Big Rate Hikes Coming for Blue Cross Medigap Coverage

Blue Cross Blue Shield of Michigan plans to implement a rate hike that will cost some 220,000 senior citizens in the state to pay more next year for their Medigap supplemental health insurance.

The insurer said in a news release Tuesday that the five-year rate freeze on the Legacy Medigap plans expire at the end of the year, and the new increases will take effect on Jan. 1.

For the first time, rates are based on age, gender and geographic location, meaning that younger female senior citizens pay far less than older male senior citizens.

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In southeast Michigan, the rate increases for the most popular plan, Legacy Medigap Plan C, will raise a 65-year-old woman’s premium $48 to $170 a month, not including a potential subsidy, and an 80-year-old man’s premium $177 to $300 a month, not including a potential subsidy.

Disabled persons under the age of 65 will pay more than older men, about $188 more a month than they are now.

Elsewhere in Michigan, the rate increases are lower, but still substantial.

“Anyone living on a fixed income is going to be concerned when they are asked to pay more for their insurance coverage,” Julie Smith, senior vice president for Senior Health Services at Blue Cross said in the news release. “Even though this is our first rate change in five years, we understand the concern this will cause.

“Blue Cross is working to help our members understand why this change is necessary, and point them to resources and assistance they can trust to inform their decisions,” Smith said. “Legacy Medigap is one of many coverage options, and we are committed to working hand-in-hand with our members to ensure they get the right support to make the best decisions.”

Among the steps Blue Cross has taken to lessen the pain of the increases:

• Extending the rate freeze period through January 1, 2017.
• Continuing to guarantee Medigap coverage to all applicants, regardless of health condition.
• Allowing members to remain in the Legacy Medigap plans they have today.
• Capping rate increases based on age on Legacy Medigap once members reach 80 years old.
• Not pricing rates for current members based on their health status.
• Introducing new Medigap plans to give people a variety of coverage options.

Blue Cross is also taking steps to inform members and advocates of the changes:

• Blue Cross hosted a webinar with senior advocacy organizations this morning.
• The company’s blog – MIBluesPerspectives.com – will be used as a resource for frequently updated information and perspective.
• Blue Cross is mailing two letters to members to provide information and context for the changes. The second letter arriving before July 15 includes a special phone number for members to call for questions and personalized support.

Blue Cross does not expect to profit on Medigap plans even after the new rates take effect:

• BCBSM expects to book $249 million in financial losses this year due to inadequate pricing. The new rates project a lifetime “loss ratio” for all of BCBSM’s Legacy Medigap products of 110 percent – meaning the company will pay more for the health care costs of its members than it collects in premiums from those members.

In the letters being mailed to nearly 200,000 Legacy Medigap members this month, BCBSM spells out the complex reasons behind the changes members will see in Legacy Medigap starting January 1, 2017.

• A direct subsidy program has ended. The subsidy was put in place in 1980 when BCBSM was regulated under an old law that provided an exemption from state and local taxes. It ended when a new law removed those tax exemptions and enabled BCBSM to become a nonprofit mutual insurer. BCBSM has paid nearly $200 million in new taxes, plus another $210 million of a $1.56 billion commitment to the Health Endowment Fund, since that change in 2014.
• A five-year rate freeze is ending. The rate freeze on Legacy Medigap essentially extended BCBSM’s direct subsidy program from 2014 to 2016. By the end of 2016, BCBSM will have provided more than $690 million in subsidies to keep the rate freeze in place – all while paying new taxes and making new Health Endowment Fund payments.
• Rates have not kept up with costs. BCBSM will be pricing its Medigap plans to market rates comparable to those charged by other insurers for similar products. Because of the subsidies and rate freeze, BCBSM’s pricing today is far below the cost of providing medical care for covered members and it undercuts competitors’ prices.

Image credit: Susan Huyett via Flickr / Creative Commons