To justify a 35% rate hike, Anthem expects Californians to use a lot more drugs next year

Sept. 21, 2017 6 AM PT

Health insurance giant Anthem predicts Californians will pop a lot more pills next year.

To make the case for a hefty premium hike in the state’s individual insurance market, Anthem Blue Cross has forecast a 30% jump in prescription drug costs for 2018, reflecting not just price hikes but rising drug use. Such a sharp cost increase is nearly double the estimates of two other big insurers, and it runs counter to industry trends nationally.

Prescription drug spending in the U.S. grew 6.1% over the 12 months ending in July, according to Altarum, a nonprofit think tank. That’s down from a recent high of 12.9% in 2014, when expensive new hepatitis C drugs sharply lifted overall pharmaceutical spending.

“I can’t understand why Anthem is predicting 30%,” said Charles Roehrig, a health economist and founding director of Altarum’s Center for Sustainable Health Spending. “There are examples of egregious price increases for particular drugs that have gotten a lot of well-deserved attention. But those haven’t characterized what’s happening as a whole,” he added.

The advocacy group Consumers Union also questioned why Anthem’s cost projections are so much higher than its competitors, and it has asked state regulators to demand additional documentation from the nation’s second-largest health insurer.

Overall, Anthem is proposing a 35% rate increase for about 135,000 consumers who buy their own insurance in and outside the Covered California exchange. It’s the largest increase statewide and assumes that federal subsidies for copays and deductibles will continue to be paid. The second highest, also assuming the U.S. government will continue paying those subsidies, is 28.6% by Molina Healthcare.

Some of Anthem’s rivals aren’t as pessimistic on the outlook for drug costs. Two other large insurers, Blue Shield of California and Health Net, projected drug costs will rise 16.4% and 15%, respectively. Anthem came in even lower than that in its rate filing for Colorado’s individual market, projecting an 11.4% increase in prescription drug costs.

The company said it stands by its California cost projections in light of growing market volatility. In documents filed with regulators, the company expressed concern that declining enrollment in the individual market would saddle it with a sicker group of policyholders.

“As it pertains to pharmacy, our rates reflect the increasing utilization and rising cost of prescription drugs we have experienced in this market over the last couple of years,” said company spokesman Colin Manning.

In fact, Anthem emphasizes rising drug use over higher drug prices when justifying its rate increase — an argument Consumers Union challenged as unusual. Most other insurers in California have cited rising prices as a bigger factor in filings to state regulators.

“Anthem projects an extraordinary increase in its enrollees’ use of prescription drugs at four or more times the rate of enrollees at other carriers,” said Dena Mendelsohn, a staff attorney for Consumers Union in San Francisco.

The California Department of Managed Health Care said it is scrutinizing Anthem’s “underlying medical costs and trends” as part of its review of 2018 rate increases. The state agency, which expects to finish its review next month, can pressure insurers to reduce their rates, but it doesn’t have the authority to block them.

“We may ask [Anthem] questions and for additional information to support the plan’s proposed rate change,” said Rodger Butler, a spokesman for the Department of Managed Health Care.

Anthem is significantly curtailing its presence in Obamacare marketplaces nationally next year amid ongoing uncertainty from the Trump administration and Congress over whether they will continue the federal subsidies that lower out-of-pocket costs for low-income consumers.

In August, Anthem announced a partial withdrawal from California’s individual market, saying it will sell policies in only about half of the state’s counties.

Anthem’s chief executive, Joseph Swedish, told investors and analysts at a conference this month that the company may reenter certain ACA markets across the country if Congress and the White House take steps to stabilize them.

Some experts wonder if Anthem made a mistake in its California rate filing. It wouldn’t be the first time.

In 2010, an outside actuary working for California regulators found a crucial error in Anthem’s proposal to raise rates by up to 39%. President Obama seized on the public outcry over that double-digit increase to help get the Affordable Care Act passed in Congress.

Anthem later withdrew the increase after David Axene, an actuary in Murrieta, Calif., discovered problems with the company’s calculations.

Axene said this latest filing for 2018 health plans raises plenty of questions.

The pharmacy estimate “does seem high,” he said. “It’s a more mature marketplace now, so hopefully everybody knows how to price it. But I’m sure stupid mistakes still happen.”

Chad Terhune is a senior correspondent for Kaiser Health News.

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