Insurance executives will be in the hot seat this week as they face members of Congress and state lawmakers to explain double-digit premium rate hikes in the individual market.
Rate hikes under fire
Insurers called on to explain double-digit increases
Meanwhile, federal and state lawmakers are keeping the pressure on insurers, seizing on the rate hikes to make their case that comprehensive health reform is the only way to stop premiums from spiraling further upward.
“We think it shines a light on the urgency of health reform,” HHS Secretary Kathleen Sebelius told reporters last week at a news conference.
Sebelius unveiled a five-page report highlighting recent proposed rate increases on the individual market in seven states: California, Connecticut, Maine, Michigan, Oregon, Rhode Island and Washington.
“Unfortunately, this is pretty widespread,” Sebelius said.
Blue Cross and Blue Shield of Michigan last year requested a 56% rate hike on individual policies. In the end, the not-for-profit insurer negotiated a 22% rate hike with state regulators. The Blues have about 114,000 members in individual plans.
Regence Blue Cross and Blue Shield of Oregon requested a 20% rate increase for individuals. Three insurers in Rhode Island asked for 13% to 16% increases. And rates for some plans in Washington state rose by 40% until state regulators imposed stricter rules.
The most well-known instance of rate increases of late is at Anthem Blue Cross of California, a WellPoint subsidiary, which told individual policyholders their rates would rise by up to 39% in March. Under pressure from HHS and the California insurance commissioner, Anthem Blue Cross has agreed to postpone the rate increase until May, after an independent actuary reviews it.
Angela Braly, president and CEO of Indianapolis-based WellPoint, has been summoned to testify before a House Energy and Commerce subcommittee on Feb. 24 on the California rate increase.
Back in Indiana, state lawmakers grilled executives from WellPoint last week on a 21% average premium hike on individual policies in that state, which will affect about 107,000 members.
And in Sacramento, state Assemblyman Dave Jones, chairman of the Health Committee, will hold a hearing on the topic on Feb. 23. He has asked Leslie Margolin, president of Anthem Blue Cross of California, to testify. Jones also said he would re-submit legislation this session that would give the state insurance commissioner the authority to reject a proposed health insurance rate hike before it goes into effect. That bill failed to get out of a key committee last year.
States wield varying authority over premium rate hikes. Some states require insurers to file rates in advance of them going into effect, and then they can sometimes negotiate them down. Michigan and Maine both have this authority.
Other states, like California, have so-called “file and use” rating authority—meaning the insurer can put the rate in place, then they file it with the state. If the state objects, it can conduct an investigation to see if the rate meets a certain threshold. In California, state law requires that 70 cents of every dollar of premium be spent on medical care.
The individual insurance market is among the least secure in the industry, with no group rating regulations. Applicants can be turned down for coverage because of a pre-existing condition, and it has been a market rife with rescissions—when insurers drop member policies after they incur high medical costs. About 12 million people nationwide are covered by individual insurance, or about 7% of the total market.
In reality, states have a hard time denying rate increases, said Sandy Praeger, Kansas insurance commissioner and chairwoman of the National Association of Insurance Commissioners. “All states have the authority to halt rate increases that don’t meet standards on premium dollars spent on medical care,” Praeger said. “But that’s a fairly high threshold to prove. Some states have complete prior approval of rates, but that doesn’t necessarily mean you can stop them.”
Insurers are defending the rate increases, saying that a sluggish economy, rising medical costs and a less-healthy member pool are driving them. “Health insurance premiums are increasing in the individual market because of soaring medical costs and because younger and healthier people are dropping their coverage due to the economy,” said Karen Ignagni, president and CEO of America’s Health Insurance Plans, the trade group for insurers, in a statement responding to the HHS report. Ignagni called the attention on the rate hikes “the politics of vilification.”
Carl McDonald, senior managed-care analyst at Oppenheimer, agreed in a recent investor note, accusing Sebelius of “political grandstanding.”
“There’s no question the individual market in the country is broken,” McDonald wrote. “But you’re wasting your time fighting a symptom of the disease, rather than the root cause.”
Praeger concedes that insurers are under pressure. “Insurance companies are like everyone else, they took their reserves and invested them,” she said. “Now, you’ve got a couple of things working against them. The reserves aren’t there to rely on. And with the recession, younger, healthier people are out of the individual market. Only people who really need coverage are signing up.”
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.