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'A Perfect Storm': Understanding the most expensive health insurance market in the nation

Why Charlottesville has the highest health insurance premiums in the country and what the community is doing to fight back

<p>The new program will shorten the diagnosis process by connecting physicians at U.Va. Health System with patients at Culpeper Medical Center through a secure video conferencing link facilitated by the University’s Karen S. Rheuban Center for Telehealth.</p>

The new program will shorten the diagnosis process by connecting physicians at U.Va. Health System with patients at Culpeper Medical Center through a secure video conferencing link facilitated by the University’s Karen S. Rheuban Center for Telehealth.

In 2018, Charlottesville had the highest premiums for any locality on the individual health insurance market in the United States, almost triple what they had been the year before. This unprecedented price increase has spurred outrage from community members and major changes in the upcoming year. 

Individual market exchanges were created under the Affordable Care Act, colloquially known as “Obamacare,” so that people who do not get insurance through their employer — either because they are self-employed or their job does not provide them with health benefits — can purchase health coverage. Almost 11.8 million Americans were enrolled in the Obamacare exchanges in 2018. 

According to Prof. Carolyn Engelhard, director of the Health Policy Program at the School of Medicine, the Trump administration took steps to dismantle or weaken the ACA after its failed attempt at repealing the act in 2017. This included ending cost sharing reductions, which were established under the ACA to help mitigate losses some insurers might experience by taking on new customers. Fearful for what this change would mean for their bottom line, many insurers, such as Aetna and Anthem, decided to leave the individual market in 2018 — a problem that was exacerbated in rural areas like Albemarle County, with few providers. 

And so, at the beginning of this year, there was only one company offering health insurance on the individual market in Charlottesville. This group, Optima Health — which is managed by Sentara, which also owns Martha Jefferson Hospital — proposed nearly tripling insurance premiums. According to CRHI’s calculations based on publicly available data from the Center for Medicare and Medicaid Services, this caused rates to become 23 percent higher than anywhere else in the country. 

“My rates were going to go from $940 a month to $2,920 a month,” said Karl Quist, a co-founder of the advocacy group Charlottesville for Reasonable Health Insurance. 

Quist co-founded the group with fellow self-employed Charlottesville residents Sara Stovall and Ian Dixon, after realizing the significant price increase for 2018.

“We are all families of four with two kids … and that’s for a bronze plan, which is literally the cheapest plan you can buy on the market,” Quist said.

The proposed rates were approved by the Virginia Bureau of Insurance and went into effect this January. CRHI criticized the Bureau for not doing more to push back against the rate hikes, which the citizens’ group finds unreasonable. 

Engelhard, however, notes that there are several reasons that could help explain Optima’s increased rates. As they are now the only provider, they were expecting a sudden increase of enrollees from 17,000 in 2017 to as many as 100,000 this year. Charlottesville also has a large population of older individuals, which can be more costly for insurers.  

After Optima began receiving attention for having the highest prices in the nation, former Optima CEO Michael Dudley explained that one of the major reasons prices were so high was because of the University of Virginia Health System. 

According to Engelhard, University hospitals do tend to charge more because they handle research, education and treatment, offer specialized services and often care for uninsured patients. Richard Shannon, executive vice president of the University Health System, wrote an op-ed in the Washington Post last year, arguing against Optima’s claim that rates were high in Charlottesville because of the University Health System. 

“Optima accounts for less than 1 percent of the commercially insured patients cared for at U-Va.,” Shannon said in the op-ed. “There is a problem here, but it's not Charlottesville or the U-Va. Health System.” 

CRHI estimates that only about a fifth of the approximately $110 million in premiums Optima collects in Charlottesville in 2018 will go to the University hospital, suggesting it is not the primary driver of higher rates — a claim that Quist called “false” and “misleading.” 

“I think U.Va. has tried to hold Sentara to the facts,” Engelhard said. “They want to be part of the conversation about how to extend the provision of health coverage to people in Central Virginia.” 

Dixon points to three factors that came together to create the present situation — the federal government’s decision to end certain ACA provisions, the Commonwealth’s Bureau of Insurance not fighting for lower rates and the local provider charging monopoly prices. The result was “a perfect storm,” Dixon said. 

The ACA designed a measure, referred to as the Medical Loss Ratio, to try to prevent large rate increases such as this one. Under this rule, providers are required to spend 80 percent of the revenue generated through premiums on paying for direct healthcare costs and quality improvement activities. This effectively creates a cap on insurer profits of 20 percent of revenue. 

As stated previously, Optima is expected to take in $110 million in premiums in Charlottesville this year. While the portion going to enrollee health costs for the year is yet to be determined, calculations that CRHI has done suggest that it will be well below the required 80 percent. Optima, and its parent company, Sentara Healthcare, are 501(c)(3) registered non-profits, giving them access to special tax exempt status. Quist points out that 2018 has been Sentara’s most profitable year to date. Revenue in the first half of the year was 74 percent higher than the same six month period in 2017, due mostly to healthcare premiums.  

That may change in 2019 though. Anthem Health Insurance will return to the Charlottesville market next year, and offer premiums that are about 45 percent less expensive than those currently offered by Optima. While prices will still be significantly higher than they were a couple of years ago, this announcement has come as a great relief to unsubsidized local residents, who were either paying the Optima rates or were unable to afford them and instead went uninsured.

However, this has exposed the subsidized population to a new risk. Eighty percent of people who get their insurance through ACA exchanges receive a subsidy from the Federal government that pays for a portion of the cost of insurance. The size of the subsidy a person receives depends on their income and the cost of insurance available in their area — a person making less money and living in an area with more expensive insurance rates will receive a larger subsidy than someone making more money and living in an area with cheaper rates. 

Because the only coverage available in Charlottesville in 2018 was very expensive, people were given significant subsidies to help alleviate that cost. When Anthem enters the market in 2019 with much lower rates, those subsidies are going to drop for everybody, whether they’re enrolled in the cheaper plans or not. Subsidized individuals are automatically re-enrolled in their previous year’s plan, which means if they do not go into the exchange and switch plans manually they will be paying the higher Optima rates while receiving the lower subsidy indexed to Anthem’s premiums. 

“It may be the difference between a subsidized person paying $50 a month if they get the right plan or $750 a month if they don’t,” Quist said. “This might be a person who makes $25,000 a year so they can't afford $750 a month.” 

While Engelhard said the responsibility to switch plans lies with the insured individual, she also noted that health literacy and understanding around the topics of health insurance are low. A lot of factors may prevent a person from changing plans, including not being aware that a cheaper option is available, not realizing that they will be automatically re-enrolled and not knowing that their subsidy will decease. Raising awareness about this situation among consumers has become the principal focus of CRHI, though they feel the responsibility should fall to the government and Optima. 

To both Engelhard and the founders of CRHI, this year-long ordeal highlights the tangible impacts that changing health care policy has had on people in the community. 

Dixon said that this issue is particularly salient in light of the upcoming midterms on Nov. 6. According to Dixon, the Cockburn campaign has been attuned to the issue, meeting with the group twice, while the Riggleman campaign has not met with CRHI. 

According to Cockburn’s platform, she supports the ACA and a single payer healthcare system. Riggleman’s platform mentions that “the 5th District is home to the costliest health insurance in the nation,” and he supports repealing the ACA and embracing health savings accounts.

To Stovall, Obamacare is more than just an abstract political buzzword.

“It gives us freedom to do what we want to do, to start businesses, to become artists,” Stovall said. “Without the ACA, we are beholden to our employers, we don't have any options.” 

Sentara Healthcare did not respond to request for comment prior to publication.