Julie Jette, the first-rate health reporter for the Quincy Patriot Ledger, kicks the tires on Commonwealth Choice non-subsidized plans and finds significant variations in premiums by occupation and zip code (click here for her article):
“For example, the cheapest policy available for a 45-year-old telemarketer living in Quincy will cost $2,340 a year, about $600 cheaper than for a 45-year-old janitor living in Quincy.
Where you live will also count for a lot under the new plans; A 45-year-old telemarketer in Plymouth will pay $972 a year more for the cheapest policy than his or her counterpart in Quincy.”
Simple question — is this variation really necessary? Lots of folks have complained about the awkwardness of the occupational categories on the CommChoice website. What would be so awful about getting rid of these designations? Should we really charge more or less in premiums to someone based on his or her occupation?
Somebody please explain and defend this practice or let’s chuck it…
The use of industry classification is one of a handful of rating factors allowed under the state’s newly merged small group/non-group market. Insurers that use industry as a rating factor — and not all do — must use it to adjust rates for plans sold through the Connector as well as the plans they sell outside the Connector. Don’t like it? Change the law, but don’t blame the Connector for shedding light on insurers’ attempts to red-line industries.
The reason is simple: Some occupation have higher rates of illness. A person who works outside all day in the sun is more likely to file a skin cancer claim. Certain areas may have chronic exposure to chemicals (like East Boston) which can lead to higher claims. This can and will, of course, lead people to cheat and claim another occupation or declare another address as a residence.
This is a very common, almost universal, practice for group business. Since the point of CommChoice was to bring the individual subscribers into the group market, industry rating came along for the ride. (Although not at Blue Cross Blue Shield, as the article points out).
Based on my experience, the normal industry factors would range from about 80% to 120% of normal, so the numbers here aren’t out of line with normal experience.
The area distinction is a fairly minor thing in eastern Massachusetts (it’s done by the first 3 digits of the ZIP code). Central and western Mass are about 5% lower, and Cape Cod and the Islands is about 5% higher – both reflecting the relative medical costs in those areas. In the six counties closest to Boston, I would expect miminal variation.
From a public policy point of view, we should definitely get rid of the industry factor. The area factor is probably appropriate, although this could be argued both ways.
As I think you are aware, we have a modified community rating system in the small group market in Massachusetts which allows for industry-type to be within the 2:1 band. When we merged the markets, this was allowed for individuals too. Historically, when we went to a guaranteed issue state this was necessary to ease the pain for the healthy companies in the small group market. Their rates went up and they still pay more than they would if we didn’t have a community-rated system. Some industries are riskier and have less healthy workers. Some wouldn’t be able to get insurance in another state as you well know. While an insurer cannot turn anyone or any company down here in Massachusetts(that’s a good thing) they are allowed and should vary rates by factors such as age, region, and occupation.