WellPoint Inc.’s request to raise rates as much as 28 percent on small-business health plans in New York will face increased scrutiny because of new U.S. regulations, the state’s top health-insurance official said.
Federal rules released today tell state regulators to view rate-increase proposals of more than 10 percent as “initially unreasonable,” said Louis Felice, chief of the New York Insurance Department’s health bureau, in a telephone interview.
“This will make regulators cross all the T’s before they approve any increase over 10 percent and that’s a good thing,” Felice said. “It will also help by making it easier to get disclosure.”
WellPoint’s Empire Blue Cross Blue Shield unit seeks to raise premiums 20 percent to 28 percent for more than 216,000 people in plans at businesses with 50 or fewer employees, Felice said. The Indianapolis-based company, the biggest U.S. health insurer by enrollment, lost rate-increase battles this year in California, Connecticut and Maine.
In California, the company’s request for an average 25 percent boost in premiums on plans for individuals was cut to 14 percent. The decision cut profit by $150 million in the state this year, the insurer has said.
WellPoint declined to comment on the new federal rules or on how they may affect its New York rate request, said Cynthia Sanders, a company spokeswoman, in an e-mail.
In a Dec. 14 e-mail, WellPoint attributed at least 5 percent of the proposed New York increase to government mandates, including the U.S. prohibition against lifetime caps on policies and the ban on refusing coverage to people with pre-existing medical conditions. The company also cited a New York law requiring coverage for mental health ailments and behavioral disorders comparable with that for physical illnesses.
About 15 percent is “entirely driven by increasing medical costs for small employers in New York,” said Kristin Binns, a WellPoint spokeswoman, in the e-mail. “Empire’s medical cost ratio for small employers remains well above the New York minimum of 82 percent.”
Given the numbers the company submitted, it is “probable that some increase would be warranted, but I can’t say what the increase would ultimately be,” Felice said.
The proposed U.S. rules released today define an “unreasonable” increase as one that lowers the percentage of premiums being spent on customers’ care below 80 percent, or that isn’t based on evidence that health costs are rising, according to the U.S. Department of Health and Human Services, which issued the regulations.
The definition of what is an unreasonable rate request will change after 2011 to a state-by-state measure based on the history of health costs, according to the federal agency.
WellPoint rose 46 cents, or less than 1 percent, to $56.56 at 4 p.m. in New York Stock Exchange composite trading. For the year, the stock is down 3 percent compared with a 13 percent gain for the Standard & Poor’s 500 index and a 1.1 percent rise for the S&P Health Index.
Felice said he was “a little surprised” by the WellPoint request and plans a full review of the numbers to see if they justify “these kinds of increases.” The company withdrew an initial application for increases of up to 51 percent after meeting with Felice’s department.
April 1 Increase
The bulk of affected members in New York, mostly in health maintenance organization-type plans, would face increases as of April 1 if approved, he said. The state granted an average 15 percent rate increase effective this year on the company’s exclusive provider organization Prism plan that covered about 146,000 people in 2009, according to the agency. For 2011, the company has requested increases from 20 percent to 25 percent, Felice said.
The state has 60 days to review a rate request and may take another 20 days if more information is needed. WellPoint’s increase was filed “on the last possible day” to meet its April 1 deadline, Felice said. An insurer has to give plan members 60 days notice before a rate increase can be applied.
WellPoint, with an enrollment of 34 million, was criticized this past February for its California rate-increase application. Angela Braly, the insurer’s chief executive officer, told Congress that the proposed rate increase of as much as 39 percent, was necessary though “unfortunate.”
Health and Human Services Secretary Kathleen Sebelius called for WellPoint’s unit Anthem Blue Cross and Blue Shield to “publicly justify” the rate requests. Democrats, struggling to pass the 2010 health overhaul, used WellPoint’s increase to rally support for the law which they said would stop insurers from overcharging consumers.
The law also allocated $250 million for states to upgrade their rate review process.
In Maine, WellPoint has taken the state to court on rejections in 2009 and 2010. The most recent request for a 23.1 percent increase was cut by Mila Kofman, the state’s insurance superintendent, to 14.1 percent after she said the data provided by the insurers didn’t support the higher request, said Tom Sturtevant, a Maine assistant attorney general.
WellPoint’s unit insures about 2.84 million people in New York, with 2.17 million in large group commercial plans, according to state insurance department statistics. New York only reviews formulas for how companies set rates for the biggest employer-sponsored plans, Felice said.
The insurer had rates approved for its high-deductible policies for both the first and second quarters of 6.1 percent and 9.3 percent. Empire Blue Cross had asked for an additional increase for these plans in the second quarter and withdrew that on the advice of the insurance department, Felice said.