State officials, struggling to keep down the cost of the subsidized insurance program at the heart of healthcare law changes, abruptly pulled back from new contracts with insurers this week, according to three sources close to the bidding process.
The state canceled a meeting scheduled for yesterday at which officials were expected to review the contracts and to vote on ways to partially offset the costs.
"The bids we received were not satisfactory," the state's top budget officer, Leslie Kirwan, said in a statement released late Wednesday announcing the meeting cancellation. Kirwan also chairs the board of the authority overseeing the state's health insurance initiative, called the Commonwealth Health Insurance Connector.
In December, before bidding began, authority staff predicted that state costs per member could rise as much as 14 percent without any changes in coverage or copayments, an increase officials said was unsustainable. Initial bids from some insurers came in even higher, sources said, followed by second bids that were more moderate, but apparently still too high for the state.
Late yesterday, authority spokesman Dick Powers said, "We continue to review the bids and our options."
Governor Deval Patrick, in his proposed budget for next year, included $869 million for the subsidized program, called Commonwealth Care, up from $618 million this year. The program currently serves more than 170,000 low-income people and is expected to grow to 225,000 by June 2009.
"I presume if the bids came in at $869 million, [the state] would be running a victory lap," said John McDonough, executive director of Health Care for All, an advocacy group that helped secure passage of healthcare changes.
Although costs per member of Commonwealth Care are slightly under budget this year, state officials are trying to find ways to keep the program affordable for the state and for participants as medical expenses and enrollment soar. The House speaker has proposed a cigarette tax increase to help pay for healthcare costs. Both the House and Senate have yet to act on the state budget for 2009.
In addition, the board has been considering raising premiums and copayments to help reduce the state's costs.
Over the last few weeks, as the state negotiated new contracts with four insurers who have managed the program since it began in October 2006, lobbying intensified against the proposed premium increases. Twenty-one state senators sent a letter to Patrick on Wednesday asserting that the increases would "put a disproportionate financial burden on low-income residents and jeopardize the success of health reform." Healthcare advocates and enrollment workers at a number of hospitals and health centers also spoke up against the measures.
The authority's staff had proposed that the premiums and copayments be adjusted depending on the insurers' final bids. About 75 percent of members currently pay no premium, while the rest pay $35 and up a month. The state has proposed increases of $5, $10, or $15 a month, along with similar increases in copayments. Higher bids could mean higher premiums and copayments to offset the state cost.
Three sources close to the bidding process, who asked for anonymity because of the confidentiality of the negotiations, said some of the four insurers' initial bids came in even higher than 14 percent increases and were rejected by the state. After a second round of bids, the state and insurers reached preliminary agreement on new contracts with at least a 10 percent increase for some of the plans, the sources said. Each of the insurers - Network Health, Boston Medical Center HealthNet Plan, Fallon Community Health Plan, and Neighborhood Health Plan - negotiates a separate contract.
A few days later, the state asked for some changes, and at least one of the insurers agreed, according to two of the sources.
Powers said the scenario described by the sources was incorrect, but refused to get into specifics.
Kirwan's blunt announcement late Wednesday was a surprise, several insurers said, adding that they hoped to reach a new agreement with the state.
"We'll be looking to them for a little more direction," Christine Cassidy, a spokeswoman for Fallon, said yesterday. "We are committed to being part of the Commonwealth Care program."
"Boston Medical Center remains extremely committed to the continued success of healthcare reform," BMC vice president Tom Traylor said in a written statement. "However, the bid process is ongoing, so we don't want to discuss it publicly at this time."
Representatives of the insurers have said they are losing money under the existing contract. The two largest plans, Network Health and HealthNet, bid low in the first round. Members who did not choose a plan were automatically assigned to the lowest-cost plans; and those people are generally healthier and typically cost the insurers less than members who sign up on their own.
State figures released in late fall indicated that Network Health and HealthNet, which cover about 80 percent of the members, were making money on part of the program and losing money on another. The smaller plans were running in the red.
Since then, the plans have added members and received payment for many pending claims. "We are now more optimistic that the plans will do reasonably well," Powers said.
Members of the authority's board were also surprised to learn of the contract snag. Celia Wcislo, assistant division director of Local 1199 of the Service Employees International Union, said the state needs to look broadly for ways to pay for growing costs.
"If the bids are high, extreme copay and premium increases for low-income families are not a morally or fiscally sound solution," she said. "Massachusetts healthcare reform, which has been successful so far, was built on a foundation of shared responsibility."
Alice Dembner can be reached at dembner@globe.com.
