- Associated Press - Sunday, March 30, 2014

DENVER (AP) - Bill Fales wanted a new baler and a better irrigation system for the 700-acre ranch where he raises grass-fed beef cattle, but he scrapped those plans when he saw his new health insurance premiums.

His Cold Mountain Ranch is in western Colorado’s Rocky Mountains, a rural area where outpatient services are twice as expensive as the state average. Fales recently saw his monthly premiums jump 50 percent, to about $1,800 a month.

Health care has always been more expensive in far-flung communities, where actuarial insurance data show fewer doctors, specialists and hospitals, as well as older residents in need of more health care services. But the rural-urban cost divide has been exacerbated by the Affordable Care Act.

“We’ve gone from letting the insurance companies use a pre-existing medical condition to jack up rates to having a pre-existing zip code being the reason health insurance is unaffordable,” Fales said. “It’s just wrong.”

Geography is one of only three determinants insurance companies are allowed to use to set premiums under the federal health care law, along with age and tobacco use. Insurance officials say they need such controls to remain viable.

“If premiums are not allowed to keep up with underlying medical costs, no company is going to survive,” said Robert Zirkelbach, a spokesman with America’s Health Insurance Plans, a Washington, D.C.-based industry group.

The nonpartisan Kaiser Family Foundation recently rated the Colorado region where Fales lives as the nation’s priciest, based on rates for the lowest-priced “silver” plan, a mid-level policy. In this part of the state, a region that includes Aspen, the cheapest mid-level plan is $483 a month. In Denver, the same plan is about $280 a month.

Other insurance price zones on the most-expensive list include rural areas in Georgia, Nevada, Wisconsin and Wyoming. But the cost differences between densely and sparsely populated areas shouldn’t come as a shock, Zirkelbach said, because it’s simply more expensive to deliver care in such communities.

“That’s not new at all. Health insurance premiums track the underlying cost of medical care. This was true before the ACA, and it’s true now,” he said. “Hopefully, the exchanges will shine a spotlight on the variances that exist in the cost of medical care.”

States have only one option to reduce the premium divide between their urban and rural areas. They can set a single statewide rating zone, an option that would reduce premiums for those in rural areas by shifting costs onto more-populated regions.

It’s something officials in all but the smallest states are reluctant to do. Only five states - Delaware, Hawaii, New Hampshire, New Jersey, Rhode Island and Vermont - chose a single rating zone, in addition to Washington, D.C., according to the Kaiser Family Foundation.

“There’s always been geographic variance in insurance,” said Craig Garthwaite, an economist at Northwestern University’s Kellogg School of Management who has studied the economic consequences of the new health care law.

The difference now, he said, is that insurers have fewer levers to adjust premium pricing. Garthwaite also said the health care law makes it easier for rural health insurance shoppers to see what city residents are paying.

“That’s forcing them to confront the market, which is a new thing,” he said.

It’s a bumpy confrontation for many in rural areas who earn too much to qualify for premium subsidies but not enough to easily afford premiums that can approach or exceed $1,000 a month.

Story Continues →