February 25, 2020
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Some policyholders could see 47 percent hike when health insurance rate increase kicks in March 1

Gabor Degre | BDN
Gabor Degre | BDN
Richard Barclay and his wife, Bunny, of Holden purchased health insurance for her to have coverage until she retires. They were surprised to receive a letter from the provider, Mega Life, that their insurance premium will increase 40 percent next month. About 12,000 people have policies with Mega Life in Maine and some will have lower premiums by up to 32 percent but some will see as much as a 47-percent increase

About 7,000 Maine customers of Mega Life and Health Insurance Co. will be affected by a rate change set to take effect March 1.

While some policyholders will see their health premium costs drop by nearly 33 percent, others will be hit with rate hikes of up to 47 percent, according to Mega’s filing with the Maine Bureau of Insurance. The average rate increase across all policyholders amounts to 6.5 percent.

The rate change affects Mega’s individual policyholders, or people who purchase health coverage on their own rather than through an employer. The 6,990 policies involved provide coverage to about 12,600 people, including the policyholders’ dependents.

Richard Barclay, 67, of Holden said he received a letter from the company last week stating that his wife’s individual policy would jump from $323 to $449 a month, a nearly 40 percent increase. He looked into a similar plan offered by Anthem, but it carried hefty costs for visiting medical providers outside the insurer’s network, he said.

Faced with paying the higher Mega rate for another 19 months, after which his wife will qualify for Medicare at age 65, Barclay said the couple may drop her coverage.

“If there are no [health] issues come January, we’re probably going to go with no insurance,” he said.

The letter from Mega about his wife’s policy, a $7,500 deductible plan, cites rising “health care-related costs” as the reason for the rate increase, Barclay said.

“Somebody’s going to make an awful lot of money off this, if they don’t lose all their customers,” he said.

According to Mega’s filing, the company expects to earn about $24.4 million annually with the rate increase, while paying out $17.2 million in claims. That translates to a nearly 30 percent gross profit margin, or $7.2 million annually, not including expenses such as state and federal taxes.

Mega ultimately will net an estimated profit margin of 3 percent, according to the insurance bureau. That’s after several types of costs are subtracted from the remaining $7.2 million, including taxes, administrative expenses, commissions paid to agents, and “cost containment measures.” That method of calculating profit margin has been used by insurers for a number of years, said Doug Dunbar, a spokesman for the Maine Department of Professional and Financial Regulation, which oversees the insurance bureau.

Mega last filed for a rate change in July 2011, seeking an average 8 percent increase for new policies.

“The Maine Bureau of Insurance recently implemented several changes to their regulations that impact how insurance companies operating in the state calculate premium rates for different categories of business, member ages and geographic locations,” Mega’s parent company, HealthMarkets Inc., said in a statement on Wednesday. “As a result of these changes, some policyholders may experience higher rate increases than others.”

In May 2011, Gov. Paul LePage signed into law a statewide health insurance overhaul known as PL 90. The controversial legislation was backed by Republicans who said it would make health insurance more affordable and decried by Democrats who labeled it “reckless.”

The law allows insurers from other New England states to sell insurance in Maine and gives insurers more leeway in setting rates based on age, geography and tobacco use. It also creates a high-risk pool for Maine’s sickest residents funded partially by a fee charged to nearly all private policyholders in the state.

An independent report found that most consumers in the individual market, particularly the young living in urban areas, would pay less for premiums under the law, while older Mainers in rural areas would pay more.

Mega first notified its customers of the proposed rate change in August 2011, anticipating an effective date of Nov. 1, 2011, according to the Maine Bureau of Insurance. The bureau’s review delayed the process, and the company was asked to send out a second notice with the March effective date, Dunbar said.

Policyholders must be notified of rate changes 60 days in advance, he said.

The rate change required approval from the bureau because Mega failed to meet a requirement that the company spend at least 80 cents of every premium dollar on medical care and quality improvement. The other 20 cents can go to administrative costs, marketing and profits.

The company anticipated spending 70 cents of every premium dollar on medical care with the new rate change, according to its filing.

The “80/20 rule” is required under the Affordable Care Act, the federal health reform law. PL 90 incorporated that requirement and stipulated that insurers don’t need prior approval if their proposed rate increase meets the 80/20 rule and averages less than 10 percent.

Rate hikes averaging 10 percent or more need prior approval because they trigger another federal provision under the Affordable Care Act.

In other states, Mega would have to comply with the 80/20 rule under federal law. But Maine was granted an exemption in March 2011 at the request of former state insurance chief Mila Kofman. She requested the waiver after Mega indicated it might leave the fragile individual market if the rule was implemented.

Before the passage of PL 90, insurers could not institute new rates for individual health plans until the bureau approved them. At the time, there were no federal requirements.

All filings are reviewed by the bureau to ensure compliance with the state insurance code, Dunbar said.

Joe Ditre, executive director of the advocacy group Consumers for Affordable Health Care, said Mega should now comply with the 80/20 rule.

“A 29 percent profit margin is huge, and more of that money should be put into medical bills for Maine customers rather than profits,” he said.

Joel Allumbaugh, an insurance broker and health policy expert at the conservative Maine Heritage Policy Center, said it’s natural that rates rise as policyholders age and expected that Mega would respond to PL 90’s changes in how premium rates are calculated. But the company’s rate increase could potentially have been much higher without the reimbursements that Mega receives through the high-risk pool set up under the law, he said.

“There’s absolutely no question that they are using that pool … and they are benefiting from it today,” said Allumbaugh, who sits on the pool’s board.

Mega provides health coverage to 37 percent of the individual market in Maine. The largest individual health insurer, Anthem, covers 48 percent.

Anthem’s request for a rate hike was rejected by Kofman, a decision that was upheld a year ago by the Maine Supreme Judicial Court. Anthem sought a 3 percent net profit margin.

The state’s Dirigo health insurance program also offers an individual plan through Harvard Pilgrim Health Care, but, with few exceptions, it’s no longer available.

Overall, about 34,000 Mainers carry individual health coverage, compared to 223,000 who have coverage through a small or large employer. Roughly 500,000 of Maine’s 1.3 million people are covered by public health insurance — Medicaid, Medicare and veterans’ insurance — while 133,000 have no insurance.

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