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HHS Slams Two Insurers for 'Unreasonable' Premium Hike Requests

By Dena Bunis, CQ HealthBeat Managing Editor

March 22, 2012 -- The John Alden Life Insurance Company and Time Insurance Company have proposed health insurance premium hikes in nine states that Health and Human Services (HHS) officials said Thursday are “unreasonable.”

“These unreasonable rate increases would affect more than 40,000 residents,” said Steve Larsen, director of HHS’ Center for Consumer Information and Insurance Oversight (CCIIO). The premium hike requests ranged from 12 percent in Louisiana to 24 percent in Wisconsin.

Under a rate review process authorized by the health care overhaul law (PL 111-148, PL 111-152), HHS can decide whether premium increases of more than 10 percent in the individual and group markets are unreasonable. While federal officials don’t have the power to deny such rate hikes, companies that go ahead with them “have to post a public justification for proceeding with a rate that we conclude is unreasonable,” Larsen said.

In an email statement officials at Assurant Health said they are “committed to setting premium rates at a level that will allow us to continue to serve the needs of our customers. We believe our recent rate filings are reasonable and necessary.

“Assurant Health uses medical trend data that factors in both the rising cost of health care and the utilization of medical services and prescription drugs by our customers in determining premium rates.”

The states involved in this announcement include Arizona, Idaho, Louisiana, Missouri, Montana, Nebraska, Virginia, Wisconsin, and Wyoming. The increases were for products in the small group and individual markets.

Larsen said HHS relies on an independent expert review of the rate filings as well as communication with the companies before determining that specific rate increases are unreasonable.

In these cases, Larsen said, the rate filings relied on national medical trend data as opposed to state-specific information. And even the medical trend data that John Alden and Time submitted, he said, could not be verified. Based on the information from the companies, HHS has determined that the share of these “unreasonable” premiums that would be spent on medical care as opposed to administrative expenses was well below the 80 percent “medical loss ratio” (MLR) the health care law requires.

Insurers who don’t meet their MLR requirements must send rebates to their customers. So if these companies impose these proposed rate increases, some of which are scheduled to take effect in April or May, and they result in MLRs that are under 80 percent, these companies “will just have to give that money back,” in the form of consumer rebates, said Gary Cohen, CCIIO’s director of oversight.

Assurant officials said they expect to meet the MLR threshold.

“Rates at Time Insurance Company and John Alden Life Insurance Company, both Assurant Health companies, are set based on combined data and the projected medical loss ratio (MLR) to meet the 80 percent threshold required by health care reform,’’ the insurer said. “We price to a rate level that will allow us to meet the MLR over time in order to prevent the need for excessive rate increases in the future.”

Insurance is generally regulated by the states and HHS only steps in for those states that do not have sufficient rate review authority. Larsen said that since the health care law passed, the number of states with authority to reject unreasonable rate increases has grown from 30 to 37. So far HHS has completed the reviews of 28 premium hike proposals greater than 10 percent and has found 20 of those to be unreasonable.

Also on Thursday, HHS released a report on what has happened to rate increases since the rate review authority took effect. Larsen said that in the last quarter of 2011, premium increases dropped by about 4.5 percent.

“There has been some indication that in some states (rate increase) trends are down, Larsen said in response to a question of whether it’s the rate review authority or market forces that accounted for the lower proposed increases. “There are a number of reasons for that. We absolutely think the scrutiny this is bringing to the process is a contributing factor.”

The report also showed that:

  • States including Texas, Kentucky, Nevada, and Indiana are reporting fewer requests for rate increases over 10 percent.
  • States like California, New York, Oregon, and many others, have proactively lowered rate increases for their residents.
  • More than 180 explanations of rate increases have been posted and are open for consumer comment on

Dena Bunis can be reached at [email protected].

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