-old carries a $10,000 deductible, which means he pays for every doctor visit, drug prescription and medical test until his costs exceed $10,000, when Anthem would pay the bills.

In about 20 years as an Anthem subscriber, Conti can’t remember ever reaching his deductible and actually filing a claim.

“A lot of people are just throwing their hands up and saying, ‘I can’t afford it,’” Conti said. “The only reason I have it is I have to protect my assets” in case of a severe illness or accident.

Instead of joining the 11 percent of Mainers without health insurance, Conti plans to keep his premium closer to where it is now by increasing his deductible to $15,000, the highest amount offered.

Morris Kreitz, a retired architect, already has a $15,000 deductible and pays for all his doctor visits without help from Anthem. Kreitz and his wife, both 62, still expect to pay a combined $480 a month after the rate hike goes through.

“I think, realistically, we’re not going to drop it,” the Cape Elizabeth man said. “We don’t want to end up destitute because one of us got ill or injured.”

INSURER: POLICY POOL GETTING SICKER

Both Conti and Kreitz have had Anthem’s health insurance long enough to remember when the company had plenty of competition and charged much lower premiums.

That changed in the 1990s, as health care costs climbed and Maine imposed rules to protect access to affordable insurance.

A 1993 Maine law made it almost impossible for insurance companies to turn down customers or drop them because they are sick. And it said that all customers also must be charged roughly the same rates, regardless of risk.

Gradually, nearly all of the smaller insurers stopped selling coverage in Maine and focused on other markets. Today, only one other private insurer, MEGA Life and Health Insurance Co., offers individual insurance. (It is proposing an average 12.5 percent rate increase.)

Meanwhile, medical costs have continued to climb.

General costs are between 6 percent and 8 percent higher than a year ago, according to Bill Whitmore, Anthem’s vice president of underwriting in Maine. Expensive new drugs and treatments add another 6 percent to 8 percent, he said.

And some individual policy holders are getting a lot of expensive care. Four percent of Anthem’s individual subscribers account for 80 percent of the dollars paid out in claims, according to company officials.

The rising costs, and the fact that sick people have to pay the same premiums as healthy people, has led many to simply stop paying premiums. The number of Anthem’s individual subscribers has dropped from 30,000 to about 20,000 in the past decade.

And, because there is now a higher proportion of sick people in the policy pool, premiums have to go up faster than costs, said Daniel Corcoran, president of Anthem in Maine.

“Younger, healthier folks are unwilling to subsidize higher-cost claimants. Costs start to rise much faster than you would expect,” he said. “The pool gets sicker and sicker, if you will.”

The phenomenon, sometimes called a “death spiral,” was predicted by state officials a decade ago as a side effect of the coverage rules, Corcoran said.

In addition to the higher medical costs and the shrinking pool, Anthem’s rate proposal also reflects its desire to make the individual insurance business profitable again.

Last year, for the first time, Maine Insurance Superintendent Mila Kofman eliminated Anthem’s built-in profit margin and reduced its proposed 18.5 percent rate increase to a 10.9 percent rate increase.

Kofman’s ruling said Anthem had made substantial profits on individual policies — nearly $16 million in pre-tax earnings between 2000 and 2008 — and could live without a profit at a time when many Maine subscribers were facing financial hardship. The state also cited overall net profits for the Maine company, before taxes, ranging from $55 million to $100 million a year.

“Anthem has more than enough surplus to absorb this loss,” Kofman’s May 2009 order says.

Anthem appealed Kofman’s rate decision last fall, effectively arguing that it is entitled to make a profit in this segment of its business.

Coincidentally, that appeal is heating up just as the company fights for its new rate proposal. Attorneys for Anthem and the Maine Attorney General’s Office will argue the case in Cumberland County Superior Court on March 19.

In the meantime, Anthem’s new rate proposal includes enough of a premium increase to restore Anthem’s profit margin.

According to Corcoran, even though the past nine years were profitable overall, Anthem has lost money on the individual policies in more recent years and is losing money now.

“Over the last five years, our total losses in the individual market have been $5.7 million,” he said. “The rates that we’re putting forward in the market need to cover expenses on a going-forward basis.”

Allumbaugh, president of the Maine Association of Health Underwriters, agreed that Anthem should be granted a profit margin, in part so it isn’t forced to increase premiums for its group plans, which are the ones provided through employers.

If the business were as lucrative as critics say, Allumbaugh said, the other insurance companies would never have left.

Anthem’s profit margin, typically about 3 percent each year, is a distraction from the real problems of rising health care costs and shrinking pool of individual policy holders, he said.

“Even if you took profits out of the equation entirely, it’s so minimal,” he said. “Maybe you drop your rates by 2 percent one year. We’re not focusing on what the underlying issues are.”

ACTIVIST BLAMES LIMITED COMPETITION

Greg Howard, spokesman for the advocacy group Maine Change that Works, said Maine’s coverage rules are not driving up the rates as much as profits are.

“Fishermen, farmers and foresters don’t have a guaranteed profit margin,” Howard said. “The people of Maine are having to suck it up. Maybe Anthem can suck it up just this once.”

Joe Ditre, executive director of Citizens for Affordable Health Care in Augusta, said it’s partly Anthem’s own fault that the individual insurance pool is shrinking and getting sicker.

“If they didn’t take so much out in profit, we wouldn’t have to have lifetime caps (on claims), and we wouldn’t have to have such high deductibles,” he said. People with high deductibles, or no insurance at all, often don’t seek medical help until they need the most expensive care.

“People are getting sicker because they are avoiding, delaying or skipping care,” he said.

Anthem even bears some of the blame for the underlying health care costs, Ditre said. Because of limited competition, Anthem simply passes excessive medical bills and waste along to policy holders instead of challenging them, he said.

“They have to use their bargaining clout to bring down prices,” he said.

 

Staff Writer John Richardson can be contacted at 791-6324 or at:

[email protected]