Are insurers primarily obligated to maintain solvency and provide some profits to their investors or are they susceptible to public shaming for excessive profit-seeking?
Critics blast first shaming of insurer for rate hikes
The Obama administration aims to answer that question and arrest years of double-digit health insurance rate increases through a new rate review process that calls out insurance company plans deemed “excessive” and “unjustified.”
The first company plan to receive that determination under a process authorized by the Patient Protection and Affordable Care Act, Everence Insurance of Pennsylvania, was blasted for a 12.6% rate hike that went into effect Oct. 1.
“This sends a message to insurers around the country that the days of unfair and unchecked double-digit rate increases are over,” HHS Secretary Kathleen Sebelius said during a Nov. 21 call with reporters in which she demanded Everence rescind the rate hike and return the premium increases to enrollees.
The small group plan was offered by Goshen, Ind.-based Everence Insurance Co., which is a for-profit component of the not-for-profit Everence Association, a ministry of Mennonite Church USA. The small group plan drew HHS scrutiny because it increased rates by more than 9% and was located in one of the eight states that the federal government has determined lack effective rate review in at least one of its insurance markets.
In the case of Everence's plan, HHS officials working with a private actuarial firm determined that the Mennonite plan based its cost projections on national data rather than reliable and available state data. Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the CMS, said the percentage of premiums the company planned to use to cover claims was well below the 80% federal threshold.
“The medical-loss ratio for Pennsylvania policyholders was in the 63% to 67% range,” Larsen said.
That finding was not accurate, according to an Everence statement, which said the rate increase was based on a more prudent two-year projection of medical inflation in the region, which produced an 81.6% two-year medical-loss ratio.
“The Everence experience indicates that a longer experience period reduces premium volatility, which works better for group clients,” Dave Gautsche, senior vice president of products and services at Everence, said in a statement.
To illustrate its point, the company noted that over the past three years, the company's loss ratios have varied from 25% to 100%.
An HHS official declined to respond to Everence's specific justifications for the rate increases that led to its public shaming.
Such an undaunted response from an insurer may not bode well for the federal initiative because the 2010 healthcare law gave no authority to federal regulators to sanction insurers who are unresponsive to HHS determinations that their increases are financially unjustified.
“The good news is that there are no enforcement powers,” said Ed Haislmaier, a senior research fellow in health policy studies at the conservative Heritage Foundation and critic of the health law. “The point of this is they just want to try to show that they are doing something for the people.”
Critics of the law said the rate review initiative will not have any effect on insurers' use of rate increases because neither addresses the underlying rise in medical inflation, which is driving the continuous—and sometimes sharp—rate increases.
“Focusing solely on premiums while ignoring the soaring cost of medical care will not make healthcare coverage more affordable for families and small businesses,” Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said in an
e-mail in response to questions.
But the administration's approach of public embarrassment is based on a belief that the insurance industry is flush with profits, as evidenced by big insurance companies' first-quarter earnings reports exceeding analysts' projections by an average of 30%.
“Even as insurance company profits have reached record levels, I've heard from way too many Americans who feel helpless in the face of rising premiums,” Sebelius said. “Many people have wondered how they could possibly be justified.”
Such profits, market analysts have noted, stem from recession-led drop-offs in covered healthcare sought by cash-strapped patients, who are dissuaded by plans' common cost-sharing provisions.
Insurance industry officials cite HHS' own National Health Expenditure data showing that from 2000 to 2010, the growth in premiums tracked directly with the growth in benefits, which continues a decades-long trend.
But federal regulators said the Everence review is only the first of many. All small group and individual market policies issued after Sept. 1 are subject to the same scrutiny and public accountability. So far, HHS has received 114 rate filings, according to officials, and those cover about 450,000 people.
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