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Health Insurance & Affordable Care Act

Where You Live Determines Health Insurance Costs

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Insurers say they set premiums based on expectations about who will enroll: Will newcomers be generally young and healthy or older or sicker? Other factors include what they pay for labor costs and whether they’ve been able to negotiate favorable rates with hospitals, doctors and other medical providers.

Some insurers may price low to attract market share.  Others are creating insurance plans that limit the network of doctors or hospitals to keep premiums low.  Cost-of-living variation also plays a role.

Philadelphia has both the highest costs in Pennsylvania and the highest utilization of medical care, which accounts for much of the higher premiums, said Brian Lobley, senior vice president of marketing and consumer business for Independence Blue Cross, one of the area’s two major insurers.  The insurer does not sell in the Pittsburgh region.

But something else besides Philadephia’s higher costs is at play, said Mark Pauly, professor of health care management at the Wharton School, University of Pennsylvania.

That something is likely market competition between insurers and rival hospital systems, he said.  That dynamic can spur tougher negotiations between insurers and hospitals, which might agree to lower charges.  And regions with competing insurers often see lower premiums.

“There is something of a price war right now” in Pittsburgh between insurer Highmark and the University of Pittsburgh Medical Center, which also has its own insurance plan, said Joel Ario, a managing director with consultant, Manatt Health Solutions, and a former state insurance commissioner. “They’ve got the ideal situation, with competing insurers and competing hospital systems.”

In Philadelphia, by contrast, there are many hospitals and each has market clout.

“They can resist any effort to cut them out of a network or to bargain,”because insurers believe they must have every hospital in their network or risk losing customers, Pauly said.

Narrow Networks

Nationally, some of the lower-cost plans are likely to have narrower networks of doctors and hospitals, said Robert Laszewski, a former insurance executive who is now an Alexandria, Va.-based consultant.

“One of the only ways they can vary the price is by their networks,” he said.

That’s because, starting Jan. 1, the law bars insurers from rejecting applicants based on their health, or from charging the sick more than the healthy.  They can, however, vary premiums based on age, whether the applicant smokes and where they live.

Because the government data released this week does not name insurers - nor give information on the size of the plans’ doctor and hospital networks - it is difficult to tell whether lower cost plans do indeed have smaller networks.   Some consumer groups fear patients may not have access to a wide enough range of doctors or hospitals in some plans and may have to pay more to see an out-of-network specialist as a result.

Sun, Sep 29 2013

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