House Majority Caucus Room
State Capitol, Boise, Idaho
Tuesday, August 19, 2003
The meeting was called to order at 9:00 by Cochairman Representative Bill Deal. Other Task
Force members present were: Cochairman Senator Dean Cameron, Senators Joe Stegner and
Fred Kennedy and Representatives Max Black, Margaret Henbest and Kathie Garrett. Senator
Sheila Sorensen, Senator John Goedde and Representative Gary Collins were excused. Staff
members present were Caralee Lambert and Toni Hobbs.
Others present included: Bob Seehusen, Idaho Medical Association; Julie Taylor, Jack Myers
and Dave Hutchins, Blue Cross of Idaho; Jack Jones, AARP/Council on Aging; Norm Varin and
Tim Olson, Regence BlueShield of Idaho; Elwood Kleaver, Primary Health; Jim Baugh, Co-Ad;
Mike Brassey and Vic Moretto, St. Luke's Regional Medical Center; Bonnie Haines and Steve
Millard, Idaho Hospital Association; Ken McClure and Molly Creswell, Givens Pursley; John
Summerton, Strategic Employer Benefits; Eileen Farley, National Alliance for the Mentally Ill;
Phyllis Stephenson and Joan Krosch, Department of Insurance; Woody Richards, Moffatt
Thomas; Steve Tobiason, Idaho Association of Health Plans; Pam Ahrens, Department of
Administration; Chris Pickford, Employers Health Coalition of Idaho; Andrea Mihm, Sullivan
and Reberger; Tony Poinelli, Idaho Association of Counties; and Julie Robinson, State Planning
After a motion from Senator Stegner and a second from Senator Kennedy, the minutes from
the July 29, 2003 meeting were approved as written.
Mr. Dave Hutchins, Blue Cross of Idaho, was the first speaker. He discussed proprietary
information regarding the company's observed and projected trend and rate increases in the
individual and small group areas of insurance. He stated that they have projected a growth rate
of about 15% for the combined medical and drug trend. Senator Cameron asked if, since the
rates have already been established for September, 2003, the company does a study after the
establishment of rates to determine trend and market conditions. Mr. Hutchins answered that
this is done. He continued by stating that the trend applies to future rates because they have to
estimate how much claims costs are going to go up in the future. That estimate is currently 15%
based upon past history.
Senator Cameron asked how trend is determined and why there appeared to be a downturn
from November, 2003, to December, 2003, that was not reflected in the rates. Mr. Hutchins
stated that this was the first downturn they had seen for quite some time. The company looks at
the cost per member per month over time and tries to relate that back to reimbursement levels to
physicians. They also look at national surveys and other Blue Cross plans trends. The
profitability and success of the company depends upon getting this number right.
In response to a question from Senator Stegner, Mr. Hutchins defined trend as medical cost
increases from one 12-month period over the next 12-month period that are billed to the
insurance company and that the insurance company owes to providers.
Mr. Hutchins continued by stating that they did not recognize that the trend was increasing
because they review this after rates are set. So instead of staying even with trend, the company
was giving rate increases at the 10% level while the trend was climbing up to 16%. Once they
recognized this, in order to get the rates into line, they anticipate having rate increases in the
small group line of business between 20% and 25% through the end of this year. At that time
the rates will drop to the 15% level and match trend. Senator Cameron clarified that it is not
the rates that will drop, but rather the percentage of the increase. The best scenario projected
would be rate increases of 15%. Mr. Hutchins agreed.
Representative Henbest asked why Blue Cross raised the rates 23% in October, 2002, even
though the projection trend was at 15%. Mr. Hutchins answered that this was to make up for
when the rates were 10% and trend was 15%. The rates are set on projected costs and then they
adjust when they get the actual numbers.
Representative Deal asked if the company is also seeing more utilization of services. Mr.
Hutchins said yes. Technology is a big driver for this. The total cost for MRIs, CAT scans and
other technologies has been going up at 30% a year. People are substituting more expensive
services for cheaper services.
Mr. Hutchins continued by stating that the rate increase for the individual market is much higher than for the small group market. The increase in this market is nearly 30%. Representative Henbest and Senator Stegner asked Mr. Hutchins to redo the graphs with correct dates and to include the information from April, 2003, so they could get a better grasp of the actual numbers.
