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Maryland plans pass HMO tax on to employers

A state insurance commissioner argues he's obligated to approve HMOs' rate requests, but some in the state Legislature see it differently.

By Robert Kazel — Posted Feb. 14, 2005

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Days after the Maryland General Assembly approved a 2% premium tax on HMOs in the state, some of the largest managed care companies facing the new expense won the state's approval to pass along the cost to thousands of corporate customers, paving the way for premium increases for businesses or employees or both.

Aetna Inc., Kaiser Permanente of the Mid-Atlantic Region, and Mid Atlantic Medical Services asked for and received the state insurance commissioner's OK to charge health plan sponsors as a means of recouping the tax.

Mid Atlantic Medical Services last year was bought by Minnesota-based UnitedHealth Group.

At press time, CareFirst BlueCross BlueShield, the leading insurer in the state, had not filed a request to pass on the tax.

"Clearly when we established [the existing] rates we didn't think we would need another 2%," said Walt Cherniak, spokesman for Hartford, Conn.-based Aetna. "I really don't want to get into any of the political or regulatory discussions." About 130,000 of the 400,000 Aetna subscribers in the state will pay more toward premiums, or their companies will, he said.

The news that at least some premiums would be hiked in connection with the new HMO tax immediately sparked political posturing on both Democratic and Republican sides of the state Legislature. Some top Democrats called for the resignation of Insurance Commissioner Alfred W. Redmer, a Republican, who opted to allow the HMOs to pass on the tax to plan sponsors without public hearings, a formal inquiry or other procedures normally associated with granting rate hikes.

Redmer, a former insurance broker and state legislator appointed to the top insurance regulator post by Gov. Robert L. Ehrlich, said all companies routinely charge customers for unexpected business expenses, such as an unforeseen tax. He added that he had no legal authority to impede the plans' decisions.

"We don't decide if carriers pass the tax on or eat it," he said. "At some point in time the carriers will recover the cost of the tax as they do other expenses, and they will do it in their rates [immediately] or could do it later in their annual rate filing."

But Senate President Thomas V. Mike Miller Jr., a longtime Democratic leader in Maryland and one of the most powerful politicians in the state, in January said Redmer should step down because his decision not to interfere with the plans' strategy was part of a record of favoring insurers over the public.

"He's a Republican-appointed, partisan insurance commissioner," Miller said. "He's supposed to be a regulator, he's supposed to be impartial. ... He's a former insurance salesman, rolling over to make the Republican governor look good."

The bill containing the new tax was vetoed by the governor, but the Legislature overrode the veto.

Democrats weren't surprised that plans wanted to pass on the tax to customers, but were taken aback by Redmer's quick decision to allow the plans to pass on the entire 2% and to forgo "careful study and analysis of the rate request," Miller said.

Redmer countered that it was mainly Democrats in the state Legislature who pushed for the bill placing the tax on HMOs despite warnings that insurers would not absorb the cost. Blaming him for the consequences of the Democratic initiative was merely an attempt to deflect the public's attention away from those to blame, he said.

The tax on HMOs was contained in a medical liability bill passed during a special legislative session late in 2004. The measure is expected to raise $64 million in 2006, some of which will be used to pay for increases in physician liability insurance premiums.

The money, to be deposited in the new Medical Professional Liability Insurance Rate Stabilization fund, is intended to cover 95% of any premium increases incurred this year.

MedChi, the Maryland State Medical Society, is not taking an official position on the issue of insurers passing on the tax, nor did it take a stance on the HMO tax itself, said T. Michael Preston, the society's executive director.

But Preston said payers may realize that charging customers more to ease the pain of the economic pinch of the tax could backfire by making them less competitive when employers compare how much plans cost.

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