Markets impact community rating

Geography affects premiums on California health insurance exchange

By Jim Sanders
The Sacramento Bee, June 5, 2013

For the same health coverage from the same insurer, a 40-year-old Sacramentan will pay $78 more per month than a Los Angeles County resident through the state's new insurance exchange.

In rural Mono County, the disparity will be even larger: $150 per month, nearly 60 percent higher than for identical benefits and co-pays offered in Los Angeles County.

The premiums provide relatively basic coverage from Anthem Blue Cross, but similar regional differences exist in plans proposed by other insurers. The numbers reflect new rate-setting standards: How sick you are no longer matters, but where you live does.

A 25-year-old can buy the least expensive level of coverage - bronze - at prices ranging from $147 to $274 per month, depending on location.

For the first time, Californians soon will be able to compare regional pricing because federal law requires insurers selling policies on state exchanges to offer identical benefits with rates based only on age, location and household size.

A key factor in premium price differences, within a region or in comparison to other California communities, is the provider network created by each insurer, officials said.

The willingness of doctors or hospitals to join a network can be affected by rates that insurers agree to pay them. Those are negotiated privately and tend to vary based on the number of health care providers within a region and the intensity of competition for patients.

Tom Epstein, vice president of public affairs for Blue Shield of California, said costs for medical care generally are higher in Northern California than in Southern California.

"There are a number of large hospital systems that dominate the Northern California market, whereas there are many smaller hospitals and hospital systems in Southern California that compete," Epstein said.


By Don McCanne, M.D.

Although, with guaranteed issue, health plans will no longer be able to adjust premiums based on the health status of the applicant, they will still be able to adjust them through community rating.

Insurers can charge higher premiums in communities that have a less healthy population enrolled in their plans. But market forces also play a major role. In communities in which physicians and hospitals have greater market clout, they can demand higher payment rates when contracting to become part of the insurers' networks. The differences can be very significant.

This is yet one more example of why it is irrational to try to fund our health care system through a specific premium assigned to each individual or family and administered by an expensive administrative intermediary - a private insurer.

As many other studies have shown, the private insurers have not been very effective in controlling health care spending anyway. Why would we want to keep them in charge?

We should replace these wasteful, ineffective intermediaries with a publicly-administered single payer program. Payments would be based on legitimate costs with fair margins, using global budgeting and various forms of administered pricing or capitation. Our public stewards would sit down with the health care professionals and administrators and see what they really need, and pay that - no more, no less.

For those who don't believe that would work, simply look at the other OECD nations. They all have government oversight through some form of social insurance and are able to provide health care to everyone at an average of half the price that we are paying for a system that leaves tens of millions out.

Who says this isn't feasible? It's the status quo under Obamacare that isn't feasible.