Senator Cameron requested that the factors used to determine trend also be included on this
Senator Cameron stated that in his opinion, when companies find that their projections are off
by 5% to 7%, it would be wiser to spread the increases out over a couple of years instead of
trying to make it up all at once. Mr. Hutchins said that is a choice the companies make every
time they are faced with this type of a situation. Most organizations he has been with have the
philosophy that it is better to get to the correct rate level right away rather than chasing it for
Representative Black asked if there is any evidence that the high risk pool has had an impact on
slowing the rate increases down and if this could be graphed. Mr. Hutchins clarified that the
high risk pool was established as a sharing mechanism to protect one company from having to
bear a large claims burden. It was not intended to keep rates low.
Senator Cameron asked to what extent the uninsured population affects trend. Mr. Hutchins
answered that the uninsured population affects trend through the amount of uncompensated care
given by providers. These costs then have to be passed on and in some cases they are passed on
to the insured population. The greater the uninsured population, the more costs that are passed
on to the insured. Also, if healthy people choose to remain uninsured, the remaining insured
population is sicker, so the insurance rates are higher to cover the costs. This would kick up
trend. Unfortunately, there is a cycle that as rates go up, more people become uninsured, and
consequently the rates are increased even further.
Representative Henbest asked why the rates were set so low in October 2002, or so high in
October, 2003, if Blue Cross thought trend was going to be 15% in October, 2001. She also
asked how the company can justify these large rate increases from a regulatory standpoint. Mr.
Hutchins answered that when the company sets rates, it looks at the prior 12-month period.
They do not give the rate increase that equals trend; instead, they give a rate increase that, given
trend, will give the company the profitability it wants for that block of business.
Mr. Jack Myers, Blue Cross of Idaho, was introduced to discuss national trends. He stated that
the median observed trend overall has climbed from 12.1% for the 12 months ending December,
2001, to 13.3% for the 12 months ending December, 2002. This is the actual underlying medical
cost trend. He explained that cost actually includes technology shifts as well as price increases
within the provider community.
Mr. Myers stated that there is a perception that the health care dollar is split, with about half of
it going to medical care, one quarter going to business expenses of the insurance company, and
19% to 22% as profit. In actuality, for the entire industry, medical claims costs are 85.7%,
administrative costs are 11.6%, and the insurance industry as a whole makes about 2.7% in
profits. The aggregate of all Blue Cross/Blue Shield plans is 86.5% for medical claims, 11% for
administrative costs and profits of about 2.5%. He added that at Blue Cross of Idaho in 2002,
there was an underwriting gain of 1%. Net financial gains for the same year were also close to
Senator Stegner asked what response Blue Cross expects from members regarding the 30% rate
increase that Mr. Hutchins discussed. Mr. Myers said they do expect some members to drop
coverage, but they have observed a slight increase in membership in the individual product
market this year. Their goal is to stabilize the rate increases so this type of increase does not
happen again. He added that this loss of membership is not thought to be a factor this year in
Senator Cameron asked if the index rate that is filed with the Department of Insurance was
reflected in the rate increases in the individual market. Mr. Hutchins stated that the index rate
would follow the rate increases very closely. Senator Cameron clarified that Idaho statutorily
caps rate adjustments at 15% plus trend.
Norm Varin, Regence BlueShield of Idaho, discussed the large rate increases in the small group
market (2 to 50 employees) and the individual market. He stated that Regence is experiencing
the same health care trends noted by Blue Cross. The company's aggregate overall trend is
about 15% on the average. The following are a few items that Regence perceives to be cost
- Obesity/Lack of Exercise
- HIPPA expenses
- Privacy issues
- Need to update or replace facilities
- New technology
The average rate increase for the small group market for Regence has been between 20% and
30%. This is a correction for this year to catch up with premiums that were too low. In January,
2004, rate increases will be between 15% and 25%. The individual market will increase 30% to
40% and in 2004 will be 20% to 30%.
Mr. Varin noted that Regence is the largest insurance carrier in the state for individual insurance.
They are committed to providing insurance in the individual market for many years but since
1996, the company has lost $32 million on all of their individual business. This is over half of
the underwriting loss for the company. It is not healthy for this line of business to continually be
subsidized by other lines of business and they are trying to correct the rates so the individual line
of business can stand on its own.
They are also introducing a new product in the small group market called "Regence Select" that
creates more options with benefits that offer lower rates. This product also exposes the member
or the employer to more of the cost of the health care.
