Insurers led by UnitedHealth Group Inc. and WellPoint Inc. risk losing access to as many as 24 million customers a year under a plan announced by the White House today that expands funding for states to scrutinize “unreasonable” rate increases.
The U.S. will give states $250 million in grants over five years to strengthen their ability to review premiums, starting with $51 million this year, said Kathleen Sebelius, the federal health secretary, in a statement today. UnitedHealth, WellPoint and Aetna Inc., the largest U.S. insurers, urged regulators in letters delivered last month to limit the new rate-review plans or risk driving insurers out of some markets.
Along with more state funding, the health overhaul passed by Congress in March allows states to bar plans from the online insurance exchanges where the U.S. estimates 24 million people will buy coverage by 2019. The companies in response have asked regulators to limit the types of plans covered by the provision, and to allow the insurers’ employees to play a role in judging whether increases are excessive.
The new rules may turn the rate-setting process into “a game of Whack-a-Mole” for health plans, said Brenda Gleason, president of Washington, D.C.-based M2 Health Care Consulting. “The first plan to stick its head up and ask for more than its competitors are asking is going to get whacked.”
Rules on Premiums
The overhaul legislation mandates reviews by state and federal regulators of premium proposals deemed “unreasonable,” without defining precisely what rates meet that threshold. The Health and Human Services Department is crafting rules to implement the provision, said Jay Angoff, director of the agency’s Office of Consumer Information and Insurance Oversight.
Angoff declined to say how the government would define excessive premiums. The grants will provide as much as $1 million to winning applicants in the first round to hire actuaries and expand computer systems, among other changes, he said on a conference call with reporters.
“For too long, insurance companies have been able to operate with little or no public oversight of their rate-setting,” he said. The result has been “unexplained premium increases that far outpace” wages and inflation.
In letters to Sebelius sent May 14, Minnetonka, Minnesota- based UnitedHealth and Indianapolis-based WellPoint, the No. 1 and 2 insurers by sales, said their premiums are justified by rising medical costs. Denying increases may force companies to stop selling in some markets, leaving consumers with less choice, they said.
“Focusing on premiums (the symptom) without tackling the underlying health-care costs of the insured population (the cause) will ultimately fail to make care more affordable,” Gail Boudreaux, president of UnitedHealth’s commercial division, wrote in one letter.
The regulations should deem rates reasonable if they meet existing state and federal rules, including the health-care law’s requirements for medical spending, the companies said. Premiums for large employers should be exempt since they’re negotiated by “sophisticated buyers” in a competitive marketplace, they said.
Aetna Inc., the third-biggest health plan, said disputes between government and companies over what’s “unreasonable” should be settled by a third-party actuary.
The law requires insurers whose premiums are questioned to post justifications on their websites. That should happen only if an arbiter deems an increase unreasonable, Hartford, Connecticut-based Aetna said in another letter. The information should be online for six months, the company said.
“We are perfectly willing to put our numbers online,” said Mohit Ghose, Aetna’s vice president of public affairs, in a telephone interview. “The critical issue is, are we going to add a further level of complexity or a further level of administrative burden and cost or are we going to emerge in a system that tries to streamline that administrative burden?”
With the overhaul passed, insurers have turned to influencing how it’s put into practice. UnitedHealth, WellPoint and their rivals are also lobbying regulators on a separate requirement in the law mandating that insurers spend at least 80 percent of the premiums paid by their customers on medical care.
David Cordani, chief executive officer at Philadelphia- based Cigna Corp., told investors at a June 3 conference that he has met in Washington twice over the past two weeks with federal officials writing rules on how the law will be regulated.
“We are very actively engaged so the decisions could be informed decisions,” he said at the New York conference.
Laws in 41 states allow regulators to reject increases, or trim them after the fact. The federal overhaul will also allow states and the U.S. health agency to recommend insurers be barred from the purchasing exchanges “based on a pattern or practice of excessive or unjustified increases.” Eight million people are expected to shop in the Web-based marketplaces when they open in 2014, the Congressional Budget Office projected in a March 18 report.
“You are risking access to potentially millions of new customers if you raise rates in an unjustified fashion,” said Nicholas Papas, a White House spokesman in a telephone interview. The administration is “working quickly” to write the regulations, he said, declining to be more specific.
Democrats seized on WellPoint’s plans to raise California premiums as much as 39 percent for some customers in the run-up to passing the health law. The insurer revoked the proposal in April, even as it lost a court appeal in Maine seeking an 18 percent increase.
Sebelius criticized insurers for seeking “jaw-dropping” increases in a March 4 interview. The companies raised rates even as they boosted profits amid the recession, she said.
In letters to insurers June 4, she also warned companies to temper rates they charge to elderly customers in U.S.-funded Medicare Advantage programs, and cited the expanded powers the health overhaul gives her to reject “excessive increases.”
U.S. Senator Dianne Feinstein, a California Democrat, has introduced legislation to give federal officials the power to reject rate increases as well as review them. The bill hasn’t advanced, and Feinstein, in a May 13 conference call with reporters, said she wasn’t sure if she had enough support even among Democrats to win its passage.
Insurers are still likely to get the rates they request in most cases, justified by rising medical costs, said Gleason, the Washington consultant, in a telephone interview. Regulators don’t want to drive health plans out of a market and reduce competition, she said. The trade-off for the industry will be more scrutiny.
“They’re going to have to get used to investors seeing a lot more about their thinking and pricing,” she said. “It’s in general not the kind of thing a business likes to disclose. Imagine if Apple had to say how much it bid for each of the chips in its computers.”
WellPoint may face the most threat from more aggressive reviews, Gleason said. The Indianapolis insurer is the leader in small-business and individual policies, areas that have seen the biggest increases in recent years, she said.
States will have to strike a balance between protecting consumers and ensuring the solvency of health plans, said Sandy Praeger, the Kansas insurance commissioner and past president of the National Association of Insurance Commissioners in Kansas City, Missouri.
“Certainly, what is held over for profit by the companies is going to be looked at closely,” she said in a telephone interview. “But the for-profit companies’ fiduciary responsibility is to their shareholders. They have to be given the opportunity to make sufficient profit to stay in business.”