Message from health insurers: Massachusetts health care costs are heading up in 2013

WALTHAM — Despite more modest increases in recent years and a state push to hold down costs, the message from health insurance executives gathered here Thursday for a market outlook seminar was clear: Massachusetts health spending is heading up in 2013.

Representatives from the state’s nonprofit health plans as well as national for-profit insurers doing business in Massachusetts estimated the “medical cost trend,’’ a key industry measure, will climb between 6 and 12 percent this year — higher than last year’s cost bump and more than double the 3.6 percent increase set as a target in a state law passed last year.

Medical cost trend is a mix of what doctors and hospitals bill insurers for care and the volume of services and procedures performed. Over the past five years, health care providers have come under pressure from payers and state officials to charge less, while many people have postponed elective surgeries and other care in a weak economy.


The new projections of accelerating costs are a sobering sign those moderating trends may be fading. The market outlook was discussed at an event hosted by the New England Employee Benefits Council, a trade group for insurance brokers and company benefits managers.

Premium rates charged by insurers to employers and individuals can sometimes be lower than the overall cost trend, especially when businesses shift costs to workers through higher deductibles or copays. But generally, the cost trend and premiums run in tandem.

“If trends are going up, premiums are going up,’’ said Eric Swain, vice president of sales and account management for UnitedHealthcare of New England.

Among the cost drivers cited by executives were an improving economy where more people have insurance and can afford to pay for care, the influenza outbreak in Massachusetts this winter, a continuing rise in obesity, the impact of new taxes and rules under President Obama’s health care overhaul, and anticipated further cuts in Medicaid and Medicare, the government health insurance program for low-income and older residents.

Speakers at Thursday’s event weren’t in complete agreement. While all said costs will be climbing this year, Massachusetts nonprofit executives said they expected a 6 to 8 percent boost in the trend, while the national carriers said the increase would range from 7 to 12 percent.


But the outlook was not completely grim. Speakers said alternative payment models, which give providers fixed budgets for patient care rather than paying them for each visit and procedure, are becoming a larger part of their businesses — and helping them to better manage expenses.

“These aren’t pilots,’’ said Dennis Charland Jr., executive director of national accounts at Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, which pioneered an “alternative quality contract’’ meant to rein in costs and reward healthy outcomes. “These are fully launched product, and they’re having an impact in the marketplace.’’

Insurers also have been launching more limited and tiered network products, traditionally rare in Massachusetts, which save their members money but restrict which doctors and hospitals they can use or force them to pay more for expensive medical care providers.

“We’ve seen a strong migration into our limited network and tiered products,’’ said Kevin Grozio, vice president of underwriting and actuarial services at Fallon Community Health Plan.

Health insurers asked for average premium base rate increases of 2.7 percent for Massachusetts small businesses and individuals whose policies renew in the April-to-June period, the largest renewal period for the so-called small group market.

But those rates were formulated based on cost and health care use data from last year, and don’t cover larger employers that are self-insured and contract with health plans to process claims.

Going forward, insurers face mounting challenges in a market some said is changing slower than they would like.


“Volume is still largely rewarded, not value,’’ said Anthony Cali, vice president of network and total medical cost management for Cigna’s New England markets. “The care is still fragmented. The payment system varies widely across geographies.’’

While health care use is growing more slowly in Massachusetts than in most other states, the Bay State remains among the most expensive for health care, said Duncan Stuart, director of sales for the New England region for Aetna Inc. But he said Massachusetts also has “the largest spread in terms of savings if you drive utilization away from expensive hospitals.’’

Insurance executives said alternative payment contracts are gradually shifting risk from the health plans to doctors and hospitals. Insurers, meanwhile, are evolving into health information organizations that, among other things, supply providers with data they need to manage risk.

“People assume that the providers have the wherewithal to manage the risk effectively,’’ Swain said. “They don’t.’’

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