Mr. Varin added that Regence did receive many questions due to the large rate increases. As a
result, the company felt that the community needed to receive information about what was
driving the cost of health care and what they were doing about it. He distributed a brochure
entitled "Why Does Health Care Cost So Much?" that is available from Regence.
Representative Henbest asked if Regence would submit to the Task Force the same information
that Blue Cross presented, specifically showing information about observed and projected trends
as well as rate increases. Mr. Varin said they would provide that as proprietary information.
Senator Cameron added that the method by which Regence calculates trend should also be
included in the information. Mr. Varin stated that regarding trend, the company looks at the
observed trends with a 3-month to 4-month lag time. He would include that in the information
Senator Cameron asked if Idaho's trend line is different from the other states with which
Regence is affiliated. Mr. Varin said he had not seen that information but would gather it for
the Task Force. Senator Cameron commented that he thought Utah's trend was lower and, if
that is true, he would like an explanation regarding why it is lower. He added that the Task
Force would also like information regarding how to prevent these types of rate increases in the
Representative Henbest asked whether the insurance companies are moving toward evidence-based decision making from a medical practice standpoint. Mr. Varin said that he is not aware
of any specific efforts on their part at this time. He added that they are considering possibly
looking at using tools that measure the efficiency of providers in the future.
Senator Stegner asked what the company anticipates the impact of these huge rate increases
will have on their membership and what that means for individual policies with Regence. Mr.
Varin stated that they are committed to the individual market in Idaho. However, if it becomes
a financial problem for the company, it will have to consider what to do. He distributed two
proprietary charts describing monthly enrollment figures for small employer and individual
products. In spite of the huge rate increases, he said, they are showing increases in enrollment.
He added that enrollment in the small group market should also continue to show increases due
to the new product they are introducing. In response to a question from Representative
Henbest, Mr. Varin stated that the large increases will have an impact but changes take time to
develop. It could take six to twelve months to see what effect these increases have.
Senator Cameron asked if any groups are changing product design as a result of these
increases. Mr. Varin answered that 70% to 80% of the members in the small employer market
are changing products at renewal. This is mainly a result of changing deductibles. He has not
seen the numbers on the individual market but he has seen a migration over time from the lowest
copay to the higher copay products. He has not seen a large number of people doing this but he
will get the numbers for the Task Force members.
Mr. Varin continued by stating that in the 1970s, the average percentage of the health care bill
that members paid was about 50%; today that number is about 14%. In many ways, the insured
population has shielded itself from the actual cost of health care. There is some speculation that
there will be a shift back to higher copays and more responsibility on the part of the member to
pay for health care.
Elwood Kleaver, Primary Health, was the next speaker. He agreed with the first two presenters
regarding the cost drivers of health care. He added the following as additional cost drivers:
- Co-insurance and deductible leveraging. Costs are going up while deductibles are
staying at the same level. This is an added cost being passed on to the insured.
- Direct consumer marketing.
- Patient demand for services.
He added that when he refers to technology and new procedures as cost drivers, he is referring to
additive procedures, not replacement procedures.
Mr. Kleaver continued by stating that another cost driver is government regulation, or HIPPA.
Every insurance company and every major provider in the country is dealing with this today. It
is actually costing more than the Y2K information upgrades. Aside from the cost itself,
information technology departments are spending a majority of their time working on these
projects to the detriment of other projects.
Representative Henbest requested that Mr. Kleaver provide information to the Task Force
regarding trend and rate increases.
Mr. Steve Millard, Idaho Hospital Association (IHA), spoke to the Task Force next. He stated
that the IHA understands that the premium increases are directly related to the increases in health
care costs. He agreed with the cost drivers that were discussed earlier and stated that the IHA's
list of cost drivers also includes:
- Costs associated with the uninsured population
- Medical technology
- Work force issues
- Patient demand (particularly with aging baby boomers)
- Pharmaceutical costs
- Regulatory compliance
- Under reimbursement to providers
- Complex payment systems
- Malpractice insurance
- Limited service hospitals --This is a relatively new phenomenon whereby hospitals are being built to perform specialized procedures such as orthopedics, heart surgeries and obstetrics. Most of these services are the only services on which a full-service hospital is able to get any margin. When these services go to a free standing center that offers only that service with no emergency services and is not open 24 hours a day, services and equipment are duplicated and profitable services leave full-service hospitals.
