Posted: March 19, 2010

philip.newswanger@insidebiz.com

As Congress headed into the final stage of health care reform last week, major health insurance companies are poised to raise their rates again in Virginia.

The hike equates to an average 14 percent increase for five health insurers: Humana, Prudential, Golden Rule Insurance Co., Anthem and Optima.

The rate hikes follow several by the same insurers in 2009.

Four of them received initial approval from the Virginia State Corporation Commission for their original increase.

The fifth, Prudential, asked for a 50 percent increase. But the SCC denied it and instead approved a 20 percent hike.

The rates will take effect between April 1 and July 1.

Insurers say the increases are necessary because more people are using health care, so insurers are receiving more claims, thus raising medical costs.

"Indigent care is also a factor," said Katha Treanor, a spokeswoman for the SCC. "This care provided to the poor and uninsured in which hospitals and providers may receive little or no payment for services and cost, is shifted to individuals who have the resources to pay or have insurance."

The SCC doesn't have available information on the frequency of rate requests by insurers, Treanor said.

"The bureau doesn't track rate hikes in chart or graph form," she said. "However, each rate filing will include a rate increase history within the actuarial memorandum."

All of the rate increases apply to individual and family plans that each of the five insurers offer.

Scott Golden, spokesman for Anthem Blue Cross and Blue Shield of Virginia, said the rate hikes are to cover rising medical costs.

Anthem is raising its rates 15 percent April 1.

"Medical costs are increasing faster than inflation," Golden said. "More people are using medical care because of an aging population, lifestyles that result in more medial care, new treatments and more intensive diagnostics, such as more MRIs, more CAT scans."

Healthier individuals are more prone to drop their coverage, so that's thinning out the pool, Golden said.

He cited an example whereby fewer insured people leads to higher medical costs.

Let's say 100 customers pay $100 a month to cover $10,000 a month in medical costs. If 10 drop their coverage, then 90 have to pay more to cover the $10,000 a month in medical costs.

Golden said a small portion of Anthem's 3 million Virginia members will feel the higher rates, though he declined to say how many, for competitive reasons.

Optima Health Insurance Co., a division of Sentara Healthcare, will raise its rates May 1.

"We recognize that our members and business customers are experiencing difficulties during this economic downturn," said John E. DeGruttola, senior vice president, sales and marketing, for Optima Health, in an e-mail. "We try very hard not to increase rates. There are many factors that contribute to rising health care costs. Some of the drivers of increased costs are an increase in use of physician and hospital services, and an increase in the cost of prescription medications.

"Other issues include the aging population and unique episodes of disease like H1N1 flu," DeGruttola said. "We experienced greater than an 800 percent ($4 million) increase in claims compared to the prior year due to the H1N1 epidemic.

"There is no one element that causes costs to increase," DeGruttola said. "We have experienced some increases in provider costs, but that is due to demand for services, advances in technology, and some increase in provider reimbursement."

He said there is evidence that indicates the economic downturn is a factor in higher health insurance premiums.

"For example, we have seen an increase in the average age of our membership," he said. "That implies that younger, healthier workers lose their jobs and the company is left with older workers who use more health care services.

"In order to pay for those services without the younger, healthier people contributing to premiums, those who are fortunate to still have their jobs have to cover more of their own costs," he said.

Liz Burroughs is the statewide director of Main Street Alliance, a nationwide association of small businesses formed in November to voice concerns.

Burroughs said that, based on a poll of members, 69 percent have seen their health insurance rates increase and 60 percent saw their rates jump more than 60 percent.

"Our message is that the status quo is unsustainable for small businesses," Burroughs said.

Small businesses in Hampton Roads are dealing with rate hikes in several different ways.

Some have opted out of buying any insurance, either for the business or individual premiums for employees.

John Sanker, president of Hampton Roads Security in Chesapeake, said the costs are too much for the employee bank. He employs 40 people making between $8 and $11 an hour.

He said that premiums he has researched would have the employees paying $100 to $200 a month depending on their hours and how much they made and then he would match it.

Sanker said the cost was too high for employees making that hourly wage.

He also said the cost was too high for him to match as an up-and-coming business whose doors have been open for only three years.

"I'm on my wife's insurance and everyone else is on their own," said Sanker, whose wife is a real estate broker for S.L. Nusbaum Realty Co. They have two children.

Restaurant owner Brian Radford, the owner of HK on the Bay in Virginia Beach, pays individual premiums for himself and two managers.

His premiums have shot up close to 62 percent in three years, and he has budgeted $16,000 for this year in coverage, which would amount to another 18 percent on top of the 62 percent.

Bradford is active politically with the Main Street Alliance and has lobbied hard to get the public option included in the final health care bill.

"I was hoping for a public option," Bradford said. "But I am satisfied with an exchange. I got politically active because of health care. I wanted to get people who wanted to get something done.

"The Republicans want the status quo; their campaigns are funded by the insurers," he said. "If a Republican business owner explained what the health care reform was, they would be for it." nib