January 12, 2012

Nowhere in the thousands of pages of the Affordable Care Act does it give the federal government the power to stop insurance companies from charging excessive premiums. But the controversial health reform law does grant the Department of the Health and Human Services the right review some large rate increases and to tell consumers when they think health plans are charging too much.

HHS did just that today when it held a press conference to protest what it said were “unreasonable” rate hikes by Trustmark Life Insurance Company in five states. The company recently proposed premiums hikes of 13% or more for its plan members in Alabama, Arizona, Pennsylvania, Virginia, and Wyoming.

Courtesy Wikimedia Commons/FBI Buffalo Field Office/Public Domain

Gary Cohen, the Acting Director of Oversight at the HHS Center for Consumer Information and Insurance Oversight, said it wasn’t just that the increases were so high. HHS officials, after consulting with a team of outside analysts, concluded the rates were unreasonably high because the health insurance company was spending only a small percentage of its premium dollars on medical care and quality improvements. Trustmark also based its increases on “unreasonable assumptions,” HHS said. You can read more about HHS rate review authority here.

In its challenge to Trustmark, HHS called on the company to immediately rescind the rates, issue refunds to consumers, or publicly explain why they are standing by such a large rate hike.

It looks like Trustmark is going to stand by its rate increase. Following the HHS press conference, Trustmark issued its own statement saying that they disagreed with the federal government’s assumptions and conclusions. “Our premiums are driven by the rising cost and increased utilization of medical services,” the company wrote. “As a smaller carrier, our loss ratios can vary significantly from year to year, and we take that volatility into consideration.” As for spending too little of its premium dollars on medical care, the company said it has been in compliance with the federal Medical Loss Ratio requirements in that area. However, if they should fail to meet the federal standards, they will offer rebates to consumers.

So is this an effective strategy for bringing down health insurance rates? Share your thoughts on whether rate review by HHS and public disclosure will be powerful enough to force companies to keep premiums low or if you think insurers will be willing to ride out some bad press.

— Mary Ellen Schneider

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