- Rising health insurance costs of hospital employees.
Mr. Millard reminded the Task Force that doctors, not hospitals, admit and discharge patients.
Representative Black stated that fixed reimbursement rates set by insurance companies, not just
Medicare, make the individuals responsible to pay for more of their care. He asked whether this
would cause more people to drop coverage. Mr. Millard answered that this is a potential
problem in the future. The original idea was that providers receive a fixed payment for taking
care of someone. The more efficiently they do this, the more money the provider makes on the
procedure. If the doctor is inefficient, he may lose money on the procedure. The problem is that
Congress and the federal government continually change the requirements just as providers learn
to handle the system. The fixed payment system of reimbursing hospitals makes sense if it is
done based on realistic data that is updated in a timely manner. This does eventually come back
as an increased cost to the insured.
Representative Henbest commented that in talking to a nursing administrator at a local hospital
she was informed that current hospital beds and wheelchairs are not large enough (by about 100
pounds) for the average patient. This is another factor in increasing costs to hospitals as
hospitals have to replace beds and wheelchairs to accommodate the larger patients.
In response to a question from Representative Henbest, Mr. Millard commented that hospital
expansion costs are increasing in Idaho. This is occurring in mostly high growth areas because
they need to keep up with demand. A few years ago, when St. Luke's was remodeling and
building their Meridian facility, population projections showed that without these expansions the
Treasure Valley would face a shortage of beds in 10 or 15 years. Another reason for the need for
expansion is the shift from inpatient to outpatient care. Hospitals need updated facilities to
handle the outpatient care. Representative Henbest stated that there was a concern that "if
facilities are built, patients will come." She asked what drives utilization. Mr. Millard said that
this is a concern but he is certain that beds are not being filled just because they are available.
He noted that different sections of the country have very different concentrations of health care.
Some areas, for instance, have high concentrations of orthopedic surgeons and thus a high
incidence of back surgery.
Senator Cameron asked to what extent cost increases are being driven by competition between
hospitals. Mr. Millard said that was a tough question to answer. Health care competition is not
the same as competition in other businesses. The problem with hospitals having to keep up with
each other in technology is the reimbursement system. Services follow the money.
Senator Cameron asked what the state should do, if anything, to help hold costs down. Mr.
Millard answered that there needs to be discussion among the provider community, payers and
consumers to talk about what could be done. Personal responsibility for health care is a big issue
and educating the public about this would be a good step. People should not be going to hospital
emergency rooms for non-emergency procedures or care.
Mr. Millard said he would research the amount of indigent care costs that are written off by
hospitals for the Task Force members, per a request from Senator Cameron.
Senator Stegner stated that he has concerns about the public perception that hospital
competition is causing health care costs to increase. Some people perceive that hospitals have
become greedy and that there are no checks and balances in the decisions they make in terms of
expansion and facilities. These perceptions are enhanced by hospital advertising. In Senator
Stegner's opinion, hospital advertising has no real purpose and would seem to be a waste of
money. The perception in this case is that if a hospital has money to waste on advertising, they
are making too much money. Mr. Millard replied that advertising is not a big cost driver but he
understands the perception is out there. In response to his question to hospital members
regarding what hospitals get out of advertising, the hospitals state that it is a competitive
environment. While doctors, for the most part, direct where patients go for care, patients do
have some say. Hospitals want to make sure patients know what services they provide.
He offered to have a hospital representative speak at the next meeting on the topic of advertising. Senator Stegner said that would be helpful. He added that it would be helpful for Mr. Millard to represent to the hospitals that there is some concern on the part of the Legislature regarding these issues and that efforts to demonstrate that hospitals are interested in cost containment and self-driven checks and balances on costs would be looked upon positively.
Senator Kennedy asked if there was any way hospitals could discourage doctors from using
specialty hospitals. Mr. Millard stated that this was a very controversial issue between
hospitals and the medical community. Some hospitals have made different demands on doctors
who have ownership in these competing specialty hospitals in order for them to also practice in
hospitals. Doctors often feel this is unfair. There are many ways to deal with this and several
other states have already done so. Certificates of need are perhaps one way to deal with this.
Mr. Millard added that the Hospital Licensing Act is very vague in its definition of a "hospital."
He suggested that clarifying some definitions would be a step in the right direction.
