The Affordable Care Act has been criticized since it was passed in 2010. Its success depended on states supporting their marketplaces and enrolling healthy consumers.
The cost of health insurance plans offered under the Affordable Care Act will jump 20 percent or more next year under rates to be announced Friday by Maryland regulators.
The CEO of Maryland's largest insurer defended the hefty rate increases and said the federal law that expanded health insurance to most Americans needs to be changed if it is to remain sustainable.
"We regret that such rate increases are needed," said Chet Burrell of CareFirst BlueCross BlueShield. "It is the last thing on earth we want. But no company can sustain the kinds of losses we have seen."
The company projects that its losses since the law went into effect will amount to more than $620 million by the end of the year, Burrell said. More than half of that was covered by a "reinsurance" program that provided a pool of money set up under the law to help insurers pay off medical bills above a certain amount. The company said it would still lose more than $290 million even with that program.
People enrolling in plans are sicker and costlier than the insurer predicted, he said.
The losses came even as high deductibles and out-of-pocket expenses have made health plans too expensive for many Marylanders, said Burrell, who said he still supports the law's expansion of health care coverage.
His remarks came as the Maryland Insurance Administration approved double-digit rate increases for the four companies that sell health plans through the state exchange, an online marketplace set up under the law for people who cannot buy coverage through their employer.
CareFirst, which holds 68 percent of the market, received an average hike of 31.4 percent on its PPO plan and 23.7 percent on its HMO — the highest increases of any insurer.
The rate increases sparked criticism from consumers and advocacy groups, but Burrell said they were needed to help stave off projected losses.
"People are just sicker and using more services, and the rates didn't reflect that," he said. "We filed with the goal of breaking even and just covering the costs. We are not making any money at it."
The advocacy group Consumer Health First said the new rates are too high and questioned whether CareFirst is inflating projected cost increases. The group said the state should look at ways to make the system more cost-effective. For instance, the group suggested combining the individual market with the small-business market so there are more people in the insurance pool, spreading out the risk.
"We are worried that these rates are going to make it even more unaffordable and in fact make a bad situation even worse, because we know already consumers can't afford the rates, and now they're going up further," said Leni Preston, president of Consumer Health First.
Carolyn Quattrocki, executive director of the Maryland Health Benefit Exchange, which administers the online marketplace, said the law is still in the early stages and each year kinks are worked out. She said the system is working because the number of uninsured in the state is at its lowest point ever. Nearly 162,000 previously uninsured people enrolled in private health plans during the last enrollment period.
The exchange also needs to do a better job educating people about the federal subsidies they can get to help offset insurance costs, she said. The U.S. Department of Health and Human Services said that 76 percent of Marylanders receive subsidies that will offset any rate increases.
"The program is really still in its infancy, relatively speaking," Quattrocki said. "While there could be adjustments, we have to look at what is achieved. The gains in the past three years are just substantial."
The insurance administration in most cases issued lower rates than what the insurers requested. CareFirst asked the administration in May to allow it to increase rates by 12 percent for the HMO plans and by 30 percent for PPO plans. The insurer then refiled its request and asked for a 27.8 percent increase on its HMO plans and a 36.6 percent increase on its PPO plans after reviewing claims from the first five months of the year that showed higher costs than the original request was based on.
Insurance Commissioner Al Redmer said insurers across the country are facing financial troubles associated with the Affordable Care Act, complaining that they're losing money on exchange plans because the pools of the insured are too small and the members too sick. Some companies, such as Aetna and United Healthcare, are mostly pulling out the exchange business.
In Maryland, some small employers dumped their employees onto individual plans because they were cheaper. There are also problems with people churning in and out of the system and buying coverage only after they fall ill, Redmer said.
The insurance administration also released rates Friday for the small-group market, where rates will increase less than on the individual market and in some cases decline.
Rates in Maryland also have been typically lower than those nationally under the Affordable Care Act, so there could be some normalizing going on, said John Holahan, a fellow in the Urban Institute's Health Policy Center.
"Maryland rates have been lower than the rest of the nation so it seems some catching up should be expected," said Holahan.
The administration ordered Evergreen Health Cooperative to increase its rates by 20.3 percent, much higher than the 8.8 percent the health care company initially requested. Even so, it was the smallest increase among the insurers.
Redmer said the administration increased Evergreen's rates to cover costs associated with the risk-adjustment fees the insurer must pay, which amounted to $24.2 million last year. The fees redistribute money from plans with lower-risk patients to plans with more costly, higher-risk members in an effort to level the playing field.
The co-op sued the federal government last month over the pending payment, which represented more than a quarter of its $85 million premium revenue in 2015. Evergreen CEO Peter Beilenson, who said he regrets having to raise rates so much but understands the need to do so, said changes could be made to the law, particularly to get more healthy people and more young people to sign up for insurance.
The higher rates "are now going make it somewhat less affordable for people going on the individual exchange," he said. "It is unfortunate."
Burrell said his company still supports expanded coverage but that the current system is not working.
"I do think there are changes that need to occur. It remains to be seen whether a new administration can and will do that," he said of the coming presidential election.
While the law requires people to buy health coverage, penalties for not doing so aren't high enough to have a sufficient punitive affect, Burrell said. As premiums increase, he said, healthy people will be more likely to opt out.
Burrell said it would be like a property insurer stuck with covering only houses that are burning.
To encourage more healthy people to enroll, Burrell suggested increasing the penalties for not buying insurance, although that would not be politically popular.
He thinks the state should adopt the Basic Health Program, a provision of the Affordable Care Act that essentially expands Medicaid coverage for people whose incomes are just above the eligibility limits. This could help people who can't afford out-of-pocket costs even with subsidies. Few states have joined the program.
"I believe people should be covered, and we as a company have tried to act on that and … in fact took on the burden of the vast majority of Marylanders and did so at a heavy, heavy cost," Burrell said. "But nobody can sustain losses year after year after year. You have to get to financial stability, and the law requires it."
This story has been updated to clarify the loss experienced by CareFirst on exchange-based health plans.