A health insurance expert gives a cautionary tale to those pushing for meaningful federal rate review
From remarks prepared for the Families USA Advocates Conference Call on Health Insurance Rate Review (April 29).
May 5, 2010 -- You may have heard in Santa Fe recently, State Insurance Commissioner Mo Chavez approved a 21% rate increase affecting 40,000 Individual Blue Cross Blue Shield of New Mexico subscribers.
He had occasion to approve the increase only because earlier on he had responded to a policyholder complaint by canceling a 24% hike that he personally signed off on in December.
This is how Chavez explained the cancellation and then this week’s reinstatement: "It's quite possible when I did my review [in December] and looked at this increase I might have went ahead and okayed what he [referring to a subordinate] had done. Rate increases like this are often very difficult to understand." To which I say: Amen Commissioner Chavez.
The Blue Cross lawyers asserted that this line of business had lost $20 million but they refused to release any financial details claiming a trade secret privilege. Nor did Blue Cross feel any need to explain why a company with $6.7 billion in surplus on the balance sheet of its parent holding company needed any increase at all–to say nothing of a 20+ percent bump.
Indeed, had they been compelled to come clean, they would have had to admit that their own predatory pricing practices–known in the industry as “grab em then stab em” were largely responsible for the projected increase in claims costs. As Sondra Roberto of Consumers Union pointed out in a statement filed with the N.M. Public Regulation Commission, BCBS marketed and priced its Individual policies at what was effectively a low teaser rate. Then they closed off the Individual block of business to new enrollees thereby setting off a so-called Death Spiral in which healthier people drop out and progressively less healthy, higher risk and costlier people stay in the pool driving up average claims costs.
As if this was not enough, the Insurance Department noticed a public hearing for Monday and before any testimony could be taken, an announcement was made that the 21% rate increase had already been granted by Consent Agreement with Blue Cross. The Attorney General and the original policyholder, an attorney who filed a complaint back in December, were the only two interveners in this so-called proceeding and both of them signed off on it.
While this cautionary tale may be somewhat extreme in certain ways, it is emblematic nonetheless of health insurance ratemaking in lots of other states that still conduct large stake rate reviews in an informal, more or less backroom atmosphere.
I can personally attest to very similar scenario in Oregon where the Insurance Commissioner approved a 26% Blue Cross rate increase over the objections of its own staff actuaries following a non-public meeting with Blue Cross’ politically connected CEO. http://www.thelundreport.org/search/node/kirsch
So what are some of the things PPACA (the new Federal Health Reform Act) and the pending Feinstein-Schakowsky rate review bills do or should do and what should advocates be looking for?
Frankly, I have a hard time visualizing a meaningful Federal rate review program and even the dual program contemplated in the Law is fairly obscure. At the same time, however, many of the states neither have nor seem to want to acquire the statutory authority and operational capacity needed to mount a comprehensive, state-led effort.
This represents a real dilemma.
See Part II next week of Kirsch’s commentary on the perils of medical loss ratio and other tactics for consumer advocates.
Larry Kirsch, managing partner of IMR Health Economics in Portland, consults as an expert in insurance rate review cases across the country. His wife, Karen Kirsch launched a case in 2006 against the state of Oregon for approving a 26% rate hike by Regence through what attorney Charlie Ringo called a backroom deal. For more on the case covered nearly exclusively by The Lund Report click here. http://www.thelundreport.org/search/node/kirsch
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