Mr. Bob Seehusen, Idaho Medical Association, was introduced to continue the discussion on
the increasing cost of health care. He said that physicians play a key role in the cost of health
care. Nationally, about 20% of health care costs are for physician services. In Idaho, this figure
is also about 20%. These costs account for about 6% of the Idaho Medicaid budget.
Historically, physician fee increases have been very modest and most physicians belong to third
party payer health plans. He explained that most physicians see Medicaid and Medicare patients
even though these programs are controlled with fixed reimbursement rates. Last year, Medicare
reimbursement rates to physicians were cut 5.4%; this year, the rates were increased 1.6%; next
year, as of January 1, 2004, they are scheduled to be cut 4.2%. Medicaid follows the CPI. Last
year, the Idaho Legislature made some adjustments to bring Medicaid rates in line with
Medicare. Blue Cross did not have a fee increase last year for physicians; this year it increased
2.9%. Regence BlueShield's increase was 2.6% last year and 3.0% this year. While increases
have been modest, costs to physician's offices based on specialties have been between 4% to 6%
per year. Costs are related to personnel costs, nursing costs, office overhead, health insurance
and medical malpractice. Mr. Seehusen clarified that cost shifts occur very seldom for
In regards to what physicians see as far as the trends in health care costs, Mr. Seehusen said that
costs will always increase in the health care area. Two of the reasons for this are the aging
population and technology. These two cost drivers will increase costs by about 4% to 4.5% per
Senator Cameron distributed graphs showing how various consumers' health insurance costs
have increased over time, regardless of which type of coverage or what health conditions the
Phyllis Stephenson, Department of Insurance, updated the Task Force on the status of a
Department survey that was developed at the request of the Joint Legislative Oversight
Committee. The survey monitors the effects of House Bills 750 and 780 (2000), which made
significant changes to Idaho's laws relating to small employer and individual health plans. The
survey results show preliminary findings with regard to enrollment, new business rates and risk
Ms. Stephenson explained that prior to HB750, the premium rate charges for a class of business
could not vary from the index rate by more than 25%. The bill expanded the rate bands to 50%,
which apply until July 1, 2004. The major change in premium rates was the result of a proposal
by some insurance carriers doing business in Idaho. According to these carriers, expanding the
rate bands would:
- Increase enrollment based on the carriers' ability to offer lower rates;
- Attract younger, healthier individuals at a lower rate; and
- Spread the risk wider as a result of enrolling healthier individuals.
The benchmark data gathered from the carriers includes:
Ms. Stephenson displayed graphs showing overall enrollment and the effect the rate band
changes have had on price and enrollment. Graphs also demonstrated the risk distribution for the
small group and individual markets for the years 1998 through 2001, distributed into three risk
classifications. These graphs are available through the Department of Insurance or at the
Legislative Services Office.
The preliminary findings of the survey show that overall enrollment from 1998-2001 decreased
by over 12,917. Most of the changes occurred in 1999 and 2000. Expanding the rate bands to
+/- 50% had a slight impact on the base rate, in contrast to a considerable impact on the index
and high rates. She stated that not all insurance companies are using the +/- 50% rate bands, so
the 2001 information contains both +/- 25% and +/- 50%. This makes it difficult to say exactly
what impact rate bands have had on rates.
Ms. Stephenson continued by stating that the small group risk distribution does not show much
of an impact, but added that this could be misleading due to movement of groups in and out of
the market in concert with economic times, and possibly how the overall group is rated with the
addition of dependents. The enrollment in the High Risk Pool accounts for only 1.25% of the
overall enrollment as of December 2001.
Ms. Stephenson explained how the rate bands work.
The total variation in this case between the base and high rates is 67% given the same case
characteristics and benefit plan design.
Total variation between the base and high rate is 200% given the same case characteristics and
benefit plan design.
Representative Henbest asked if the rate bands affect the base rate or whether the rate stayed
the same because it is tied to the index. Ms. Stephenson said that not all carriers have the same
base rate, so they can increase or decrease that base rate by 50%, but each carrier could have a
different price. Senator Cameron clarified that the index rate is an average and from that index,
by law, carriers can offer a discount of 50%. This creates a base rate. They can also surcharge
50% above that index rate, creating the high rate. It is from that index rate that companies apply
trends to determine rate increases. Senator Kennedy said that it would seem from the
information that the index rate is the important rate because it is the rate by which the insurance
company determines what to charge. Senator Cameron said that was partially true, but that the
published rates of insurance companies are usually the base rate. When a company takes an
application, the person is put through underwriting to determine risk. Insurance agents have no
way of knowing what a company's index rate is. There is a way to calculate this rate. From the
company's perspective, the index rate is used to apply the trend factors and this affects all the
rate levels that are higher or lower.
