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Insurers’ Risk Assessment of Rural Communities Adds to High Premiums

This is the second of a two-installment story on how the Affordable Care Act is taking shape in the state’s rural communities. Part one appears here.

By Brenda Porter-Rockwell

Sandra White left her job a year ago to become a stay-at-home grandma to three kids, all under 4 years old.

When her job ended, so did her health insurance coverage. She and her husband, Bennett, both aged 52, who live in the Hertford County town of Winton, could not afford the nearly $800 a month to continue her old insurance. She was denied coverage by three other insurers, including Blue Cross and Blue Shield of North Carolina (BCBSNC), because of a few pre-existing conditions, including high blood pressure.

Bennett, a real estate agent, maintained a catastrophic plan with a $5,000 deductible. It costs him $135 a month, which was scheduled to increase by $17 a month next year.

“If my wife didn’t need insurance, I would’ve paid for the increase,” said Bennett.

Blue Cross Blue Shield of North Carolina card.

Blue Cross Blue and Shield of North Carolina card. Image courtesy Kristi Hamilton flickr creative commons

Now, after more than two months of fits and starts, the Whites have secured coverage for the both of them through the online Affordable Care Act marketplace at a cost of $518 per month. They chose the BCBSNC Blue Advantage Gold Plan and received a subsidy of about $680. They have paid the first premium well in advance of the due date to ensure that coverage begins promptly on Jan. 1.

“For $1,189, we wouldn’t have been able to afford it. But with the subsidy, that made it affordable,” said Bennett White. “And I know that if I make more money next year, I’ll have to pay some or all of that back, but I’ll just worry about it then.”

In another rural part of the state, farmer Gregory Adams, 34, wasn’t so fortunate. The Benson resident earned an undergraduate degree in history and a master’s degree in finance, but he returned to the family farm two years ago, after working in finance for a bit, while he figured out his next career move.

Adams’ current insurance plan includes a $3,000 deductible and payments of $95 per month. But, under the ACA, his BCBSNC broker told him to expect his monthly premiums to rise to nearly $200.

In Millers Creek, just east of Boone, farmers Shiloh Avery, 38, and her partner, Jason Roehrig, 40, have been paying $500 a month for a $5,000 deductible plan. Avery said their new monthly payment under the ACA will cost about $70 per month.

All of these people have one characteristic in common: They live in rural North Carolina, where it was hoped that the Affordable Care Act, known as Obamacare, would even the insurance playing field by increasing carrier competition and allow so-called high-risk individuals to gain access to coverage.

But since the October launch of, insurance premiums in North Carolina’s rural areas have not come down as much as had been hoped, and the costs for premiums fluctuate wildly from one place to another.

Health policy experts point to several factors that are likely contributing to high prices: the way insurer’s approach assessing risk in rural areas and the fact that many rural communities are poor, with a poorer overall health status. Without an expansion of Medicaid in the state, many rural residents will remain uninsured, driving up costs for everyone.

And despite the promise of “affordability” in Obamacare, health economists contend that rural communities will continue to experience higher premium costs for the near term.

Unbalanced risk assessment

Fear and uncertainty are at the heart of health insurers’ actuarial risk assessments, which have likely kept potential new insurers out of the North Carolina market, said Allen Feezor, a senior fellow at the Washington, D.C.-based Institute for Health Policy Solutions and former state deputy secretary of the 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.

He said that because of the uncertainty in the North Carolina market, premium prices will remain high with the two carriers on the exchange, Blue Cross and Blue Shield of North Carolina and Aetna/Coventry Health.

Feezor, a 30-year veteran of the health care industry, explained that premiums reflect what insurers “guestimate” to be the cost of care, plus administration and profits, for a finite period of time, and that they price those services out as much as 18 months in advance.

Feezor said insurers must predict ahead of time what the health care for their subscribers might cost in a given year, and calculate their premiums based on their prediction.

“What we’re seeing are the prices insurers think or fear they need to charge,” he said.

And because there’s not a lot of competition in the state, Feezor argued that insurers are taking advantage of pricing themselves against the risk they think they will be forced to take, rather than charging enough to simply cover potentially high costs.

Further, Feezor said, insurance companies historically have worked hard to avoid as much bad risk as possible.

“When you realize that one in 20 of their enrollees account for about 50 percent of their claim costs, the imperative by the company is to try to avoid that one in 20,” he said, explaining why in the past insurers denied coverage to people with pre-existing conditions.

But the ACA turns the risk-avoidance model upside down in an attempt to set up an environment that shares risk among more individuals, not just those who are good risks.

“It is a dramatic change in how a major industry has done business,” said Feezor. He said that premium prices might be higher, but that those higher premiums reflect the cost of providing more comprehensive coverage that pays for preventive care and other services.

