State got insurers to trim health rates
In 2d round of bids, prices fell an average of 8%
From the start, proponents of healthcare reform in Massachusetts stressed affordability. If insurance premiums were too high, they warned, many of the state's uninsured residents would resist buying health coverage, no matter what the law said.
But when insurers submitted their initial bids to sell plans that cover about 200,000 residents who aren't offered insurance from an employer and who earn too much to qualify for subsidies, many critics deemed them unaffordable. So did Governor Deval Patrick and the Commonwealth Health Insurance Connector Authority, which is charged with implementing the law.
"We told the plans, 'Do what you need to do to get some price relief,' " said Jon Kingsdale , executive director of the Connector. "They came way down."
Or at least they made significant reductions. In a second round of bidding earlier this year, monthly premiums for the four low-cost health insurance plans to be offered in the Boston area were cut by an average of 8 percent, according to records the Globe obtained from the Connector in response to a Freedom of Information Act request.
The new insurance plans, called Commonwealth Choice, go on sale May 1, and become effective July 1. Residents are expected to buy insurance starting July 1, or potentially face penalties.
Each company took a different approach to lowering its prices.
Harvard Pilgrim Health Care, the state's second-largest insurer, completely redesigned its plan, increasing the amount that patients pay in deductibles and other out-of-pocket expenses. That allowed it to cut premiums by 18 percent. A 37-year-old -- the average age of an uninsured Massachusetts resident -- will now pay $288.31 a month for the Harvard Pilgrim plan, compared to the earlier price of $351.43.
Other plans made more modest improvements. Tufts Health Plan reduced its premiums by 6.1 percent, in part by trimming its network of hospitals; Blue Cross Blue Shield of Massachusetts reduced premiums by 1.5 percent; and Neighborhood Health Plan cut premiums by 1.2 percent. Though modest by typical consumer standards, the decreases are considered significant in the healthcare industry, where insurers typically aim for a 2 percent profit margin.
The Connector also took other steps to achieve what it calls a "more affordable range of prices." Three out-of-state insurers who had the three-highest initial bids to sell plans in the Boston area were dropped from consideration after revising their prices. One -- United HealthCare -- submitted a second bid that was 2.4 percent lower. The other two, from Mid-West National Life Insurance Co. and MEGA Life and Health Insurance Co., priced their products slightly higher in the second round. Just by eliminating those three companies, the average monthly premium of plans available in the Boston region decreased 19 percent, from $302.79 to $245.09.
A Connector board member says the small price reductions will have a big overall impact.
"The point isn't that there was so much overall movement, but that the range of low-cost plans moved from one or two instead to four or five plans," said Jonathan Gruber , who is also a professor of economics at the Massachusetts Institute of Technology. "The movements by Blue Cross and Tufts had a big effect in creating a larger pool of low-cost plans."
While the price discussion has focused on the rates for residents age 37, costs vary greatly based on age. Those over age 60 who don't yet qualify for Medicare will face premiums that range from $346.99 to $504.69, about twice what a 37-year-old will pay.
In addition, one of the strategies used to keep premium prices under control has come under fierce criticism from some advocates for low-income residents: the high deductibles. Harvard Pilgrim's deductibles are $1,500 for an individual and $3,000 for a family. Two of the other Boston-area plans have deductibles of $2,000 for individuals and $4,000 for families, and Blue Cross has no deductible.
Copayments and coinsurance -- in which members pay a percentage of the total bill -- add to subscribers' expenses. The annual maximum payment for most plans is $5,000 for an individual and $10,000 for a family.
"For some families the possibility of having to pay $10,000 in premiums, copays, deductibles, and prescriptions is way beyond their means," said Brother Jack Rathschmidt of the Greater Boston Interfaith Organization, which has pushed for low-cost coverage.
Harvard Pilgrim took the most radical approach in reshaping its bid. Except for the out-of-state firms that were dropped, Harvard Pilgrim submitted the highest initial bid.
Partly, that was because it proposed a preferred-provider organization plan. Such plans typically have few limits on access to doctors and hospitals, and usually cost more than the more restrictive HMO plans .
"The switch to an HMO was to try to get to a lower monthly premium," said Sharon Torgerson , a Harvard Pilgrim spokeswoman. "HMOs are typically less expensive than PPOs because they require medical management by a primary care physician."
Harvard Pilgrim's new plan also requires patients to pay 20 percent of the cost of care, after a $1,500 annual deductible is met.
The other insurer that managed to significantly lower premiums in the Boston area was Tufts Health Plan. James Roosevelt Jr. , the company's chief executive, said he negotiated better prices from hospitals after the initial bid and eliminated some high-priced hospitals from the network. The net effect was to reduce premiums by 6.1 percent. He said Tufts hopes to break even on its Commonwealth Choice insurance coverage.
In the second round of bidding, the state's largest health insurer, Blue Cross Blue Shield, lowered its rates by 1.5 percent for basic coverage throughout the state. The reduction was achieved partly by eliminating the preventive dental-care benefit.
"Our initial bid was a very serious, very competitive bid," said Chris Murphy , a spokesman, explaining that there was little room to cut prices between bids. The firm expects to make a profit of between 1 and 2 percent on Commonwealth Choice, similar to what it earns from its other insurance plans.
Deborah Enos , chief executive of Neighborhood Health Plan, said the Connector did not specifically ask for a premium reduction.
"We were asked to look at our assumptions," said Enos.
Neighborhood expects to earn a 2 percent profit on Commonwealth Choice coverage, about the same as its other insurance products.
Jeffrey Krasner can be reached at krasner@globe.com. 