New Rates Needed Largely Because of Continued Increase in Cost of Medical Services
Driven predominantly by the rising cost of medical claims, Blue Cross & Blue Shield of Rhode Island (BCBSRI) today filed a request with the Office of the Health Insurance Commissioner (OHIC) that would increase rates an average of 11.5 percent for small groups and 14.6 percent for large groups.
As a nonprofit, our primary goal is to establish rates that cover the costs of the medical services actually provided to our members. For 2009, those costs are projected to reach $1.5 billion," said James E. Purcell, BCBSRI's president and CEO. "These are real costs for real healthcare services. As a result, despite these difficult economic times, it is necessary for us to seek a rate increase at this time.
According to Purcell, the steep increase in the cost of medical services has forced the company to dip into its reserves, funds which the insurer is required by state law to set aside for the protection of its members. Reserves help ensure the company's ability to pay hospitals, doctors, and other providers for the services they provide members. At the present level, BCBSRI only has enough money in reserves to pay claims for slightly more than two months, significantly less than the three months recommended in a study commissioned by the OHIC.
"BCBSRI recognizes that our members and employer groups will not be able to continue to afford health insurance if medical costs—and premiums—continue increasing at this rate. We agree that our healthcare system needs change," said Purcell. "That's why we're taking bold steps—right now—to help moderate long-term healthcare costs by transforming both our company and the local healthcare delivery system."
Partnering with local primary care practices to launch Patient-Centered Medical Homes (PCMHs) is among the many initiatives the health insurer is currently undertaking to improve the quality and cost of care delivered here in Rhode Island.
A PCMH, Purcell explained, is an innovative new model of patient care that replaces the reactive, episodic care often practiced today with proactive, coordinated care designed to improve patients' health and reduce healthcare costs over time. BCBSRI partnered with an Aquidneck Island-based primary care practice to implement its first PCMH earlier this month, and is partnering with several other primary care practices throughout the state to launch additional PCMHs this year.
In addition to transforming its business strategy, BCBSRI has taken aggressive steps, including freezing employee salaries and increasing its own employees' contributions to health insurance, that have successfully reduced administrative expenses to a level that is four percent less than in 2007, despite inflation.
After years of operating out of six different buildings around Providence, the company also recently settled into its new building, a move which is projected to save $25 million over the next 23 years and which Purcell stated has no impact on member rates or the current rate increase request.
Under the BCBSRI request, effective dates for the proposed new rates would be May 1, 2010 for small groups and July 1, 2010 for large groups. Differing factors, such as employee demographics, could result in individual groups seeing premium changes that differ from these averages.
Blue Cross & Blue Shield of Rhode Island is the state's leading health insurer and covers more than 600,000 members. Blue Cross & Blue Shield is an independent licensee of the Blue Cross and Blue Shield Association.
The Lewin Group, 2006