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Rural Premium Rates Impacted by Politics, Locale

In this first of a two-part story, N.C. Health News examines how in rural parts of North Carolina insurance premiums on the federal exchange are more expensive than originally hoped, leaving many without options. Part two appears here.

By Brenda Porter-Rockwell

Apex resident Denise Cerniglia is a single mother of two who has been working two jobs to pay for insurance for her children.

“I’ve been overstretching my budget to buy health insurance for my kids,” Cerniglia wrote to N.C. Health News, “but adding myself would have more than doubled the premium, so I’ve been uninsured for five years.”

Photo credit: StockMonkeys.com

Photo credit: StockMonkeys.com

She calls herself the “kind of person President Obama’s Affordable Care Act was meant to help.” Insurance for her two children, a college student and a middle-schooler, was costing her $288 a month.

When Cerniglia signed up for insurance on the new online exchange on Nov 3, she was approved for a tax credit. Her new plan will reduce her monthly premium for her and her children to $140 a month less than what she was paying for her kids alone.

But many in North Carolina don’t share in Cerniglia’s good fortune. In Boone, for example, a single woman Cerniglia’s age would pay $31 a month more, before subsidies, just for herself than Cerniglia will pay for herself and her children.

This dichotomy in premium costs is the opposite of the intention of the Affordable Care Act, known commonly as Obamacare, which was supposed to drive down prices for health insurance by increasing carrier competition, especially in rural areas.

But in North Carolina, these reforms have not reduced costs much in rural communities, where premium rates under the federal health care exchange are higher than expected.

Even as some recount stories of extremely low monthly premiums, others living in rural counties who are ineligible for Medicaid or make too much to qualify for subsidies on the exchange are still wondering how to obtain affordable coverage.

Health policy experts say the law has been a boon to some and a bust for many in North Carolina’s rural areas, and that the unevenness is primarily a result of a limited number of carriers operating on the exchange in the state, our legislature’s failure to expand Medicaid and insufficient support from the federal government.

Still, these experts see hope for rural North Carolinians down the line.

Limited citizen choice

A new report from the Charlotte-based research group the McKinsey Center for U.S. Health System Reform showed that carrier and price competition across much of the U.S. is extremely varied.

A breakdown from the nonprofit conservative think tank the Heritage Foundation found that only two states have fewer insurance carriers on the public exchanges than North Carolina: New Hampshire and West Virginia. In contrast, New York has 17 carriers.

In the rating areas within states, the number of carriers varies from as few as one – as is the case in 61 of North Carolina’s 100 counties – to as many as 10.

The McKinsey report identified 80 health-insurance providers offering plans in states in which they hadn’t previously, but none of them have come to North Carolina. Only two of North Carolina’s existing providers are on the exchange: BlueCross and BlueShield of North Carolina (BCBSNC) and Aetna/Coventry Health Care. In 61 counties, BCBSNC is the only choice.

Health insurance companies participating in the individual market in NC. Only two companies are participating in the health insurance exchanges.

Health insurance companies participating in the individual market in NC. Only two companies (with *s) are participating in the federal health insurance exchange. Chart: NC Dept of Insurance.

Nationwide, according to the McKinsey report, incumbents are more likely to be price leaders. Incumbents account for 66 percent of the lowest-priced products in each tier of plans offered on the exchanges.

But North Carolina incumbents are offering plans that can be relatively expensive, particularly in counties where there are no other choices.

“In the absence of competition, Economics 101 tells us that the prices would be higher than they would be otherwise,” said Michael Keough, executive director of Raleigh-based Inclusive Health, the high-risk insurance pool that will be phased out as a result of Obamacare.

“It’s not just down east or over in the western part of the state – what we think of as the classic rural areas. It’s places like Winston-Salem and other areas.”

According to the McKinsey report, new entrants, such as consumer co-ops, are offering price-competitive plans in other states. The study found more than a third of the cheapest products sold through the exchanges were created by co-ops in the 22 states where they operate. North Carolina is not one of those 22.

Supporters of insurance co-ops note that they are consumer governed and small- and individual-market focused. Some received startup loans after the Affordable Care Act was passed in March 2010.

Allen Feezor of the D.C-based Institute for Health Policy Solutions led the national advisory board to offer recommendations to the administration on how to deploy the $6 billion set-aside for developing new competition into state and federal exchanges. Formerly, Feezor was the deputy secretary and chief policy advisor for the North Carolina Department of Health and Human Services.

What will coverage on the individual market cost you? Get an estimate on our interactive map.

What will coverage on the federal individual market cost you? Get an estimate on our interactive map.

