The U.S. Department of Health and Human Services yesterday issued its first public rebuke under its new powers to review health insurance increases greater than 10 percent, calling on Everence Insurance in Pennsylvania to cut its planned premium increases to 5,000 members.
HHS deemed the 12 percent increase as excessive, saying that the company's request was based on national data and not on "reliable and available state data" to determine its rate increases.
"We have called on this insurer to immediately rescind the rate, issue refunds to consumers or publicly explain their refusal to do so," said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services, in a press release.
While Everence is the first to receive such a rebuke under new regulations allowing federal review of rates, HHS does not have the power to force the insurer to cut its planned increase. Instead it hopes to put pressure on insurers by publicizing what HHS sees as unreasonable premium hikes.
"We hope that by publicizing the excessive premium hikes, we will empower consumers," said HHS Secretary Kathleen Sebelius in a statement. "By shining a light on unjustified premium increases, we will hold health insurers accountable like never before, and help keep money in the pockets of Americans."
Should Everence choose to move forward with its rate increase, the Affordable Care Act does require the company to post a justification of the request on their company website within ten days of the HHS rate review determination.
Consumer advocates applauded the move by HHS.
"This is exactly the kind of scrutiny that is needed to ensure that rate hikes are fair and justified," said Sondra Roberto, staff attorney for Consumers Union in a prepared statement. "The Affordable Care Act is finally making sure that health insurers are using reasonable assumptions and providing value to their customers when they set rates."
Goshen, Ind.-based Everence responded late yesterday by defending its proposed increase. The insurer said the discrepancy in the HHS determination that the increase would result in a medical loss ratio (MLR) lower than the federal benchmark of 80 was due to the fact that HHS calculated the MLR based on a one-year experience period, versus a two-year period used by Everence.
Calculated in this way, Everence maintains its MLR for the ShareNet plan in question "is comfortably above the federal standard."
Everence also faulted HHS' determination that Everence should have used state data for its Pennsylvania members. "Essentially, our national experience and Pennsylvania state experience are the same for the two-year experience period," said Dave Gautsche, Everence senior vice president of products and services in a press release.
Because of its focus on small group plans, the insurer noted in its response to HHS that the two-year experience reduces volatility in its premiums, volatility that Everence contends can vary loss ratios from 25 percent to as much as 100 percent when viewed on a yearly basis.
"The Everence experience indicates that a longer experience period reduces premium volatility, which works better for group clients," concluded Gautsche. "We'd welcome the opportunity to have a conversation with HHS officials about how we determine our rates."