An order this month by the state’s board in charge of health care reform indicates to insurance companies that they will have to rein in costs, or at least be more specific about where their customers’ money is going.
Earlier this month, the Green Mountain Care Board, appointed by Gov. Peter Shumlin to oversee health care reform efforts, approved a 2.9-percent increase in “administrative costs” for Blue Cross Blue Shield of Vermont.
But it did so with some reservations — including concerns that the company was paying its employees more and offering bonuses at a time when many Vermonters are seeing their increased health insurance costs outpace their wages.
“Our review shows that the company’s 2012 administrative expense budget is more than 9% higher than its actual 2011 administrative expenses, and includes budgeting for employee wage increases and bonuses at a time when most Vermonters are not seeing similar, if any, increases in income,” the board’s order reads.
Anya Rader Wallack, the chair of the Green Mountain Care Board, said the board will be looking at all sorts of ways to control the constantly rising cost of health care as the state aims to implement a universal health care system by 2017.
“What you can expect to see is that we the board are going to take a hard look at all costs in the system as we implement our responsibility to try to make health care as affordable as possible,” Wallack said.
Under the federal Affordable Care Act, insurance companies are already required to spend the majority of their money on health care through what is called a medical loss ratio.
Wallack said Blue Cross Blue Shield of Vermont consistently meets this requirement, but the state is looking at all potential places where it can contain spending. Administrative expenses like employee bonuses for health insurance companies are just one example of those areas.
Wallack said that with the upward trend in health care costs, administrative costs have risen simultaneously.
Under H.559, which Gov. Peter Shumlin signed into law this week, the board will have 30 days instead of 10 to address rate increase requests by insurance companies once it receives a recommendation from the state Department of Financial Regulation (formerly known as the Department of Banking, Insurance, Securities and Health Care Administration).
Steve Kimbell, commissioner of the Department of Financial Regulation, recommended approval of the rate increase for Blue Cross Blue Shield. He said the 2.9 percent increase is less than the company has been asking for in years past.
Kimbell said the rates of increasing health care costs, including administrative costs, are complex. Containing those costs may also be the linchpin of making health care reform affordable.
Under both federal and state health care reform laws, he said, insurance companies will likely see more scrutiny of their attempts to increase customer rates.
“It’s safe to assume that enhanced scrutiny of health insurance rate filings is one of the intents of the Affordable Care Act,” Kimbell said.
Kevin Goddard, vice president of external affairs and sales for Blue Cross Blue Shield of Vermont, said the insurance company welcomes the longer time frame for looking at administrative expenses.
“In terms of administrative expenses, we have worked very, very hard to control and reduce our administrative expenses over time,” he said. “We are eager to have the Green Mountain Care Board have more time to look at it and hopefully agree with our point of view.”
Goddard said the company has been under its 5 percent growth target it set a few years ago.
He said the longer time period will also allow the company to clarify issues such as increased compensation. Goddard said the company’s budgeted employee compensation increase is actually lower than the 3.8 percent average wage increase statewide between 2010 and 2011. He said the company does not offer bonuses per se, but it does allow salary-based incentive programs for employees.