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HHS Slaps Trustmark for 'Unreasonable' Rate Increases

By Jane Norman, CQ HealthBeat Associate Editor

January 12, 2012 -- The Department of Health and Human Services (HHS) on recently said that Trustmark Life Insurance Company has proposed "unreasonable" health insurance premium increases for small businesses in Arizona, Alabama, Pennsylvania, Virginia, and Wyoming.

Company officials, however, protested that the agency was acting under "assumptions and premises" that did not take into account Trustmark's costs and the up-and-down nature of the small business insurance market.

The announcement came as part of the rate review process included in the health care law (PL 111-148, PL 111-152). Under the law, HHS is authorized to decide whether increases of more than 10 percent are unreasonable in the individual and small group markets and then publicize them to consumers. HHS, however, can't stop the increases from taking effect.

Insurance is generally regulated by the states and the power to stop a rate increase varies by jurisdiction.

The federal government only conducts rate reviews in states that are deemed to have ineffective review processes of their own. HHS started doing these reviews in the past few months and last week's announcement of an unreasonable increase was the second to be unveiled.

Gary Cohen, acting director of oversight at the Center for Consumer Information and Insurance Oversight in HHS, said in a conference call with reporters that Trustmark proposed increases of 13 percent or more over the past year that would affect 10,000 people. Those increases should be rescinded or explanations made by Trustmark, he said.

HHS officials said in a statement that when combined with other increases over the past year, Trustmark rates increased by 27.2 percent in Alabama and 18.1 percent in Arizona. Outside actuaries were hired by HHS to examine the proposals and the agency then made a final determination of whether the increases are unreasonable, said Cohen.

He also said three other proposed increases above 10 percent have been determined reasonable, in Louisiana, Montana and Missouri. Other reviews are pending.

HHS Secretary Kathleen Sebelius said in a blog post on the White House website that the action against Trustmark shows how the health care law is working. "Thanks to health reform, if your insurance company wants to hit your wallet with a major increase, they have to tell you why," she wrote. "And if you don't like what they have to say, you can take your business elsewhere."

In a statement, Trustmark officials said they have decades of experience providing health insurance to small businesses and their rate increases reflect rising costs.

"We respectfully disagree with the assumptions and conclusions drawn today by the U.S. Department of Health and Human Services," said the statement. "Our premiums are driven by the rising cost and increased utilization of medical services. As a smaller carrier, our loss ratios can vary significantly from year to year, and we take that volatility into consideration."

Cohen said Trustmark's proposal would not meet medical loss ratio rules also included in the health care law. That rule requires companies to spend 80 percent of premiums on medical services and improvement of quality of care in the individual and small group markets. Under its premium increase proposal the company would have spent from 56 percent to 74 percent, depending on the state, he said.

Trustmark said it will be in compliance with the medical payout rules. "If there are instances where we do not reach the required loss ratio as calculated under the federal regulations, we will, promptly and in accordance with the Affordable Care Act, rebate the difference to those customers," said its statement.

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