Ms. Stephenson continued by stating that the preliminary findings regarding risk classification
(with information up to 2001) show that with an overall decrease in individual enrollment, each
risk classification (lower, middle and upper) decreases proportionately at comparable percentage
rates. It was also noted that between 2000 and 2001, unhealthy individuals lapsed coverage at a
rate higher than unhealthy individuals entered into coverage. Also more healthy people secured
coverage than healthy individuals who were leaving coverage.
In summary, the preliminary findings show that overall enrollment, including large group, small
group and individual, between 2000 and 2001, declined by 5,681 members. The individual
market for the same years declined the most, down 7,549 members or 9% from 2000 to 2001.
Expanding the rate bands to +/- 50% had a slight impact on the base rate (dollar amount) in
contrast to a considerable impact on the index and high rates. The impact of this rate band
expansion is not fully realized in the data that has been collected.
Ms. Stephenson reminded the Task Force that individuals who renew coverage are limited to
the percentage change in new business rate (base rate) plus a limit of 15% for risk and any
change in case characteristics (age or benefit plan design). New entrants, depending upon
health, will receive a premium rate anywhere within +/- 50% of the index rate.
Representative Deal asked if the Department of Insurance had received current data from the
insurance companies. Ms. Stephenson said the Department is in the process of gathering the
2002 information. Joan Krosch from the Department stated that to get current information, they
would need to go back out to the companies and gather current enrollment numbers and build a
new report. It would take about three months to complete this due to the fact that they are
currently having system problems with the data collection. Representative Deal said that
HB780 required that this information be provided to the Department and to the Legislature by
insurance carriers and that he would like to see such a report. In response to a question from
Representative Black, Ms. Stephenson said that providing this information is not necessarily
difficult for the carriers. The main problem is due to the system problems. The Department is
trying to make it easier for the carriers to download the data back to the Department without
having it in spreadsheet format.
Senator Cameron stated that the purpose behind the expansion of the rate bands was to increase
enrollment. He asked if there is any evidence that this has happened. Ms. Stephenson said that
overall enrollment has decreased but the data is still in transition so there is no way to be sure.
Senator Stegner added that according to the handouts provided by Regence BlueShield, a
decrease in enrollment would seem to be what has happened.
Mr. Dave Hutchins, Blue Cross of Idaho, stated that the rate bands do provide some significant
protections for the market as long as all of the carriers have to follow those bands. If this
happens, the largest rate increase carriers can give is an increase due to trend plus 15%. Prior to
small group rate reform, group rates could double or triple due to one very expensive member.
Another protection rate bands provide is for the least expensive premium groups. This is
because they do not stay the cheapest for long. Once a health condition occurs, with no caps on
rate bands, companies could give these individuals substantial increases in health care costs. He
stated that Blue Cross likes the rate bands and the +/- 50% because they feel it provides a more
stable marketplace for the insured population. They are concerned that if the AHP legislation
passes Congress, there would be a substantial contingent of entities who could do business in
Idaho without state regulation. In the opinion of Blue Cross, the marketplace will return to a
point where the healthiest groups receive an attractive rate for the first and maybe the second
year, but rates will dramatically increase after that.
Senator Kennedy asked if Blue Cross had statistical data showing that the expansion of rate
bands has attracted younger, healthier individuals. Mr. Hutchins stated that no study has been
conducted showing the average age of those covered since rate band expansion took place.
Senator Kennedy stated that one of the goals the insurance companies hoped would happen due
to rate band expansion was that a greater spreading of the risk would occur. He asked whether
there was any evidence that this had occurred. Mr. Hutchins said Blue Cross had not fully
implemented the expansion of rate bands and that very few groups had reached the top end of the
range. In response to another question from Senator Kennedy, Mr. Hutchins stated that Blue
Cross has not seen any advantage to the people of Idaho as a result of the rate band expansion.
