HHS deems first insurance rate hike unreasonable

Despite the rebuke, Everence doesn't plan to reconsider its 11.6% increase for small-group plans in Pennsylvania.

By Doug Trapp — Posted Dec. 5, 2011

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For the first time under a health reform premium review process, federal health officials have labeled a health plan's rate hike as excessive, but the public scolding has not persuaded the insurer to rescind the increase.

On Nov. 21, Dept. of Health and Human Services officials rebuked Everence Insurance for increasing rates by 11.6% on its small-group and individual health plans in Pennsylvania. The change took effect on Oct. 1, affecting 4,846 subscribers, according to Everence.

HHS Secretary Kathleen Sebelius said Everence's rate hike was based on national and not local cost data, and on a two-year period instead of one. The hike gives Everence more of a financial cushion than it needs, she said.

Sebelius also said the increase will mean that Everence will spend much less than 80% of premiums on actual health care or quality improvement for subscribers, a standard under the national health system reform law. HHS, starting in 2012, will be able to require insurers to pay enrollees rebates if they fail to meet the 80% medical-loss-ratio minimum.

Sebelius called on Everence to reduce the rate hike immediately. "The days of unchecked and unfair double-digit rate increases are over," she said.

However, Everence leaders stood by their calculations. Using a two-year period and national cost data makes for more stable rates, which work better for group clients, said Dave Gautsche, Everence's senior vice president of products and services, in a Nov. 22 statement.

"We'd welcome the opportunity to have a conversation with HHS officials about how we determine our rates," Gautsche said.

The rate reviews are a recently implemented part of the health reform law. State regulators or federal officials review rate increase requests of 10% or more for individual or small-group plans. HHS conducts the reviews when state officials lack the authority to review rates, as is the case with Pennsylvania's small-group market. HHS is conducting 37 out of the 114 reviews that are pending or completed, said Steve Larsen, director of the HHS Office of Consumer Information and Insurance Oversight, which handles the federal reviews. The 114 reviews involve plans affecting 450,000 subscribers, he said.

If state or federal reviewers find a rate hike to be excessive, the health insurer must justify the increase on its website within 10 days. However, the company is not obligated to rescind the hike unless it operates in a state where insurance regulators have been given the authority to intervene.

"We hope that by publicizing the excessive premium hikes, we will empower consumers," Sebelius said.

HHS began reviewing rates on Sept. 1. Everence, based in Goshen, Ind., was founded in 1945 by the Mennonite Church.

HHS is correct in saying that premiums in general are not increasing in Pennsylvania as fast as they are in other states, said Vince Phillips, a lobbyist for the Pennsylvania Assn. of Health Underwriters. Competition is increasing among health insurers in the state, in part due to expansions by Blue Cross Blue Shield plans.

"The carriers are trying to protect what they have while they have it," said Shelly Bloom, the underwriters association's legislative chair.

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How Pennsylvania rate hike sparked HHS challenge

A federal health insurance oversight office for the first time has declared that a health plan rate increase is unreasonable. Everence Insurance raised rates by 11.6% for 4,846 small-group plan subscribers in Pennsylvania on Oct. 1. The oversight office concluded that the insurer:

  • Based its rate increase on nationwide cost data, not Pennsylvania-specific data.
  • Used two years of cost data to justify the increase instead of one.
  • Would spend less than 80% of the premiums it collects in Pennsylvania on health services or quality improvements, the minimum medical-loss-ratio standard in the national health system reform law.

Source: Center for Consumer Information and Insurance Oversight, November

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