by Ken Alltucker - Jan. 16, 2012 11:18 PM
The Republic | azcentral.com
The federal government has stepped up scrutiny of health-insurance companies in Arizona, with regulators calling one company's most recent rate increase "unreasonable" and vowing thorough reviews of 32 other health-insurance plans that are pursuing double-digit rate increases.
The U.S. Department of Health and Human Services said last week that Trustmark Life Insurance Co.'s plan to raise health-insurance rates on Arizona consumers by 13 percent is unreasonable and called on the company to rescind, refund or justify the rate increase.
The federal agency has started similar reviews and posted detailed rate information on 32 other health-insurance plans that will raise rates from 14 to 44 percent this year for thousands of Arizona consumers.
It's the first time such detailed rate information has been made available for Arizona consumers.
On Sept. 1, the HHS took over review of health-insurance rate increases of 10 percent or more from the Arizona Department of Insurance when the federal agency said Arizona was among the states that did not have regulations in place for effective rate review.
The federal government does not have the authority to reject or modify health-insurance rate increases in Arizona because state law does not allow such oversight.
But consumers may see some rate relief under the new federal health-care law. The Affordable Care Act requires that 80 to 85 percent of revenue collected by insurance companies be spent on medical care instead of administrative costs and profit. Insurers that don't meet that ratio must issue rebates to customers beginning later this year.
Still, some observers question whether the federal law ultimately will result in long-term rate relief for Arizona consumers.
"Initially, it should keep costs down for consumers because of this heightened scrutiny," said David Weissman, a Rose Law Group attorney who specializes in employment law and advises employers on the nation's new health law. "That will translate to lower premiums for group plans."
But Weissman said the real test will be whether insurance companies continue to market plans as the nation's health-care law matures. He said insurance companies will expect to meet profit goals, but they may discontinue plans that are not profitable, creating less competition in the health-insurance marketplace.
The health-care law's big changes will come in 2014, when nearly all Americans will be expected to purchase health insurance, some with the help of federal subsidies.
Arizona received a $29.8 million federal grant to plan a health-insurance exchange in which consumers and businesses can purchase health insurance. Private insurance companies are expected to list their plans on this new exchange and solicit customers.
Insurers object to feds
The federal oversight of Arizona's health-insurance industry has generated backlash among insurers.
Insurance companies have urged the Arizona Department of Insurance to beef up its rate review so that companies don't have to submit paperwork to the federal government when they seek to increase rates.
"The (health insurance) industry would like us to review what it would take to become an effective rate-review state," said Erin Klug, spokeswoman for the Arizona Department of Insurance.
Klug said insurers want to avoid sending duplicate paperwork to the federal government and the Arizona agency.
Under Arizona law, health insurers that sell policies to individuals still must submit paperwork to the Department of Insurance detailing proposed rate changes. Insurers that sell small-group policies only need to provide a certificate each year that indicates their filings comply with Arizona law.
Klug said her agency is using proceeds from a $1 million federal grant to investigate how the state can improve its rate-review process to pass muster with the new federal requirements. The Department of Insurance expects to submit proposed changes to the Governor's Regulatory Review Council.
Insurers such as Blue Cross Blue Shield of Arizona support the state's efforts to take control of rate review.
"Local oversight from the Arizona Department of Insurance is an important protection and takes into consideration the local market forces that Beltway regulators are not in a position to assess," said Regena Frieden, a spokeswoman for Blue Cross Blue Shield of Arizona.
1 review is complete
The federal government so far has completed a rate review of just one company that sought a double-digit rate increase in Arizona.
Trustmark Life Insurance Co. submitted a plan to raise rates by 13 percent on a small-group policy that covers 6,302 Arizonans. When combined with another rate increase within the past 12 months, the rate increase for consumers and small businesses would be 18.1 percent.
Federal regulators said the rate increase was unreasonable because it would allow the insurer to collect too much for administrative costs while not spending enough on medical care.
HHS Secretary Kathleen Sebelius cited Trustmark as an example of the type of rate increase that consumers would not be aware of without the nation's new federal law.
"Before the Affordable Care Act, consumers were in the dark about their health-insurance premiums because there was no nationwide transparency or accountability," Sebelius said. "It's time for Trustmark to immediately rescind the rates, issue refunds to Arizona residents or publicly explain their refusal to do so."
Trustmark representatives disputed the "assumptions and conclusions" from the federal agency.
The Lake Forest, Ill.-based insurer said its rates are driven by rising costs and increased use of medical care. The company added that because it is a smaller insurer, the amount of money it spends on medical care can swing widely from year to year.
The company said it will maintain compliance with the nation's new health-care law and promptly refund customers if regulators find the company has not met the "medical-loss ratio" requirements.
The medical-loss ratio describes the percentage of health-insurance premiums that insurers spend on medical care. Health insurers must spend at least 80 percent of revenue on medical care for individual insurance and small-group plans. Larger plans for big employers must spend 85 percent of revenue on medical care.
Cigna plan: Up 44 percent
A review of the rate-increase database for Arizona shows that Cigna HealthCare of Arizona Inc. has filed paperwork for the largest rate increase in 2012 as measured by percentage increase.
Cigna plans a 44 percent rate increase for an Arizona plan marketed to small-business owners. Cigna is seeking a smaller increase of 21 percent for a plan marketed to individuals.
Cigna spokeswoman Mariann Caprino said she did not have details on the plan for small-business owners, but she said the plan geared toward individuals has been a money-loser for the insurer the past three years.
"Even with this rate increase, we are not going to be able to cover the cost of providing this group medical care and other services," Caprino said.
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