Like a number of other health insurers around the country, Premera Blue Cross is cutting back its participation in the Obamacare exchange market. What's notable is that the Mountlake Terrace, Wash.-based insurer is partly blaming rural healthcare providers' excessive rates for its pullback.
At least one hospital leader in a smaller community was surprised by the not-for-profit insurer's position, saying the insurer had never complained to him about his organization's rates.
But the insurer's move suggests a broader problem with the U.S. model of relying on competition to keep healthcare costs affordable in markets where there is limited or no competition between providers. It also points to the challenge for insurers of investing in members' health when those members can jump to a different exchange plan each year.
Last month, Premera, which covers about 1.9 million people in several Pacific Northwest states, announced that it would no longer offer individual-market plans next year on Washington's state-run exchange in 12 of the 39 counties where it now offers exchange products. Those counties are primarily rural, though they include the cities of Ellensburg, Leavenworth, Wenatchee and Yakima.
Premera's retreat leaves exchange plan customers in two rural Washington counties—Klickitat and San Juan—served by only one insurer, according to the office of state Insurance Commissioner Mike Kreidler.
For 2017, Premera asked for a 20% rate increase for its exchange plans in Washington.
Jim Havens, a Premera vice president, told the Wall Street Journal that some rural Washington counties had fewer, less-competitive providers that weren't willing to strike acceptable deals. “In some cases, they have said … we don't have to negotiate with you,” he said.
I asked a Premera spokeswoman to tell me which providers weren't willing to negotiate, and she told me to check with the hospitals in the 12 counties where the company was stopping sales of exchange plans. So I spoke with Tim Reed, chief financial officer at Yakima Valley Memorial Hospital, the dominant provider in the Yakima area, which recently merged with Virginia Mason Medical Center in Seattle. Reed was taken aback by Havens' statement.
“We've had a long relationship with Premera and never had a problem negotiating contracts,” said Reed, who indicated that his hospital generally has negotiated rates with exchange plans that are slightly above Medicare rates. “I think they were having trouble making money on this population. It could be they were pushing off the blame.”
Then I called Libby Allgood, chief financial officer at Kittitas Valley Healthcare, which operates a critical-access hospital in Ellensburg, KVH Hospital. “Premera has not raised that issue with us,” she said. “Perhaps they're not making quite what they thought they would.”
Allgood noted that as a critical-access hospital, KVH Hospital receives higher rates from insurers, set at 85% of gross charges. “There are a number of critical-access hospitals on this side of the (Cascade) Mountains, and it could be Premera has to pay more. It's hard to say.”
Told of these reactions, the Premera spokeswoman responded with a written statement: “Our focus is on maintaining affordable coverage for our customers, and our success depends on collaborating with doctors and hospitals for great care at reasonable rates. In some rural areas, that can be more of a challenge with fewer providers and less competition.”
Insurance Commissioner Kreidler, who's often been tough on health insurers, essentially agreed with Premera. A spokesman said Kreidler's view “is that having fewer providers in rural areas makes it more difficult for insurers to negotiate rates that they will find reasonable.” He added that insurers also face higher administrative costs in rural areas.
Yakima Valley Memorial's Reed noted that exchange plan members tend to hop between plans each year based on price and whatever benefits they need at a particular time, such as maternity coverage. “For us it's all the same because we take patients from different plans,” he said. “But it's difficult for the insurers to accommodate that, because they need a certain time period to make a certain return.”
Still, Reed, in his polite way, seemed a little peeved by the Premera executive's statement. He recalled that the insurer took political heat a few years ago for socking away more than $1 billion in surplus funds while jacking up premiums.
“I may make a phone call and see where they were going with that,” he said.