I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
While environmental activists played their part yesterday during demonstrations at the capitol building, going so far as to dress up as solar panels and to sing the tune of “You Are My Sunshine,” their counterparts, the anti-cap-and-trade contingency who has…
Roughly one quarter of University of New Mexico students are unimpressed with the state’s flagship public school, according to a survey that questioned college students about their higher education experiences.
A health insurer that wants to raise monthly premiums on New Mexicans should submit to an independent review and pay for it itself, Sen. Dede Feldman, D-Albuquerque, said this week.
The Albuquerque Democrat said she will propose that change to state law when the Legislature reconvenes in January.
“I am going to ask this to be considered as part of the rate request,” said Feldman, who also would like to see regulators empowered to look into an obscure industry practice called “closed blocking.”
Feldman’s proposals are the latest development in the wake of the state’s settlement with Blue Cross Blue Shield New Mexico (BCBS) that will mean an on average 20 percent increase to what 40,000 New Mexicans pay in monthly premiums.
Last week’s settlement sparked outrage, causing some to wonder why the state’s Insurance Division hadn’t dug deeper into BCBS’ finances, questioning executive pay and how much was held in a surplus account. Others also wanted to know why the regulators hadn’t questioned whether the firm was engaging in “closed blocking.”
But Brent Moore, the Insurance Division’s General Counsel, on Wednesday told a panel made up of lawmakers and state officials that the agency’s authority under state law doesn’t extend to considering certain factors.
“The insurance division uses a very specific calculation,” Moore said. “It does not get at the question of surplus. It doesn’t get at the compensation to executives. In terms of approval of rates, the insurance division doesn’t have the ability to get at some of the concerns raised.”
As for closed blocking, Moore said, “It’s a unique problem we face – the inability of the Insurance Division and our former superintendent to address it,” Moore said, referring to Morris Chavez, the former Insurance Superintendent who resigned Tuesday. “That is not included in state law right now. It is something to take note of, this question of closed blocks.”
Rate increase stirs up anger
Monetary issues surrounding the rate increase so far have focused critics’ ire.
They have argued that the state could have rejected the rate increase without imperiling the company’s financial health. Blue Cross Blue Shield New Mexico is a division of Illinois-based Health Care Services Corp. (HCSC), which has a $6.7 billion surplus, according to an attorney for Consumers Union, the publisher of Consumer Reports, who has followed the case closely.
A BCBS company attorney said last month that the firm had lost $20 million on the plans offered to the 40,000 New Mexicans, and $11.1 million on all of its operations in 2009.
While dollars and sense has occupied the spotlight, a less public discussion has started to bubble up around “closed blocking.”
The practice appears relevant to the BCBS case, according to Sondra Roberto, the CU attorney who pored over the company’s rate filings and others documents submitted to the Insurance Division. Roughly 37,000 of the 40,000 New Mexicans affected by the rate hike are in so-called “closed blocks,” she said.
What is closed blocking
To understand closed blocking, it’s important to understand shared risk, the concept at the center of the insurance business. A larger pool of policyholders often translates into lower premiums because the risk –in this case medical claims or costs – is shared across a broader cross-section of individuals.
Closed blocking occurs when a health insurer closes an insurance plan to new members. At the same time the insurer starts another lower-priced plan that attracts younger, healthier policyholders, including policyholders from the first, now-closed plan who apply and qualify for the new plan.
That siphoning off of younger, healthier members eventually leaves a concentration of older, less healthy members in the first plan.
Over time the population left in the first plan will see premium rates increase as the medical costs to care for them escalates and the pool never grows to help spread around that risk.
At some point the costs of premiums can become so cost-prohibitive that some members drop the policy, meaning a reduction in risk for the insurer
“No one has been able to tell whether this is intentional or not, but the effect is the same,” said Roberto. “Insurers will argue if we have to spread risk around a larger pool we will spread that risk over there, and the rates will increase. It requires a very delicate balance.”
The Blue Cross Blue Shield case
At the start of this year BCBS closed several insurance plans catering to those affected by the rate increase to new policyholders, a fact Roberto said she discovered while reading the documents the company filed with the state.
At the same time BCBS allowed members in those plans to apply to a different insurance plan, meaning they had to qualify first before they could jump to the new plan, she said.
Roberto critiqued that practice in particularly strong language in a five-page letter dated April 23 she submitted to the state Insurance Division. Roberto wrote that BCBS’s rate filing “reveals that the insurer is egregiously cherry-picking the individual market.”
Two calls made Thursday to a BCBS representative seeking a response to Roberto’s claims were not returned.
No NM law to scrutinize closed blocking
Feldman said “closed blocking” is legal, but it’s problematic for consumers and there’s nothing in state law to scrutinize the practice.
“What under our current law will prevent this cycle (caused by closed blocking) from happening,” Feldman asked Moore during Wednesday’s hearing.
“At this point we are not able to,” Moore, the Insurance Division general counsel, said.
Feldman said the problems for consumers caused by the practice are enough to spark a discussion around whether New Mexico should change its laws.
“It was acceptable in the Blue Cross Blue Shield deal, and will continue to be acceptable unless we change the law,” Feldman said.
Some states have adopted laws that require insurers to notify the insurance commissioner when they close an insurance plan to new members, Roberto said. Others have required insurers to blend in the policyholders from the old plan into the new one.
“Ten states have tried to do something about this problem, whether this is a blend or notifying insurance commissioner,” Roberto said.
“Closed blocking” might gain traction as an issue over the next three or so years. But in 2014 many of the provisions in the new federal health care law kick in, including ones to limit the practice of closed blocking, several officials said.
