Health insurers in Massachusetts will boost rates more than 6 percent for small businesses and individuals in 2016, a troubling sign that costs are once again accelerating.
The increase, approved by the state Division of Insurance last week, is more than double the rise in premiums at the beginning of this year and triple the rise in 2014.
The new rates will affect about 300,000 people who buy health insurance on their own or work for small businesses with 50 or fewer employees and will renew plans in January.
The increases will hit only a small slice of the state’s overall commercial insurance market of about 4 million, analysts said, but they may be a precursor to premium increases in the broader market, representing a setback to efforts to contain the state’s already high health care costs.
They far exceed the state’s goal of keeping total health care spending growth below 3.6 percent a year. Next week, officials will report whether the state’s health care industry is meeting that target.
“This could be a problem,” said Barbara Anthony, the state’s former undersecretary of Consumer Affairs and Business Regulation, now a senior fellow at the Harvard Kennedy School and the Pioneer Institute, a Boston think tank. “If the benchmark means anything, and if we’re trying to keep the growth of health care expenditures under control, a number like that presents challenges.”
The increases come as most of the state’s hospitals, particularly the higher-cost Boston teaching hospitals, enjoy healthy profits. Massachusetts General Hospital and Brigham and Women’s Hospital, both owned by Partners HealthCare, were the most profitable in the state last year, earning $200 million and $152 million, respectively, a state report shows.
The rate hikes approved by the state mean that premiums for individuals and small businesses will rise 6.3 percent next year, on average, but the costs for some plans will rise more, and others less. This year, rates for individuals and small employers rose an average of 3.1 percent in January, after increasing 1.9 percent in 2014.
Insurers blame a variety of factors for the accelerating costs, including more people using expensive drugs that treat ailments such as high cholesterol and hepatitis C and cost tens of thousands of dollars per person. The use of expensive medical services, from tests to surgeries, is rising, they say, while the Affordable Care Act is imposing new costs on insurers.
“You have to take into account the use of higher-cost providers as a factor that’s driving higher-cost premiums,” said Eric Linzer, senior vice president of the Massachusetts Association of Health Plans, which represents the insurance industry. “Greater use plus higher costs is going to translate into higher premiums.”
Insurers say the federal health care law is contributing to higher premiums by requiring them to pay new taxes; the federal government is collecting billions of dollars from health insurers nationwide to, in part, underwrite coverage for people on subsidized health plans. For the first time this year, insurers also must make new “risk adjustment” payments, which redistribute money from insurers with the healthiest members to those with the sickest.
State officials said they recognize escalating health insurance costs are a burden on consumers and businesses, and are encouraging insurers to enhance efforts to contain costs.
Health care providers and insurers have already taken steps to control expenses. They are developing new payment models that are meant to contain costs by keeping patients healthy and discourage unnecessary medical services.
But Kevin Beagan, deputy commissioner of the state’s health care access bureau, cautioned that rising costs would remain a challenge. Health spending nationally is projected to grow from about 17 percent of US economic output in 2013 to nearly 20 percent in 2024, according to federal government estimates.
“We are hearing that the issues associated with [insurers’] cost pressures are across all lines of business,” Beagan said. “We think some of these pressures will continue.”
Meanwhile, small businesses will struggle to pay the higher premiums, said Jon B. Hurst, president of the Retailers Association of Massachusetts.
“Every time health insurance goes up at a percentage far higher than your sales go up, you’ve got to cut back somewhere,” Hurst said. “Where else do you go, except not offering health insurance, or not offering raises, or cutting back staff?”