Connecticut’s largest health insurance companies are seeing rate request increases scaled back by state regulators more frequently as health care reform and other factors lead to greater disagreements over how much insurers should charge individual and business consumers.
Already this year, the Connecticut Insurance Department has rejected nearly a dozen rate requests from health insurers Aetna, Anthem, ConnectiCare, and Oxford Health Plans, which is a subsidiary of UnitedHealth Group. About the same number of rate request increases were rejected in 2011, and in 2010 insurance regulators rejected eight of 11 rate requests proposed by those same health plans, as well as Bloomfield-based Cigna.
In most cases rejected rates were only scaled back slightly.
Anthem Health Plans, for example, recently had a 13.8 percent average rate increase request for small group plans impacting 65,000 Connecticut residents, scaled back to a 12.8 percent increase.
But the pace of rejections is greater than it has been in prior years. A 2010 report from the Office of Legislative Research found that the Insurance Department had approved 22 of 26 rate increase requests from Aetna, Anthem, ConnectiCare, Oxford, and Cigna during a five-year period beginning in 2006.
That report came at a time when there was increased public outcry over the rising cost of health insurance. Some critics accused insurance regulators of being a rubber stamp for the industry. Since then, both the federal and state government have worked to increase transparency over the rate approval process, including publishing rate requests online and allowing for public hearings if an insurer asks to increase rates by 15 percent or more.
But Insurance Department officials say the way they review rate requests hasn’t changed, and that its math, not politics that drives the oversight process.
“The review process is exactly the same as we have always done it,” said Paul Lombardo, an actuary with the Connecticut Insurance Department. “In the past, we’ve reduced rates, but it wasn’t made that public. There used to be a shroud of mystery around the stuff I do. Now there is more transparency over the process and I think that is a good thing. ”
But while the process hasn’t changed, Lombardo said there are several factors that have caused the Insurance Department to alter rate request increases in recent years.
One is health care reform and making sure insurers comply with new regulations.
Under the Affordable Care Act, insurance companies are required to spend at least 80 percent of individual or small group market premiums on medical care and quality, or at least 85 percent in the large group market. The 80/20 rule is commonly known as the medical loss ratio and if insurers fall below that threshold they must refund policyholders.
Lombardo said some insurance companies have filed rate requests since 2010 that generate ratios slightly under the 80 percent federal requirement to give themselves some cushion in case medical costs come in higher than expected. If that didn’t happen, the insurers would be willing to pay the rebates.
But Lombardo said the Insurance Department has a responsibility to ensure that insurers meet the federal guidelines and when they require insurers to adjust for a higher ratio , it lowers premiums and the overall rate request.
“It has created situations where we made some reductions in premium requests we wouldn’t be making prior to 2010,” Lombardo said.
Another key issue in recent years is utilization rates. Lombardo said for a long time insurers were used to seeing the rate of medical costs and services used by customers increase significantly from year to year, which was a major driver in the rising cost of health care.
In most cases, insurers were seeing double digit increases in utilization rates, Lombardo said.
But in 2010 and 2011 that trend suddenly reversed it itself. Health insurance customers were beginning to use medical services less often, largely because the ailing economy made people put off elective procedures.
Lombardo said insurers weren’t accustomed to the change, and were hesitant to overestimate the reduction in costs in their rate request filings.
“There is hesitancy on the part of the carrier to put a lot of weight in those numbers,” Lombardo said. “They were worried that trend will reverse itself and they will under price. It’s our job to review that.”
When Anthem recently asked for an average 13.8 percent increase on its small employer group plans, the company said increasing medical costs and an uptick in member use of medical services were key drivers in that proposed increase.
Anthem also blamed new federal mandates and cost-sharing and tax changes under the Affordable Care Act for the increase in costs.
State insurance regulators rejected the request and allowed for a more modest 12.8 percent increase instead, saying Anthem slightly overstated the impact of rising medical costs and utilizations rates.
In a written statement, Anthem said it shares its “members’ concerns over the rising cost of health care,” but the primary driver of rate increases is the rising cost of medical care.
“We continue to be concerned with claims cost, which by our own actuarial analysis is growing by double digits,” the company said. “We owe it to our members to cover those costs.”
In most cases, rate requests that have been rejected in recent years were scaled back only slightly, Lombardo said. And while that has provided some relief to policyholders, trend lines are beginning to change.
Lombardo said more insurers are once again asking — and receiving — permission to raise rates by double digits as consumers are beginning to utilize medical services more than they did in recent years.
“We are starting to see utilization trends increase again,” Lombardo said.
So far, Anthem’s 12.8 percent rate increase is the largest increase among the state’s top five insurers. Farmington-based Connecticare has been granted a 12.2 percent increase on its small group plan used by 3,000 policyholders. Aetna and Oxford Health Plans have also been granted double digit rate increases on small and large groups plans.
The rate review process in Connecticut came under fire in recent years after several insurers proposed and received permission to raise rates by 20 percent or more.
Health care and patient advocates raised concerns, arguing the rate review process in Connecticut was inadequate. The state legislature began taking a look at the issue and proposed various bills to increase transparency over the process.
It eventually led to an agreement last year between Insurance Commissioner Thomas Leonardi and State Healthcare Advocate Victoria Veltri to hold up to four public hearings on rate request increases of 15 percent or more.
Meanwhile, on the federal level, the Department of Health and Human Services also urged greater oversight by states over the rate review process and provided grants so states could beef up their regulatory ability.
In 2010, Connecticut received a $1 million federal grant to beef of its rate review process, and since then the office has tried to increase transparency by posting online all rate increase requests.
For its part, the insurance industry hasn’t voiced major issues with rate request rejections over the last few years.
Keith Stover, a lobbyist for the Connecticut Association of Health Plans, said as long as rate reviews are driven by math and not politics or rhetoric, the industry won’t have major complaints.
“Actuaries can come to different conclusions about what the right number is,” Stover said. “But as long as the rate review process is actuarially driven, I think that is what insurers hope for. The industry has a great deal of confidence that the Connecticut Insurance Department is driven by math and not politics.”
Stover said the rate rejections also provide ample evidence that state insurance regulators are doing their job effectively.