Senator Stegner asked whether it was the philosophy of Blue Cross or Mr. Hutchins' personal
philosophy that the concept of insurance companies competing for healthy individuals is a bad
thing. Mr. Hutchins said that compared to a fully unregulated market, that is the philosophy of
Blue Cross. Senator Stegner commented that other companies, individuals or even the Task
Force members might feel that increased competition for any level of client base is good for
consumers and rate payers. Mr. Hutchins said that surveys of states where preregulation and
postregulation occurred show that small group reform stabilized the marketplace. Even in the
high trend conditions that exist today, small groups have benefitted.
Mr. Steve Tobiason, Idaho Association of Health Plans, stated that his organization supported
the expansion of rate bands in 2000 and supported removal of the rate bands at some point in the
future. The concept behind the expansion was that the +/- 25% attracted unhealthy people but
healthy people were leaving the market because their premiums were increasing to cover the
unhealthy. The idea of expanding the rate bands was to keep the healthy people in the market by
keeping their costs down. At the same time, the thought was that in the individual and small
group market, prices would go up at the high end and these people would need some other option
for insurance to help spread the risk. This led to the creation of the individual high risk
The high risk pool seems to be working very well and has given the high end people that are
being priced out of the market someplace to go. Mr. Tobiason continued by stating that
according to what Ms. Stephenson discussed earlier, it appears that more healthy people are
entering coverage than are leaving. That was the original concept. In his opinion, more data (at
least 3 years) needs to be collected to see what the expansion of the rate bands has actually
accomplished. The current data only covers up to 2001, and it is incomplete because not all
carriers have implemented the +/- 50% bands. With the huge rate increases that are occurring,
something needs to be done to keep the healthy people in the market.
Representative Henbest said that although some of the data is flawed or incomplete, it appears
that enrollment has increased even though prices have increased. She asked where the unhealthy
people have gone. In her opinion, these individuals have gone to the high risk pool or are
making claims to the catastrophic fund. It would appear that expansion of the rate bands did not
do anything. Mr. Tobiason commented that only a small amount of data has been received
regarding the rate band expansion. He suggested waiting until more data is received. The Blue
Cross data shows that their numbers are dropping but it takes time for these things to adjust. It is
coming back up slowly. Representative Henbest said that it seems that healthier people have
entered the marketplace but the end result has been a 30% rate increase. She asked if that
increase would be even higher without the expansion of the rate bands. Mr. Tobiason cautioned
that the expansion of the rate bands was not supposed to address the cost issue. Cost is driven by
the cost drivers that were discussed earlier. The rate band expansion was intended to try to
spread what people can be charged in different levels while trying to keep the rates low for the
healthy people. Without healthy individuals in the marketplace, the industry will be in serious
Senator Cameron distributed rate band analysis charts comparing products and prices for new
business for two major unidentified carriers. He stated that the charts showed rates both prior to
and after the rate band expansion. He noted that it is difficult to compare the charts because
product deductibles changed in some cases.
Representative Black commented that, in his opinion, it is very important that current data be
collected by the Department and that the data be studied before the removal of the rate bands
takes place. Representative Deal agreed, and said that a decision needs to be made in the next
legislative session. He said that with the data collected so far, July 1, 2004 is too early for
proposing the removal of the rate bands. Senator Cameron stated that the difficulty is that
expanding the rate bands was not expected to lower premiums. The expansion was intended to
keep the market viable by attracting healthy individuals. By lowering the base rate, he does not
think this has happened. Before the rate band expansion, the rates stayed together; since
expansion, the higher rate is much higher than the base or index rate, thereby forcing unhealthy
individuals to pay much more or to leave the market altogether. If the law stays as it is after July
1, 2004, carriers will be allowed to charge whatever they would like for risks. He suggested one
alternative would be to postpone that removal. In his opinion, even the healthiest rates are going
up more quickly than what has been discussed today due to how renewals are factored in.
Representative Henbest said that expansion of the rate bands was a micro focus and is not
going to solve all of the affordability problems that exist. Over the last few years, the
affordability discussion has become more important. In her opinion, the Task Force needs to
Senator Kennedy stated that he would like to continue with the +/- 50% rate bands until more
data can be gathered and studied. He noted that so far there is no evidence showing that it has
not worked. It would be inappropriate, however, to discontinue a program based on only one
year's worth of data.
Mr. Varin commented that when the rate bands were expanded, there was a provision in law
that still exists that said the change in renewal rates is tied to the new business rate. Failing to
remove this provision, in his opinion, limited the ability for the low rates to become available.
