Archive for May, 2010

Pressure building in healthcare costs in Massachusetts

Healthcare costs are out of control nationwide.  In Massachusetts the pressures are mounting a little faster, however.  A shift is about to take place and it will be interesting to see what happens.

Until recently there was a safety valve that was used whenever healthcare costs increased.  It was the consumer and small business.  Insurers simply passed on cost increases to these groups.  Of course, they did this while maintaining their healthy profits.

An act by Governor Deval Patrick and the Massachusetts Department of Insurance seems to have frozen the valve shut, however.  On April 1 they denied nearly all health insurance premium increases.  In effect, healthcare premiums remained at the 2009 rates.

Shortly thereafter, insurance companies reported significant losses.  Apparently, insurers were already in dire straits and the inability to raise premiums made things worse.  Blue Cross Blue Shield apparently lost $49M in the first quarter of 2009.  That loss increased to $95M in 2010.

Whether those reported losses are credible is another issue.  The article states the increased losses were due to the premium freeze, but the freeze didn’t occur until the second quarter.   The article hints at other accounting anomalies.

In any case, the clamp on premiums is creating some pressure in the system and it will likely cause a ripple throughout the system.   Now insurers are exploring a new valve and talking about making attempts to lower costs by negotiating – and in some cases renegotiating – lower fees with providers (hospitals and physicians).  There appears to be quite a bit of diversity in the rates providers can charge and it seems to largely be related to the clout of the provider.  Providers that are at the lower end will seek increases in their rates, while insurers will look to slash rates at those at those providers on the high end.

The market will now have to adjust.  The consumer and small business are no longer available as a safety valve to absorb cost increases.  Will an earnest effort be made to truly and equitably reduce costs overall? Will some insurers stop offering health insurance?  Will some providers not accept some insurers if rates can not be negotiated?  Will a tiered system of healthcare emerge?

At this point the outcome is unclear, but the pressure is building.

May 24, 2010 at 7:52 am Leave a comment


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