CIGNA CEO Admits Insurers Will Increase Premiums In The Near Future

CIGNA CEO David Cordani appeared on Your World with Neil Cavuto yesterday to argue that health care premiums will continue to increase, despite the passage of health care reform. Acting as if insurers had no say in the matter Cordani blamed providers for any anticipated rate hikes. “Over the near term, the legislation did nothing to reduce the cost equation. In fact, aspects of the legislation actually increase the cost equation so the positive is, it expanded access, the negative is, it did nothing to reduce costs and will actually drive costs higher for insured lives of the next four to five years.”

Cordani also conceded that the industry will likely increase premiums to WellPoint-like levels in the near future:

CAVUTO: Could we have a WellPoint hike? Do you remember that a few months back where out of hte blue they proposed, I think a 38 percent rate increase. Could we see something like that after the fact, after the health care issue becomes law?

CORDANI: Neil, I think what you’ll continue to see — without any change in the system — health care costs will go up, so premiums will go up. Insurance commissioners in every state will continue to be very diligent…the underlining premium costs are driven by underlining health care costs and in an environment where emergency room utilization and costs have quadruped in five years, use of MRIs have doubled in the last five years, biomedical utilization is growing rapidly. The costs will continue to grow and that’s the opportunity that wasn’t addressed.

Watch it:

Overutilization of health care services and the leverage of dominant providers in certain health care markets do contribute to rising health care costs, but insurers shouldn’t pretend that they’re not contributing to this trend. The reality is, large insurance companies rarely use their bargaining power to negotiate with providers and often pass on higher costs to the beneficiary, raising premiums beyond health inflation to guarantee a profit. And as Cordani admits here, insurers will continue to increase premiums, particularly in the period between now and when the new insurance regulations kick in.

The Senate health care bill tries to address this problem by requiring insurers to spend a certain percentage of premiums on health care benefits (it establishes medical loss ratio targets) and stipulating that the Secretary of Health and Human Services, in consultation with the states, must develop a plan to look for “unreasonable increases.” Insurers are required to submit “a justification for an unreasonable premium increase” to the state insurance commission authority, who then makes the appropriate recommendations “to the State Exchange about whether particular health insurance issuers should be excluded from participation in the Exchange based on a pattern or practice of excessive or unjustified premium increases.”

Since the interim period between now and when the exchanges become operational is critical for winning over public support for the legislation and capitalizing on its success, Democrats might want to introduce some additional cost control mechanisms as stand alone measures. Legislation establishing a new federal rate review authority would allow the federal government to review and deny excessive, unreasonable or discriminatory health insurance premium increases and could help keep insurers in line. The federal authority could also help tow a tougher line on excluding insures who levy egregious premium increases from the exchanges. The President included the reconciliation in his own health care plan, but it was stripped from the House package because it did not comply with the rules of reconciliation.

Lawmakers will have to tweak the legislation over time, but insulating voters from steep premium hikes in the interim period is both good policy and good politics.