Insurers Don’t Think They Should Be Held To Any Standards When Setting Premium Rates

I made the case against the notion that the health care law is forcing insurers to increase premiums here, but it’s also worth considering what insurers think the government should do about potentially unreasonable hikes. Here is AHIP’s Karen Ignagni, the industry’s top lobbyist, just six days ago on the National Journal’s Expert blog:

As final regulations are drafted in these areas it is critical that they be based on objective actuarial standards that take into account all of the factors that drive up health care costs. […]

Rates that are actuarially justified should be deemed reasonable. This review should continue to be conducted at the state level because states have the experience, infrastructure, and local-market knowledge to review premium rates. If premiums are not allowed to keep up with rising medical costs, it would put at risk the coverage that patients rely on today.

Insurers would love to be held to no higher standard than “actuarially justified” in setting rates because all that phrase means is that an actuary has looked at the math and said it adds up. It doesn’t account for the fact that a lot of those costs go towards administrative expenses or marketing and it certainly doesn’t mean that this is the appropriate or best possible premium. Insurers on the individual market, for instance, can spend up to 40% of their premium dollars on non-health expenditures but under the “actuarially justified” standard this kind of spending would be acceptable.

Of course, insurers will have to spend more on care and less paperwork as reform is slowly implemented and in the meantime, I suspect many insurers are pulling out all the stops to take advantage of the system — while they still can.