About three years ago, Keough and Feezor were among a handful of experts who drafted a plan to create a health co-op insurance carrier for North Carolina to operate on the federal exchange, with a heavy emphasis on rural communities.

Feezor said that when the fiscal-cliff aversion bill was enacted in January, the plan was nixed.

“The 23 existing co-ops were allowed to continue to do business, but those with applications in the pipeline, like North Carolina’s, were never acted on due to congressional action to deplete most of the remaining co-op monies,” he said.

In April, Feezor and Keough and colleagues joined the state in refiling a co-op plan when they learned that federal monies had become available to allow any of the 23 existing co-op carriers to expand into neighboring states. They again went to work, this time partnering with Consumers’ Choice Health Plan, based in Charleston.

Late last month, this second plan was declined, without explanation.

“We thought we had a terrific case, politically and otherwise, for a plan that should have been funded. But it did not succeed,” said Keough. “We got a letter from the Centers for Medicare & Medicaid Services telling us that [the] subsequent application by Consumers’ Choice to move into North Carolina and serve a number of those rural counties had been turned down.”

“I think the existing carriers would have enjoyed for us to take focus on the rural areas,” Feezor added. He said many carriers do not pursue rural areas because of their business model and/or provider contracting strategies.

“This strategy does not lend [itself] to doing business in underserved, sparsely populated and/or single provider areas,” Feezor said.

White House failures

Another issue affecting uneven rates across North Carolina is what Feezor described as the administration’s failure to explain all of the law’s many positive components after it was passed.

President Obama signing the Affordable Care Act, March 24, 2010. Photo courtesy Keith Ellison, Flickr Creative Commons

President Obama signing the Affordable Care Act, March 24, 2010. Photo courtesy Keith Ellison, Flickr Creative Commons

The Obama administration allowed “its detractors to define it, foment doubt in the general public and even cause some stakeholders who had supported it to begin to doubt themselves,” Feezor said.

He said the administration also failed to realize that states, which were critical actors in expanding Medicaid and establishing the exchanges and local market reforms, became battlegrounds to repeal or block this component of the ACA.

Feezor argued there was a need to explain that the exchanges and qualified health plans will bring guaranteed availability of products and choice, transparency in prices and networks and easy comparability of policies with known minimum standards.

Politics invade health care

The White House was also caught off guard when nearly half of the states, including North Carolina, did not expand Medicaid. Medicaid expansion in those states, mostly controlled by Republicans, would have been entirely paid for by the federal government for the first three years.

That decision possibly created uncertainty for carriers that were considering entering North Carolina and the other states that declined Medicaid expansion, according to reports written by health policy experts at the Center for Studying Health System Change in Washington, D.C. and others. Research suggests that trend was perhaps amplified in states that are dominated by one large carrier, including North Carolina and Alabama.

Feezor said insurers were asking themselves if they would have a predominantly poor population entering the market, “‘And, if so, what’s going to happen? That’s business we had not counted on and are not used to dealing with,’” Feezor said.

Now that the law is being implemented, data are showing that the average premium rate is lower in states that expanded Medicaid than in states that did not.

Because North Carolina opted out of Medicaid expansion, some consumers find themselves in what’s described as a “doughnut hole.” Those who earn less than 100 percent of the federal poverty level (about $14,500 per year for one person) don’t qualify for a subsidy, because it was expected they’d be covered by Medicaid.

“If you’re talking about a childless adult, they likely could never qualify for Medicaid under the current eligibility levels,” said Don Taylor, who teaches health policy at Duke’s Sanford School of Public Policy. “But if we had expanded Medicaid, all of those people would be eligible up to 133 percent of the poverty level.”

Because the state did not, some will not be eligible for Medicaid nor a subsidy in the exchange. Those people have no subsidized option unless they qualify for an employer-sponsored plan.

“So there are a number of reasons, perhaps driven by political agendas, but with some operational basis, as to why red states may have a little higher [insurance] rate,” Feezor said.

Prognosis?

With the focus on the non-functioning website and not on whether the exchange has brought about the right amount of competition in the marketplace, Feezor and Keough said they see the pending infusion of federal dollars into new and existing federally qualified health centers, which are designed to serve underserved populations, as helping increase availability of care in some of the rural areas for those who can afford it.

They also continue to hope for additional carriers, especially co-ops, to enter the marketplace in 2015.

Taylor, however, isn’t convinced 2015 is going to be a breakout year.

“I personally am not that optimistic new carriers will come in any time soon,” he said. “Certainly not until the state sets up their own exchange. And I don’t think that is a guarantee either.”

Tomorrow: Additional market forces leading to higher insurance prices in rural areas

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