Insurers warned against "misleading" claims on rate hikes
■ HHS Secretary Sebelius rejects health plans' argument that reform has led to higher costs, and she promises "zero tolerance" for unjustified premium increases.
By Emily Berry — Posted Sept. 20, 2010
Insurers around the country are blaming new requirements under health system reform for rising premiums, telling regulators and policyholders that new mandates will force them to charge more for coverage than they would otherwise.
The Obama administration, which maintains that health system reform will add no more than 1% to 2% to the cost of premiums, reacted angrily to claims by nonprofit BlueCross BlueShield-affiliated insurers and for-profit insurers -- compiled in a Sept. 8 article in The Wall Street Journal -- that coverage requirements under health system reform are responsible for as much as a 9% increase in proposed individual rates for 2011.
"I urge you to inform your members that there will be zero tolerance for this type of misinformation and unjustified rate increases," Dept. of Health and Human Services Secretary Kathleen Sebelius wrote in a Sept. 9 letter to Karen Ignagni, president and CEO of America's Health Insurance Plans, the insurers' trade group.
AHIP, as it has whenever anyone has questioned insurers' rate increases, pointed to what it said was the "soaring prices of medical services," coupled with the impact of younger and healthier people dropping their insurance "during the weak economy," as reasons for rate hikes. Ignagni made those statements in a news release issued Sept. 10 in response to Sebelius' letter.
Ignagni said mandates for benefits "beyond what many families and small business previously purchased" are also part of that equation. "It's a basic law of economics that additional benefits incur additional costs, and the impact on premiums depends on the type and amount of coverage policyholders had before," she said.
Rep. Pete Stark (D, Calif.) sent a note to Ignangi on Sept. 10 with his own rejoinder: "As long as we are abiding by the basic laws of economics, we can all agree that with bigger profits should come lower premiums. Given that the second-quarter earnings reports of your member organizations show billions more in profits over last year, I am eager to hear how you intend to share these profits with policyholders."
The back-and-forth between the Obama administration and insurers -- with the occasional Congress member getting involved -- began in earnest in March, when Sebelius and Obama spoke out against WellPoint's proposed 25% average increase for Anthem Blue Cross of California individual customers. That rate hike is widely credited with providing the spark for the final passage of health reform later that month.
Since then, regulators have gotten more aggressive about challenging health plans' rate increase requests, even in states, such as California, where regulators don't have formal authority to approve or reject them.
On May 4, Sebelius sent a letter to states asking them to look at rate increases proposed by WellPoint-owned companies after California found math errors that would have put individual plans below the state's mandated threshold of spending 70% of premiums on health care. California said later that a 13.5% average increase checked out OK.
Then, as part of reform legislation, HHS parceled out $1 million to each state to help it find ways to make health plan rates and rate increases more transparent. In her Sept. 9 letter, Sebelius said 46 states so far have received that money. Though AHIP has said that rising medical costs have forced companies to ask for high increases, some companies have been more blunt about pointing the finger at health system reform.
The Wall Street Journal article noted that Aetna has told regulators and policyholders that requirements under reform are, by themselves, responsible for up to a 7.4% increase in individual insurance rates, with medical costs responsible for requested increases beyond that number.
However, this is not an about-face for Aetna. Company Chair and CEO Ronald Williams has told just about anyone who has asked, including investment analysts, that health reform would force premiums upward at a rate larger than the Obama administration expected.
Stephanie Cutter, assistant to the president for special projects, writing on the White House blog Sept. 8, responded to insurers' published claims that they need to raise rates to cover the cost of new federal mandates. "We knew this would happen, which is why the president called on insurance companies not to use the Affordable Care Act as an excuse to implement unreasonable premium increases," she wrote. "When reform is implemented, costs will be reduced across the board, premium increases will need to be justified and consumers will be protected."
Stark, who has issued numerous statements in 2010 criticizing insurers for their profits, released his own statement on Sept. 8 in response to The Wall Street Journal article: "Insurers are using the consumer protections in health reform as a cover for their own greed."
In response to Stark, Robert Zirkelbach, spokesman for AHIP, pointed to a list of mandated benefits introduced in the health reform law. "The data ... [are] clear that premiums are driven by increases in underlying medical costs, not health plan profits," he said in a statement.
In her Sept. 10 statement, Ignagni said health plans "will continue to do everything they can to incorporate all of these new benefits while keeping health care coverage as affordable as possible for families and employers."
Sebelius put insurers on notice that there will be consequences if they do not.
"Later this fall, we will issue a regulation that will require state or federal review of all potentially unreasonable rate increases filed by health insurers, with the justification for increases posted publicly for consumers and employers. We will also keep track of insurers with a record of unjustified rate increases: Those plans may be excluded from health insurance exchanges in 2014," she wrote. The exchanges refer to entities each state sets up under the health reform law that would allow people not covered by their employers to buy insurance at competitive rates.
"It is my hope we can work together to stop misinformation and misleading marketing from the start," Sebelius added.