In California's new state-run health insurance market, Kaiser Permanente will cost you.
The healthcare giant has the highest rates in Southern California and some other areas of the state, surpassing rivals such as Anthem Blue Cross and other smaller competitors. The relatively high premiums from such a strong supporter of the federal healthcare law surprised industry analysts, and it has sparked considerable debate about the company's motives.
Some experts say Kaiser intentionally bid high to avoid drawing too many customers next year who are sick or who have been uninsured for years and may be costlier to treat. Others suspect Kaiser was worried that lower premiums would bring an influx of newly insured patients that could overwhelm its in-house roster of doctors and hospitals.
Making health insurance affordable is a crucial factor in the expansion of coverage to an estimated 5 million Californians — many of them lower-income and the uninsured — who will be eligible for a state-run exchange next year. Price will be paramount to many consumers, even for those who receive federal subsidies to help lower their costs.
In one key barometer of rates, Kaiser has the most expensive premiums for a 40-year-old in Los Angeles, Orange, San Bernardino and Riverside counties for a mid-level Silver plan. Statewide, the nonprofit company has the highest or second-highest premiums for a Silver plan in 12 of the 18 regions where it's selling HMO policies in Covered California, the state market that opens for enrollment Oct. 1.
Kaiser's Silver plan premium for a 40-year-old in southern Los Angeles County is $325 per month, 34% higher than the cheapest policy in the area, from Health Net Inc., at $242.
"Kaiser is not as low cost as many people think," said Glenn Melnick, a USC health policy professor. "They appear to be protecting themselves because the people signing up in the first year are likely to be the sickest ones."
For its part, Kaiser says it was as surprised as others were when the state announced the 13 winning health insurers and their proposed rates for 19 regions last month. These rates are scheduled to be finalized this month after a regulatory review. Individual premiums will vary based on people's age, location and family size.
Despite its higher rates, Kaiser said it wants to enroll a large number of people in the state exchange. It blamed its lackluster showing, in part, on rivals offering cheaper plans that give consumers far less choice of doctors and hospitals.
Blue Shield of California, for instance, is offering 36% of its physician network in Covered California plans.
"We were surprised to see some of the rates," said Bill Wehrle, Kaiser's vice president of health insurance exchanges. "We were surprised at what looked like very narrow networks from our competitors. We don't cut off any slice of our network."
Of course, for years Kaiser has served as a model for the limited networks other insurers are now rushing to adopt. Kaiser is a unique healthcare system because it operates its own hospitals, physician offices and insurance company for its 9 million members nationwide.
"Blue Shield or Anthem could be a little more selective in putting together a network for this new market. Kaiser is one size fits all," said Marian Mulkey, director of the health reform and public programs initiative at the California HealthCare Foundation. "The question now is will people find Kaiser attractive enough compared to their other options. This could put pressure on Kaiser to be less expensive."
Overall, Kaiser is the state's biggest health insurer with a 40% share of the market, according to 2011 data from Citigroup. Anthem Blue Cross, a unit of industry giant WellPoint Inc., was second with a 23% share of employer and individual customers.
More than 5 million Californians who don't get insurance through work are expected to participate in the state's new market. About half of those people will qualify for federal premium subsidies because they are low or moderate income.
Individuals earning up to about $46,000 a year and families making $94,000 or less will qualify for government help with their premiums. Even with that financial boost, however, most consumers are expected to look for the cheapest plans available.
"I think the lowest and second-lowest plans will really be attractive," said Lucien Wulsin, executive director of the Insure the Uninsured Project, a nonprofit research group in Santa Monica. "I'm sure being at the low end of the spectrum puts you more on the receiving end of everybody."
One of the bigger unknowns in the federal healthcare expansion is how many people will sign up initially and who will they be. Patients with preexisting medical conditions or chronic illnesses who have been denied insurance for years should be eager to enroll. Younger, healthier people may not see much reason to buy, content instead to pay a modest penalty.
Starting in January, most Americans must have health insurance or pay a fine. The penalty starts at $95 per adult or 1% of income, whichever is greater. The penalties increase over time.
"Kaiser has structured this so they don't get a lot of the poorer and potentially sicker people," said Steve Valentine, president of the Camden Group, an El Segundo healthcare consulting firm.
"Some people have been unemployed and underemployed for years, and they may have a lot of healthcare needs. There could be a lot of pent-up demand, and Kaiser may be trying to dodge that bullet," Valentine said.
For years, some consumer advocates have faulted Kaiser for not doing more for the state's poorest residents on Medi-Cal, the state Medicaid program, and for building many of its hospitals and medical offices in more affluent areas.
Kaiser defends its record of charity care and denies any effort to duck certain customers. Last year, the Oakland company said it provided care to more than 560,000 Californians enrolled in Medi-Cal and other safety-net programs.
"There is a lot of uncertainty about whether the healthy show up as well as the sick," Wehrle said. "We are very competitive on rates in some regions, which is a pretty strong indication we are not trying to avoid anything. There is no question we want to grow in the exchange, and I think we will."
Mulkey of the California HealthCare Foundation said Kaiser has regretted being the low-cost option at times in the past and being overrun by too many members at one time. Other insurers may have more flexibility to add doctors and hospitals to their network as enrollment builds.
Kaiser, on the other hand, could face the costly decision to contract with outside hospitals to absorb some of its overflow.
"We are focused on sustainable prices for the long haul," Wehrle said. "If you make a large mistake in this environment, it can be hard to recover."