Blue Shield of California said it expects rates for its policyholders to increase 13% on average in 2014, an increase executives said will be "legitimately below what people expected them to be" and one that's only slightly higher than the single-digit rate increases Blue Shield has imposed on the individual marketplace in the past several years.
Looking ahead, an analysis conducted in early 2013 by actuarial firm Millman predicted that 2014 rates in the California market would increase between 14% and 26% due to a number of factors, including a more comprehensive level of health coverage, which is required under all basic plans in keeping with the state's essential health benefits law. Coverage includes mental health and rehabilitative services.
Analysts say one factor that's helping drive down prices is a "narrow network" model in which health plans negotiate rates with a limited network of providers. In return for an expected increase in business, hospitals and providers agree to lower their costs for insurers, who in turn pass the savings on to consumers in the form of lower premiums.
"Providers are willing to negotiate lower reimbursement rates in the exchange for a stable volume of patients for these new plans," said Dylan Roby, PhD, an assistant professor with the UCLA Fielding School of Public Health.
In fact, Health Net's rates in Southern California prompted a Deutsche Bank analyst to send a research note to investors questioning why its rates were 13% lower than its closest competitor. Health Net spokesman Brad Kieffer said that its narrow networks allow the company to negotiate favorable rates that it passes on to consumers.