Last week, the Massachusetts Division of Insurance used its rate review authority to reject “235 of 274 increases proposed by Massachusetts health insurers for small businesses and individuals” and now six insurance companies — all nonprofits — have filed a lawsuit against the state seeking to reverse the ruling. By rejecting the increases, the state effectively capped the rates at their previous levels, which insurers are claiming “were not even sufficient to cover last year’s costs.” Boston Globe has the details:
The proposed rate hikes would have taken effect April 1 for plans covering thousands of small businesses and individuals. Insurers wanted to raise base rates an average of 8 percent to 32 percent; tacked on to that are often additional costs calculated according to factors such as the size and age of the workforce.
Insurers have long argued that adverse selection — a sicker risk pool of applicants — and rising health care costs are forcing premium increases. They point to several government reports that show how “insurance companies pay some hospitals and doctors twice as much money as others for essentially the same patient care” because hospitals and dominant physician groups with the greatest market leverage are “able to demand the most money.” Consumer advocates and policy wonks, meanwhile, contend that insurers fail to use their market leverage to negotiate lower rates with providers and request premiums increases that are far higher than medical inflation to pad their profits. The Massachusetts division of insurance cited all of these reasons in denying the new premium increases:
- The disapproved rate filings failed to illustrate how the carriers pay similarly situated providers differing rates of reimbursement based solely on quality of care, mix of patients, intensity of services, and geographic location at which care is provided.
- The disapproved rate filings failed to demonstrate that carriers have renegotiated provider reimbursement rates;
- The disapproved rate filings were significantly above the medical consumer price index and the filings could not adequately explain the wide difference.
That last reason really sticks out for me. During health care reform, WellPoint tried to argue that rising health care costs necessitated the big jump in premiums, only to later admit that they were padding proposed increases to allow room for negotiations with regulators. I suspect that there is probably little of that going on here.
Insurers aren’t doing enough to control access costs, they may be artificially inflating premiums to cover their losses and turn a profit. But the Massachusetts government can also go further in implementing cost controls throughout the health care system, particularly on the provider end. For instance, Patrick had introduced legislation giving the state insurance commissioner authority to reject rates charged by medical providers and a recent RAND study has laid out 11 other options for reducing health care spending in the states. This lawsuit will play itself out, but it’s a stark reminder of the need to implement some of RAND’s cost control proposals and a harbinger for what the HHS and state insurance exchanges can expect when they use the rate review authority in the new health care law to keep insurers with the most egregious premium hikes out of the exchanges. Lawsuits!