First in­surer called on rate hikes

Crit­ics blast first sham­ing of in­surer for rate hikes

Modern Healthcare - - FRONT PAGE - Rich Daly

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? 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 de­ter- mined 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 twoyear 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’ firstquar­ter 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 cost­shar­ing 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.

GETTY IM­AGES

Larsen says the per­cent­age of pre­mi­ums Ev­er­ence planned to use to cover claims was be­low the 80% fed­eral thresh­old.

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