I have written before about the importance of New Mexico to Texas Tech Physicians.  It accounts for about six percent of our business. So, a story in the Wall Street Journal caught my eye this week that said Health Care Services Corporation, which is Blue Cross and Blue Shield of New Mexico, has filed a proposal to increase premiums for 2016 by an average of 51.6 percent for its plan sold as part of the Affordable Care Act (ACA) on the New Mexico Health Insurance Exchange. This is the highest request premium increase in the nation for that type of product. Keep in mind—the state might not approve the request.

And, before you become too alarmed for the payers of health insurance premiums in New Mexico, note that other insurers in New Mexico are not asking for such a sizable increase. For example, Presbyterian has asked for a six percent rate hike, while NM Health Connections wants to raise rates by four to five percent.  The other two carriers in the exchange, Molina and Christus, have not asked for any rate increase.

So, why the large request from Health Care Services Corporation of New Mexico?

It seems to be due to high medical costs incurred by the people newly enrolled in the ACA. The law bans insurance companies from assigning people’s premiums based on their pre-existing conditions. The result of this is that people with pre-existing conditions cannot be excluded or charged more for premiums, so any increased costs are passed along to the entire group. This upcoming year represents the first time since the law went into effect that insurers are basing their rate-hike requests on more than a year of data.

It brings to mind the adage that “nothing is free.” It is good that people are not turned away, but it does come at a cost. Furthermore, insurers are finding that a good number of people buying through the health insurance exchanges are older and have more chronic conditions such as diabetes or congestive heart failure. And, while the number of people obtaining insurance through the exchanges is impressive, there are still fewer of them than expected.

Insurance, in many ways, is a strange concept. It is good in that it protects most from huge medical bills due to unforeseen events. It is not unusual to have medical bills in the hundreds of thousands. But, think of how the insurance companies get the money to pay those huge claims and thousands of lesser ones. They have to take in enough money in premiums to cover all of the claims, pay their overhead and make a profit. Without the potential to make a profit, insurance would not exist because no one would want to be in the business. The insurance company knows that it must take in so much in premiums, which are placed in a pool, from which it removes expenses and claims payout, and a profit remains. It is a “numbers game.” It all works beautifully as long as the premiums cover the claims and operating expenses and leave the insurance company a profit. When it doesn’t, the insurance company asks for more in premiums as we are seeing in New Mexico and many other states around the nation.

If you are interested in this, visit rate requests posted on Healthcare.gov. At Texas Tech Physicians, we’ll continue to watch premiums in New Mexico closely, since it affects such a large portion of our patients.