Mark Sanchez: These are rate proposals for the small group market in Michigan. This is health insurance for employees or employers with 50 employees and less. It's the small group market and boy, folks sorry to say, and just once I'd love to do a story that says healthcare costs are going down, but it's just not happening. If you have Blue Cross Blue Shield of Michigan, Blue Care Network or Priority Health, you're looking at double digit increases that have been proposed for 2025 policy renewals. These are policies that would renew on January 21, 2025. Just to throw the numbers, Blue Cross Blue Shield of Michigan proposed in its filing last week an 11.5% statewide average increase for its PPO plans. Blue Care Network, that's the HMO subsidiary of Blue Cross Blue Shield of Michigan, is looking at an 11.2% increase. Priority Health, for the HMO product, 13.2% average increase across the state for the HMO policies. And the Priority Health Insurance Company, that's the unit that sells the PPO policies, 12.3% increase. So, these double-digit increases are back at least for one year, at least by these two health insurers, which really control much of the small group market in Michigan between Blue Cross and Priority Health. You're looking at about 86% of small businesses use one or the other for their employee health coverage. What's driving all this? You know, we see the ads on TV, we hear the ads on the radio for these new GLP-1 weight loss drugs. They're effective, but they're expensive. Specialty drives that do great things, but are also expensive. The folks at Blue Cross and Priorities say they've seen utilization rates increase quite a bit here in the last year. Outpatient claims for Blue Cross increased 13% in 2023. That added about $360 million to the medical claims costs. On the pharmacy side, Blue Cross Blue Shield paid about $1.8 billion more in 2023 for claims. And that's the specialty drugs for things such as the autoimmune diseases. And then of course the GLP-1s for weight loss and diabetes that added another $320 million to the claims trend. So, costs are going up in healthcare as they always have. And for many, many years, healthcare costs have risen at a multiple of the GDP. Bottom line, at least for the two largest health insurers in Michigan, if you're a small employer, you're looking at some double digit increases for 2025.
Patrick Center: Are there state regulators who oversee any of this pricing?
Mark Sanchez: Yes, this goes to the Department of Financial and Insurance Services. Rates are filed annually each May. The regulators look at them and usually toward the end of October, right around the fall, they make a decision on whether to approve or alter the rates. But largely these rate proposals are driven by medical claims and the pharmacy claims. You know, what's the claims trend? What are we spending? What are we putting out for these claims that folks are filing for their care, for their medical care, for their drugs? So, there's usually not a lot of changes between what's proposed and what gets approved. But these types of fairly significant increases, I'm sure we're going to get some fair scrutiny this year.
Patrick Center: Historically, when was the last time we saw a rate increase this large?
Mark Sanchez: Boy, I can't remember exactly, but there was a period where high single digit, low double-digit increases were kind of the norm many years ago, especially back in that period after the Affordable Care Act was introduced and you started seeing some mandated benefit levels. For the last several years, you've, well, comparatively moderate increases, mid-single digits, things like that. At one point, you had some low single digit rates. They really moderated for a period. But now we've seen these utilization rates grow. We've seen these high-cost drugs, specialty drugs, and the weight loss drugs come to market the last couple of years. And it's really beginning to drive these claims upward. And that of course means the rates are going up.
Patrick Center: We'll stick with medical care and pricing. There's an advocate group that has Michigan hospitals ranked third nationally on pricing, but they're still charging too much money.
Mark Sanchez: That's the assertion from an organization known as the Economic Alliance for Michigan. That's a kind of a business labor coalition that looks at this data and this data comes from the Rand Corporation, which every two years does this analysis for the employers forum of Indiana. It takes a look at what hospitals are paid by private insurers, by health insurers and the self-funded employers, what they pay for medical care for their employees based on what Medicare pays the hospitals for the same type of care. They put all those numbers through and they come back with a whole bunch of data. The good news is Michigan ranks third best in the nation for what hospitals are paid relative to what they're paid by Medicare. 120 hospitals analyzed in Michigan during this year's report, they were paid about 192% of what Medicare pays for inpatient and outpatient care. Comparatively, that's pretty darn good to the rest of the nation. But for this story that went up at Crain's Grand Rapids last week, you know, I also talked to the folks from the Economic Alliance and they say, you know, that's almost twice the Medicare rate and two times is two times too much. So, there's this kind of debate going on what's the proper pricing. We're seeing this issue beginning to come up more and more about pricing for care at hospitals. There's some pushback beginning to emerge, and the Economic Alliance is one of those groups that's really questioning the pricing that hospitals set down for the medical care they provide. And as I say, comparatively to the rest of the nation, Michigan looks good. That's a good thing. But at least this one organization is saying hospitals are still charging too much for care. And you know, as we've reported many times over the last few years, hospitals are also working on some, we've seen some tight operating margins. So, what is the proper margin? What is the proper pricing? That's the debate that's really beginning to emerge within the healthcare industry and these employer organizations are beginning to ask.
Patrick Center: We're talking with Crain's Grand Rapids business senior writer, Mark Sanchez. Inflation continues to run a bit hot. We've seen it decrease just a bit, but it's not at that 2% target that the Federal Reserve would like. You've received an updated outlook from the U of M Research Center for Quantitative Economics issued in mid-May. What is the forecast as we head into the second half of 2024?
Mark Sanchez: For the U.S. economy, it looks good. They describe it, the U of M center, the economists, they're saying, you know, the U.S. economy has what they call ‘healthy momentum’ for the foreseeable future. But for a number of months, the question has been, okay. When our interest rates that are high right now, when are they going to start coming down? Over two plus years, the Federal Reserve has raised interest rates. They're higher than the folks have seen for a long time. So is inflation. Inflation, boy, it's not at the point where it was there at the end of 2022, early 2023. So, we're seeing inflation has moderated, not enough to bring rates down. The Fed wants it down to about 2%. At the report last week, I think it was about 3.6% in April. So, it's better than it was, but is it at the point where interest rates can start coming down? In the University of Michigan Outlook they're saying, you know, earlier this year, we're seeing a lot of economic forecasts say mid-year rates should start coming down. It looks right now the Federal Reserve isn't quite ready to pull the trigger on that. So now, at least by the U of M forecast, they're suggesting buy September could be the time you see interest rates start coming down. U of M says look for a quarter point reduction there. Now I had some information from the economist at PNC Bank. They still think we'll get two quarter point reductions in interest rates this year, September and December. They're looking for that. So again, bottom line, it's, you know, those interest rate reductions that we were hoping would occur by mid-year here in 2024, may not occur until late summer, early fall.
Patrick Center: Crain's Grand Rapids Business, senior writer Mark Sanchez. Thank you so much.
Mark Sanchez: Thank you, Patrick.