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Indiana's insurance exchanges are pricey

October 19, 2013
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For years, Indiana has been a fairly low-cost state for buying individual insurance. But not anymore.

The premiums offered by health insurers participating in the Obamacare exchanges put Indiana among the 10 most-expensive states in the country, according to data released last month by the U.S. Department of Health and Human Services.

The average premiums that insurers will charge for their lowest-cost “bronze” and “silver” plans—the two cheapest categories allowed by Obamacare—are 20 percent to 25 percent higher than the national average.

Those premiums are the starting prices Hoosiers will face when they shop for 2014 health insurance coverage in the newly created online marketplace. The exchanges opened Oct. 1, although technical problems have so far prevented most people from actually buying coverage.

Health care experts greeted that ranking with a bit of surprise and a bit of disagreement as to what it will mean for Hoosier consumers.

“I was disappointed,” said Dave Kelleher, executive director of the Employers Forum of Indiana, which is working with a communications firm to spread the word about the exchanges so that a good mix of healthy and unhealthy Hoosiers sign up.

“The higher the prices,” Kelleher added, “the more challenging it will be to have a stable marketplace.”

Macbeth MacBeth

However, the high premiums in the Obamacare exchanges might not have much direct impact on Hoosiers who qualify for a tax subsidy in the exchanges, noted Charlotte MacBeth, CEO of MDwise Inc., an Indianapolis-based insurer that is offering health plans to Hoosiers in the Obamacare exchange.

That’s because the higher costs for those customers will be absorbed by federal taxpayers.

“There are caps on what the member pays, so it may not matter for certain products and certain low-income populations,” MacBeth wrote in an email.

exchanges-table.gifFor higher-income customers, however, and for taxpayers at large, those higher premiums will make a difference.

Estimates for how many Hoosiers who buy coverage in the exchanges will qualify for a tax subsidy range from as low as 50 percent to 80 percent. The subsidies will cap the amount of premium paid by customers. The subsidies will be awarded on a sliding income scale up to $45,960 for singles and $94,200 for families of four.

But Indiana’s high ranking does reaffirm what many in the health care industry have long known about the state: It’s a spendthrift on health care.

Hoosiers’ spending on health care averages 20 percent of personal income, compared with a national health care spending average of 17.6 percent, according to federal data.

Health care professionals pointed to two key factors: Hoosiers’ poor health habits mean they need more care, and the prices Indiana hospitals and doctors charge run higher than in other states.

“Price and health status would definitely be at the top of my list,” said Chapin White, a researcher at the Center for Studying Health System Change in Washington, D.C.

In previous studies, White found that key cities in Indiana—Indianapolis and Kokomo—had much higher spending on health care. White based his studies on an analysis of insurance claims paid by the Big Three auto companies—General Motors, Ford and Chrysler—all of which have negotiated nearly identical health benefits with the United Auto Workers union.

Spending in Indianapolis was 36 percent higher than the average across 19 cities with heavy concentrations of auto workers. That difference was due nearly entirely to high hospital prices, White found. The health status of the Indianapolis area was actually a bit better than for the other cities.

In Kokomo, overall health care spending was 16 percent higher than the average of the 19 cities. But what explained the higher spending there was a mix of high hospital prices and poor health.

“Prices are a major driver of spending difference across markets,” White said. “And if Indiana has a worse health status, that very well could be pushing up its exchange premiums.”

Indeed, Indiana’s health status is poor. According to an annual report compiled by the Minnesota-based UnitedHealth Foundation, Indiana ranked 41st worst among states in overall health. The prevalence of diabetes among Hoosiers ranks 33rd, the rate of obesity ranks 42nd, and the smoking rate places 44th.

As for why hospitals charge higher prices in Indianapolis and Indiana, Kelleher noted that the state’s largest hospital systems have had the upper hand in negotiations with health insurers for a long time.

Historically, that was because most areas of Indiana were covered by just one hospital system, meaning insurers had to work with that system. More recently, consolidation among hospitals and doctors has boosted their negotiating leverage.

“The bargaining power in this state is on the provider side,” Kelleher said.

Health insurance executives noted privately that employers and their workers have strongly resisted lower-cost health plans that place limitations on their choice of doctor or hospital.

Less than 17 percent of Hoosiers were enrolled in health maintenance organizations, which tend to limit choice, according to the California-based Kaiser Family Foundation. That lags the national rate of 23 percent.

But even more significantly, the HMO plans that do exist in Indiana, such as Indianapolis-based Advantage Health Solutions Inc., tend to include a broad array of providers, dampening their negotiating leverage.

Before the Obamacare exchanges, health insurance companies offered, on average, low premiums to their individual customers. According to 2012 data from eHealthInsurance, average monthly premiums for individuals were $159 in Indiana—ranking the state No. 33 nationally.

But those rates were lower than other states’ because insurers here could deny coverage each year to Hoosiers with pre-existing medical conditions, making the certainty of coverage tenuous. In addition, Indiana’s regulations allowed insurers to charge much higher prices to those with poor health status.

And for the sickest patients—those with AIDS or cancer—Indiana separated them into a high-risk pool. Now those Hoosiers will be factored into the rates paid by everyone in the individual insurance market.

“This is key because these very sick individuals were kept out of the commercial market, which kept commercial rates low,” Logan Harrison, deputy commissioner of the Indiana Department of Insurance, wrote in an email.

Now, Harrison added, “everyone must be issued an insurance policy, and the high-risk pool beneficiaries must be integrated into the commercial market.” He said including that pool will account for nearly 40 percent of rate increases by 2020.

The Indiana Department of Insurance has said that individual insurance rates in Indiana are rising 72 percent due solely to Obamacare, including its requirement that insurers use smoking habits and age as the only health factors to determine premiums.

The average individual premium for the cheapest bronze plan in Indiana is $304 per month, according to the analysis of Obamacare exchange premiums by the Department of Health and Human Services. That ranked ninth-highest among all states.

For the lowest-cost silver plan, which will feature slightly better benefits, the average premium is $392 per month. That ranked sixth-highest in the nation.

The lowest premiums on the Obamacare exchanges can be found in Minnesota, where the cheapest bronze plan will cost an average of $144 a month.

Bronze and silver plans also will feature fairly large deductibles that customers must pay before coverage kicks in, as well as co-pays for individual medical bills.

“Premiums are a reflection of the underlying cost of health care, and Indiana has long been recognized as a high medical cost state,” Tony Felts, a spokesman for Indiana’s largest health insurer, Anthem Blue Cross and Blue Shield, wrote in an email.

“This is due in part to the high rate of chronic diseases, such as diabetes, which results in increased utilization of health care services; and the fact that hospital and physician costs are higher here compared to surrounding states.”•

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