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BCBS customers can expect big premium increases

FARGO – Reignited health care inflation is one factor driving an expected loss for Blue Cross Blue Shield of North Dakota’s health insurance operations for 2013.

The year-end numbers still are being compiled, but Paul von Ebers, the Blues’ president and chief executive officer, said the loss from its insurance coverage is softened by investment gains.

“Last year was better because of investment gains,” he said.

Administrative cost increases associated with the rollout of the Affordable Care Act also contributed to the loss, von Ebers told The Forum Editorial Board.

“So we did not have a particularly good year in 2013,” he said. “We expect to have a small gain for 2014, so we think we’re on the right track.”

Blue Cross Blue Shield did not provide an estimate of the loss because figures are still being compiled and will not be ready until early April.

Blue Cross Blue Shield last experienced an insurance underwriting loss – when claims exceed premiums – in 2008, with a loss of $9 million. Since then, underwriting gains ranged from $8.6 million in 2009 to $25.8 million in 2011.

As a result of the increase in demand for health services, Blue Cross Blue Shield of North Dakota customers will see average premium increases of about 14.4 percent for individual coverage.

The Blues had requested an increase of 19.5 percent, but Adam Hamm, North Dakota insurance commissioner, said he trimmed that to 14.4 percent.

“Unfortunately, the trend numbers are going up,” Hamm said, adding that he could only speculate on reasons for the recent increase, following a period of tamer health care inflation.

Insurance premiums have to be high enough to support the hospitals and clinics in North Dakota that Blue Cross Blue Shield members rely upon, von Ebers said.

Blue Cross Blue Shield doesn’t like to seek double-digit premium increases, von Ebers said, adding that the company has lost money on the individual market in recent years. “At the same time, we need a health care delivery system that is here when we need it.”

As of Jan. 1, Blue Cross Blue Shield’s fee schedule for paying providers increased 3 percent.

Demand for health services, which had dropped to historic lows in recent years, started picking up in North Dakota around May.

Over the past few years, annual growth in demand for medical services averaged about 4 percent, less than half the 8 to 10 percent annual increases that once were common in North Dakota.

By late fall, the trend was moving back toward the historic normal range of health care inflation, which traditionally is much greater than the general inflation rate.

“We need to redouble our effort to get our arms around it,” von Ebers said of health care inflation.

The complexity of medical claims paid by Blue Cross Blue Shield is rising, possibly as a result of the aging population and expanded access to health care, including specialized care, with more cases costing $250,000 or more.

“The number of those people is going up,” von Ebers said. “We saw a more expensive mix of services.”

In an effort to contain costs, Blue Cross Blue Shield has pacts with major health care systems, including Essentia, Sanford and Altru, called total cost of care agreements, which require the providers to meet certain quality benchmarks.

The arrangement, which Blue Cross Blue Shield plans to expand to include more health services, is a break from the traditional “fee for service” reimbursements, paying providers for care regardless of results.

“It’s sort of a toe in the water to move away from fee for service,” von Ebers said, adding that it would be too disruptive to North Dakota’s health care system to make abrupt, sweeping changes.

In order to maintain healthy financial reserves, Blue Cross Blue Shield needs a margin of about 2 percent to 2.5 percent to be financially stable, von Ebers said.

“Otherwise,” he added, “you’re just slowly sliding down.”

Blue Cross Blue Shield of North Dakota strives to have financial reserves equal to three months of claims. Current reserves are slightly below that benchmark, von Ebers said.

The average financial margin nationally across the Blue Cross Blue Shield system is 3 percent, and for publicly traded, for-profit health insurers it’s 5 percent.

“So we do try to keep that margin down to a minimum to maintain financial stability,” von Ebers said, in keeping with its status as a nonprofit, mutual insurance company owned by its members.

Blue Cross Blue Shield’s surplus, now about $270 million, according to its most recent quarterly statement, has generally risen since 2001, when it was $137.3 million.

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