Representative Henbest asked why this argument was not made during the debate for the bill.
Mr. Varin stated that it was included in drafts that were presented for the legislation but he did
not know why it was struck from the final version of the bill.
Ms. Julie Taylor, Blue Cross of Idaho, explained that the AHP legislation that Mr. Hutchins
mentioned earlier is a bill before Congress that would allow large associations to offer health
care benefits to members. These associations would not be subject to regulation by the Idaho
Department of Insurance and therefore would not be subject to rate bands while state insurance
carriers would. If this legislation were to pass, Blue Cross would probably support elimination
of the rate bands in order to give them equal opportunity to compete for business with these
associations. Senator Stegner asked whether the bill would put associations on the same
footing as large corporations such as Albertsons or Micron. Ms. Taylor said that it would.
Currently, associations can offer health insurance. This legislation, however, is asking for an
exemption from state regulation. Associations would therefore be regulated in the same way that
large corporations are. The difference is that there are thousands of employee groups with very
different characteristics. In response to a question from Senator Stegner, Ms. Taylor stated
that these associations can currently be insured in one of the following ways:
- Contract with an insurance company and let the insurance company set the rates. This gives the risk totally to the insurance company.
- Self insurance. In this case, associations are regulated by the Department of Insurance in
the state where they reside.
If this legislation passes, Ms. Taylor stated that associations will have the same options but
without any state regulation. So far the bill has passed the House of Representatives and should
be on the Senate calendar for fall.
Senator Cameron asked if Blue Cross thought that individual market enrollment has increased.
Mr. Hutchins said that it is currently growing but over the last few years it has been decreasing
consistently. Senator Cameron asked if new healthy individuals are entering the market and
whether Blue Cross knew the reason. Mr. Hutchins answered that it is the nature of individual
health insurance that people that enter the market are healthier than the people leaving it. This
would have taken place regardless of the expansion. Mr. Varin agreed and added that Regence
has been able to offer more competitive rates due to the expansion. Having a higher rate for the
less healthy and having the high risk pool available has allowed the risk to be spread across a
greater number of people. He could not say that the increase in enrollment was necessarily the
result of younger, healthier people enrolling.
Senator Stegner said that he would like to eliminate the rate bands altogether and see what
happens. It is a fundamental philosophy of government to let companies compete for business
without government involvement. In his opinion, this would help unhealthy people afford
coverage. On the other hand, he would like to look at the additional data and would be willing to
extend the deadline for rate band elimination in order to see that information.
Mr. Tony Poinelli, Idaho Association of Counties, informed the Task Force that the counties are
experiencing cost increases similar to what has been discussed today. This past year, a survey of
counties showed that counties are spending $16 to $17 million dollars in medical care for
indigents. The catastrophic fund is at approximately $13 million. This has gradually increased
over the last few years. The larger areas, such as Ada and Kootenai Counties, are experiencing
more dramatic increases. Counties are able to seek reimbursement for the catastrophic fund
from individuals, although not everyone pays.
Mr. Poinelli stated that for the last few years, counties have been receiving many more claims
for mental health cases. Another issue that is being explored is whether the money the counties
are spending for the catastrophic fund can be used to match federal money. They are looking at
developing a program that can mirror Medicaid but can be kept at a county level as an incident-based program. This is in the early stages of development. Mr. Poinelli also commented that in
1996, the recodification of the indigent law made the program easier to understand and most
counties do follow it.
Representative Henbest asked if any other states have been granted waivers to do an incident-based program. Mr. Poinelli said that he is not sure if other states have been granted specific
waivers. In most cases, counties are not as involved as they are in Idaho. The counties feel very
strongly that part of the program needs to remain incident-based while the lien and
reimbursement ability need to stay in place.
Mr. Millard commented that the IHA has worked closely with the counties for many years
because most payments go to hospitals. He also mentioned that the hospitals have a good
working arrangement with the counties. When things are not working for either side, they will
work it out at the boardroom table rather than in the courtroom.
Senator Cameron distributed Regence BlueShield's pamphlet that lists the rates and benefit
structure for the high risk pool. He mentioned that the rates are set by the high risk board so they
are the same for both carriers. Any differences would be in the benefit structure.
The next meeting was scheduled for September 11, 2003 at 9:00 in the Senate Majority Caucus Room. The meeting was adjourned at 3:15 p.