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HHS Announces Two 'Unreasonable' Rate Increases; Says Reviews Lower Rates

Monday, April 2, 2012
By Sara Hansard

Two insurers, John Alden Life Insurance Co. and Time Insurance Co., have proposed unreasonable health insurance premium increases in nine states, the Department of Health and Human Services announced March 22.

HHS also issued a report March 22 on the rate review program, finding that since it took effect in 2011 under the Patient Protection and Affordable Care Act, health insurers have proposed fewer double-digit increases, and more states have taken an active role in reviewing and reducing rate increases.

The two health insurers, owned by Assurant Health of Milwaukee, posted increases as high as 24 percent, Steve Larsen, director of the Center for Consumer Information and Insurance Oversight (CCIIO) at HHS, said in a call with reporters.

The rate increases would affect about 40,000 residents in the nine states, Larsen said. The states where the unreasonable rate increases were proposed are Arizona, Idaho, Louisiana, Missouri, Montana, Nebraska, Virginia, Wisconsin, and Wyoming, he said.

The increases, some of which are scheduled to take effect in April and May, were reviewed by actuarial consultants to HHS to determine whether they are reasonable based on regulations the federal government issued to implement the rate review program, Larsen said. Under the regulations, annual rate increases of 10 percent or more for individual and small group plans must be reviewed by HHS or states found by HHS to have adequate rate review procedures (see previous article).

Insurer's Response, MLR
In a statement emailed to BNA, Assurant Health said it is “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 added that it “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. 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.”

Under the MLR requirement of the health reform law, individual and small group plans must spend at least 80 percent of premiums on medical claims or quality improvements, or refund the difference to consumers.

The company said, “We price to a rate level that will allow us to meet the [medical loss ratio] over time in order to prevent the need for excessive rate increases in the future.”

Insurers Must Post Justification
Unlike some of the states, HHS does not have authority to force insurers to reduce rates. Insurers found by HHS to have unreasonable increases have 10 days to modify or withdraw the rate, or they must post public justifications for the rate on the HHS website.

Larsen said there were several reasons for the determinations announced March 22 for the Assurant companies. The insurers' rate filings relied on national data on medical cost trends instead of state-specific data; HHS's consulting actuaries could not verify some of the underlying cost trend data that the companies submitted; and using “more reasonable assumptions for medical trends” resulted in MLRs for the companies “well below” the 80 percent standard required by the health reform law, he said.

The MLRs for the companies appeared to be as low as the 50 percent range in some cases, Larsen said. HHS requested that the companies rescind the rates or explain why they would not, he said.

“These determinations are another example of how rate review is helping to control rising premiums and bringing unprecedented transparency to the market for consumers,” Larsen said.

The rate increases that HHS said were unreasonable March 22 were mostly for individual and small group plans; the increases in Wisconsin and Idaho were for association plans, which cover individual members, Gary Cohen, director of CCIIO's oversight group, said on the press call.

Some Increases for Association Plans
Most of the nine states do not have authority from HHS to review rate increases of 10 percent or more for individual and small group rates in their states, Cohen said. Wisconsin and Idaho have authority to review individual and small group rates, but they do not have authority to review association rates, he said.

HHS has worked with states to post justifications and analyses of 186 rate increases for plans covering more than 1.3 million people through early March, according to the report, 2012 Progress Report: Health Reform is Opening the Insurance Market and Protecting Consumers.

Of the 186 requested increases posted on HealthCare.gov as of March 10, HHS said that 61 of the filings are under review by HHS (the rest are reviewed by states).

According to HHS, of the 61 instances to date where HHS is charged with conducting reviews, the department completed 28 determinations. HHS has determined that 20 of the 28 proposed rate increases are unreasonable. The increases by John Alden Life Insurance and Time Insurance are part of that group of 20 found to be unreasonable, Cohen said.

However, Larsen acknowledged that none of the 20 increases found to be unreasonable by HHS were later lowered.

The report includes examples of insurers modifying rate increases in the states. California, New York, and Oregon are among states that took actions resulting in lowered rate increases. Texas, Kentucky, Nevada, and Indiana are reporting fewer requests for double-digit increases, it said.

Rate Reviews Contributed to Declines
Although there are indications that medical cost trends are going down, “We believe that the scrutiny of the program has contributed to a decline in proposed rate increases,” Larsen said. In the fourth quarter of 2011, many states reported that premium increases dropped by about 4.5 percent, and in some states premiums declined, he said. The rate review process also increased transparency for consumers about rate increases, he said.

States are conducting a majority of the rate increase reviews, Larsen said. Forty-three states and the District of Columbia are reviewing rate increases for non-association coverage in both the individual and small group markets, HHS said in a March 2 document submitted to the National Association of Insurance Commissioners (see previous article). Most of those states review all rate increases, without regard to the 10 percent threshold, HHS told the insurance commissioners.

The report noted that as a part of the rate review program, many states have sought to increase their statutory authority to reject unreasonable rate increases, and the number of states with the authority to approve rate increases rose to 37 states from 30, Larsen said. Several states expanded their prior approval authority to new markets, he said.

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