Poor rural health

As insurers focus primarily on good risk models, experts say providers worry about taking on rural populations, which have long histories of poor individual health and limited access to health facilities. Many rural communities also tend to be comprised of older and less-affluent individuals.

“The demographics are unsalable.” said Michael Keough, executive director of the state’s high-risk insurance pool, Inclusive Health.

High-risk pools cover people who insurance companies have traditionally excluded from coverage because their pre-existing conditions made them potentially expensive. But under the Affordable Care Act, insurers have to cover everyone; as a result, high-risk pools such as Inclusive Health will fold at the end of the year.

Keough explained that there are more sick people and people often die younger in North Carolina’s rural communities, making rural communities more costly to insure.

“It makes it where those costs can no longer be underwritten,” he said.

Insurers considering entering the North Carolina market took a hard look at whether or not to expand here and take on the potential risks of higher costs. No outside insurer has elected to do so.

FirstCarolinaCare, a small insurance company that already covers people in the Sandhills region, withdrew its plans to provide insurance on the online marketplace in six counties.

“After months of review, there continue to be uncertainties in the Exchange implementation and processes for insurers,” said FirstCarolinaCare CEO Ken Lewis in a September press release issued when the company decided to withdraw from the federal marketplace.

“The individual marketplace landscape will undoubtedly change in the coming months, and we will re-evaluate our decision next year to determine if it will be a more competitive environment in which to participate,” Lewis concluded.

High hopes, higher costs

Feezor argued that people should not be so frustrated at the price of insurance, but at the cost of health care overall. He said that sometimes the costs in rural areas are already high because of the way local doctors and hospitals practice medicine.

“There’s variation across hospitals – even within an area – in the sticker price for procedures and different kinds of care,” explained Mark Holmes, a health economist in UNC’s school of public health. “And those variations in prices at the hospital level account for some differences” in premium prices from county to county.

“An economist would argue that the areas that have few or one plan are less competitive and the prices are higher there,” Holmes said.

“But you can argue it the other way, that insurers know where health care is expensive, and that’s why the plans decided to stay out of those areas.”

A final, critical issue in rural areas is the number of poor people who will remain uninsured due to the state legislature’s decision not to expand the state’s Medicaid program. Many rural residents who live near the poverty line would have qualified for Medicaid; instead, hospital leaders fear those people will remain uninsured, showing up at rural emergency departments when they need care.

Hospitals are required by law to provide emergency care, and to cover those costs they often raise rates on insured patients, thus spreading costs around and driving up hospital costs for everyone.

That’s what happened to Frances Canady, who lives outside of Fayetteville. She and her husband were waste-disposal contractors working on Fort Bragg, and were doing fine until the beginning of this year. But their income tanked when their small company lost most of its business after sequestration cuts kicked in. As their income dwindled, they canceled their insurance.

A few months later, Canady’s husband was diagnosed with stage-IV lung cancer, and a few months after that she needed abdominal surgery. Now without insurance, they’re on the hook for close to $200,000 in bills, even after a surgeon performed Canady’s surgery at a deeply discounted rate.

Eventually, her husband qualified for disability and then Medicaid because of the lung cancer. But their income is too low for her to qualify for Medicaid.

“In the state of North Carolina, you are not able to qualify for Medicaid unless you’re disabled or if you have children, or if you’re blind; you practically have to be the walking dead,” said Canady, who expressed frustration that the legislature chose not to expand the program.

“My husband, he makes $657 a month for disability, so how am I supposed to be able to pay for Obamacare premiums?” Canady said. “I mean, I can’t. There’s no income coming in and I have to take care of him.”

2015 and beyond

Feezor and Keough say that next year’s prices are not the best indicator of what rates in rural areas will be in the long term. They’re looking to see what happens in 2015.

The odds are stacked against rural communities, as they will continue to be subject to higher premiums for at least another two years. Industry experts here anticipate it will take that long before North Carolina sees new carriers enter the market. Ideally, by then insurers would have more solid data about those “unsalable” demographics.

“Big carriers have chosen to stay out of the North Carolina market the first year because actuaries fear that all of those high-risk individuals will run out and sign up for health care,” said Feezor.

“They’re thinking, ‘We don’t want to take on that risk,’ even though there are some safeguards built into the system to help mitigate that risk,” he said.

“The biggest incentive is going to be the success of the program,” said Jerry Cohen, deputy administrator and director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services. “This is a marketplace; this is private commercial companies making a decision if they want to be a part or not.

Some have decided step back and take a look and see how it goes, and some have jumped in with both feet, so to speak.”

Cohen predicted that in the second and third years of implementation, states like North Carolina will see more insurance companies entering the market.

He said the real break in premium prices could come if it turns out the risks in these communities are lower than expected, utilization is less or providers practice in a more cost-effective manner.

Until then, residents will try their luck with the online marketplace, seek insurance from employers or simply pay a penalty and go without.

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