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Feds say no to health insurer's "excessive" rate increase

Robin Wulffson MD's picture
Affordable Care Act, health insurance, rate increase, Health and Human Services

WASHINGTON, DC - On January 12, Health and Human Services (HHS) Secretary Kathleen Sebelius issued a finding against Trustmark Life Insurance Company, a unit of Trustmark Mutual Holding Company. It stated that rate increases sought by the health insurance company were unreasonable, and ordered the insurer to either rescind them or justify its refusal to do so.

Secretary Sebelius claimed that “the excessive rate increases” would affect nearly 10,000 individuals in Alabama, Arizona, Pennsylvania, Virginia and Wyoming. The insurance company is based in Lake Forest, Illinois. Wielding the power granted by the new healthcare law, the Affordable Care Act, she said, “It’s time for Trustmark to immediately rescind the rates, issue refunds to consumers, or publicly explains their refusal to do so.”

Healthcare analysts feel that the action has political overtones because it meshes with the Democratic Party’s efforts to demonstrate the merit of the new healthcare law and to portray President Obama as fighting for the economic interests of middle-class families.

Trustmark cited the rising costs of hospital care, physicians’ services, and prescription drugs as a reason for seeking higher rates. Cindy Gallaher, a spokeswoman for the insurer, responded, “We respectfully disagree with the assumptions and conclusions drawn today by the Department of Health and Human Services. Our premiums are driven by the rising cost and increased utilization of medical services.” She added, “Trustmark has been and will continue to be in compliance with all aspects [of the law].”

The healthcare law, signed by President Obama in March 2010, established detailed federal standards for health insurance, which had for decades been regulated primarily by the states. The law calls for the annual review of “unreasonable increases in premiums.” Under mandates issued last year by Secretary Sebelius, rate increases of 10% or more must be reviewed by state or federal officials.

This action marks the second time that the federal government’s rate review authority has been used. It opposed what it described as an unreasonable rate increase of 12% by the Everence Insurance Company. The insurer responded that the increase reflects the cost of providing coverage to small businesses in Pennsylvania.

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President Obama unsuccessfully sought the power to block rate increases, which are deemed unreasonable, a power possessed by some states. Even without that authority, federal officials note that their ability to challenge and publicize large increases provides a significant new protection for consumers.

The HHS did not release details of its calculations; however, it stated that Trustmark was seeking rate increases of 13% in each of the five states. It added that, combined with other rate changes in the last 12 months, these proposals would result in rate increases averaging 27% in Alabama, 18% in Arizona, and 15% in Pennsylvania.

In 2009 and 2010, healthcare spending increased at extremely low rates nationwide because the recession prompted many people to postpone healthcare services that they could not afford because they had lost jobs, income, and health insurance.

Under the Affordable Care Act, health insurers must spend at least 80% of premium revenues on medical care and efforts to improve it. Gary Cohen, acting director of insurance oversight at HHS, said Trustmark did not meet this standard in any of the five states. Trustmark spokeswoman Gallaher responded that the share of premiums paid out in benefits, known as the medical loss ratio, “can vary significantly from year to year.” She explained, “If there are instances where we do not reach the required loss ratio as calculated under federal regulations, we will, promptly and in accordance with the Affordable Care Act, rebate the difference to customers.”

HHS reviews insurance rate increases in states where it finds that state officials lack the authority or capacity to do so effectively. With encouragement from the department, a number of states have hired actuaries to analyze proposed rate increases and authorized state officials to reject those found to be excessive. Secretary Sebelius praised Connecticut, New York, and Oregon for forcing insurers to pare back rate increases. Mr. Cohen noted that in Louisiana, Missouri, and Montana proposed rate increases of more than 10% have been found reasonable, in relation to the benefits provided.

Reference: US Health and Human Services

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