If premiums are not allowed to keep up with underlying medical costs, no company is going to survive. —Robert Zirkelbach, America's Health Insurance Plans
DENVER — 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.
"I have people mad enough to bite a nail in half down here, saying, 'Why are my prices so high?'" said David Hardin, an insurance broker in the southwest Georgia community of Albany, in another of the nation's priciest private health insurance zones.
"Either they're mad as all get-out, or I can hear them crying on the phone. It just breaks your heart," said Hardin, whose customers are seeing monthly premiums that cost at least $500 a month more than if they'd lived in Atlanta. "I think there was the idea that it might reduce costs, and now they're seeing that it's not."
Some are even considering moving to avoid the premium increases.
In Gardnerville, Nev., about 50 miles south of Reno, freelance writer Tim Plaehn is considering moving to Uruguay, where he and his wife lived for a time and still have friends.
Plaehn pays about $400 a month in premiums but expects his tab to rise above $1,000 when his current plan expires. He makes too much to qualify for insurance subsidies but isn't sure he can afford the jump.
"I'm hoping something will change in the law to make it more affordable, because otherwise, something's going to break," he said.
Some premiums in Las Vegas are about $600 a month cheaper, but he said he doesn't want to live there.
Colorado Insurance Commissioner Marguerite Salazar has traveled to several rural regions to explain the rates to angry customers.
At the meetings, state insurance officials pass out the actuarial data behind the premiums, including details from Colorado's All Payer Claims Database, which lists hospitalization rates and other factors used to determine the cost of health care in a region.
Salazar then walks residents through the differences and says that state officials cannot lower rural rates without driving insurers out of the market.
"They've got to have rates that will allow them to pay the doctors," Salazar said at a November meeting in Greeley, a northeastern Colorado town where rates are higher than Denver.
Salazar recently announced a task force to review the rating zones, but added in a public statement that any changes would have to be based on new data.
Her spokesman, Vincent Plymell, said there is nothing state regulators can do. There are no easy short-term fixes to reduce costs in rural areas, where everything from MRIs to baby deliveries costs more, he said.
"Costs are higher like they are for housing or food or everything else. Health care costs aren't something we have the ability to control," Plymell said. "It's easy to kind of point the finger and say it's the big, bad insurance companies, but it's a lot more complicated than that."
U.S. Rep. Jared Polis, a Colorado Democrat whose district includes part of the state's expensive mountain region, appealed last year to U.S. Health and Human Services Secretary Kathleen Sebelius for a waiver for such areas.
Sebelius replied that the matter is a state issue. There would be no federal assistance for variances in state-approved health insurance rating areas.
"I'm somewhat frustrated that there are waivers being extended to small- and mid-size businesses, yet individuals are being faced with costs that they can't afford," Polis said.
For now, health advocates in rural Colorado say they have few answers for patients who want to buy insurance, but simply can't afford it because of where they live.
"People really see the value of insurance up here, and they're mystified about why our premiums are so much higher," said Tamara Drangstveit, executive director of the Family and Intercultural Resource Center in Frisco, Colo., about 25 miles east of Vail in the heart of the state's ski country.
"They want insurance," Drangstveit said. "They don't want to break the law and get a fine, but they live in a certain area and they have no choice."
Kristen Wyatt can be reached at http://www.twitter.com/APkristenwyatt