Growing concerns over the affordability of healthcare led Blue Cross & Blue Shield of Rhode Island (BCBSRI) to voluntarily file rate factors with the Office of the Health Insurance Commissioner (OHIC) today that are about 2 percent less than its projected costs for next year. If approved by the OHIC, the filing will result in an average premium increase of 10.5 percent for both small and large group employers upon renewal beginning January 2012.
The local, nonprofit health insurer's filing reflects the approximately six percent increase anticipated in members' medical and dental claims next year, about two percent for administrative costs, and about two and a half percent to help offset the costs of state-mandated taxes and assessments and help bolster the company's dwindling reserves.
"We don't expect our customers and members to be happy about any rate increase," said Dr. Gus Manocchia, vice president and chief medical officer at BCBSRI, "but what's really concerning is that if it weren't for the many cost reduction efforts that BCBSRI has undertaken over the last two years, we would have been filing rate factors for a 20 percent increase. The reality is that health insurance premiums are simply a reflection of the ever-increasing cost of healthcare—and healthcare today is simply too expensive."
Like its customers, BCBSRI continues to struggle with the high cost of healthcare, recently posting a $14 million loss for 2010. As a result, BCBSRI's reserves, which are funds set aside to ensure the health insurer's ability to pay member claims, dropped to only 15 percent of premium revenue, well below the 20-percent average of other regional health insurers. Payments for members' medical and dental claims, which totaled $1.4 billion, accounted for 88.4 percent of the company's expenses last year.
In response, BCBSRI aggressively tackled the primary drivers of healthcare costs—and health insurance premiums—through a series of efforts that successfully reduced medical claims costs by $25 million. To rein in runaway prescription drug costs, which the Government Accounting Office called the fastest growing healthcare cost last year, BCBSRI rolled out a new formulary that encourages the use of high-quality, but lower cost, generic or over-the-counter medications. BCBSRI's new prescription drug formulary is projected to save nearly $22 million by the end of 2011.
With hospital reimbursement costs outpacing inflation by more than 24 percent from 2007 to 2010, BCBSRI also made significant changes in the way it pays hospitals, introducing innovative, new contract arrangements that reward hospitals for meeting agreed-upon quality standards and operational efficiencies. Working collaboratively with hospitals such as South County, BCBSRI‘s efforts are designed to continuously improve patient care, moderate healthcare costs and have a positive impact on hospital finances.
Mirroring its approach with hospitals, BCBSRI also changed the way it pays doctors, rolling out new compensation and care models that focus on quality of care and patient outcomes, instead of treatment volume. As part of that effort, BCBSRI signed patient-centered medical home (PCMH) agreements with more than 25 percent of the state's primary care physicians last year, an effort that will ultimately improve care for more than 100,000 members.
Over the same period, BCBSRI also reduced its administrative expenses by $15 million through a series of efforts that included reducing its workforce, closing the company's defined benefit pension plan to new employees and renegotiating vendor contracts. As a result, at only 15.9 percent of premium revenues, BCBSRI's administrative expenses are actually at the low end of the 15- to 20-percent range established by federal healthcare reform.
"What's really frustrating is that by the end of 2011, these and other efforts will have successfully reduced our administrative costs by $35 million and medical costs by about $63 million—nearly $100 million in cost savings—and it still won't be enough," said Manocchia. "We've laid a great foundation for change over the last two years, but with the underlying cost of care continuing to escalate, we need to accelerate our efforts to make higher quality, more affordable healthcare a reality for everyone. Every person living in Rhode Island deserves access to high-quality, affordable healthcare—and they're counting on us—doctors, hospitals, regulators and health insurance providers—to continue working together in new and innovative ways to solve the problem."
Blue Cross & Blue Shield of Rhode Island is the state's leading health insurer and covers more than 600,000 members. The company is an independent licensee of the Blue Cross and Blue Shield Association. For more information, visit www.bcbsri.comand follow us on Twitter @BCBSRI.