Insurers, Consumers Battle Over Public Disclosure

February 4, 2010 -- A tug of war is under way between health insurers and consumer advocates over disclosure, and the decision rests in the hands of Oregon’s Insurance Division.

 

Basically it boils down to whether the public can have access to all the information submitted by insurance companies when they request a rate increase for individual, small group (50 or fewer employees) and portability plans, and it resulted from legislation passed during the 2009 session (House Bill 2009).

 

The details are being ironed out in proposed rules that the Insurance Division expects to finalize soon.

 

Insurance executives have taken a hard stance, contending such disclosure would harm competition, lead to higher rates and insist that some companies would be forced out of the market. 

 

Advocates, backed by the Insurance Division, believe consumers and small business owners deserve to know why their premiums keep increasing by double-digits. Several other states require full disclosure – Massachusetts, Michigan and Rhode Island – and haven’t faced a court fight.

 

From the insurers’ perspective, protecting what they call “trade secrets,” is in the best interest of consumers, according to Kraig E. Anderson, vice president of underwriting and actuarial for The ODS Companies. By disclosing confidential information about their pricing methodology, Oregon’s small group and individual market would be disrupted, leading to price inflation and fewer insurers offering such policies, he argued.

 

“Were we to disclose this information,” he wrote in public comments to the proposed rules. “We believe that larger competitors, with greater capital resources, could price their products in such a way to gain market advantage. This type of predatory pricing could lead to higher rate increases for consumers, or a situation where it is necessary for ODS to leave the market.”

 

ODS isn’t alone in raising objections. In fact, the five other large insurers in Oregon oppose disclosure – Regence BlueCross BlueShield, HealthNet, LifeWise Health Plan, Kaiser Permanente and Providence Health Plans.

 

Sen. Chip Shields (D-Portland) applauded Insurance Administrator Teresa Miller for proposing tough new rules. Trade secret exemptions, he wrote, was why Karen Kirsch lost her rate appeal last year against Regence.

 

“If Miller finalizes these rules despite insurance industry pressure to weaken them, it may mark the beginning of a new era of making insurance companies justify their rate increases,” according to Shields who was joined by Rep. Chris Edwards (D-Eugene) in a press release. 

 

The pair believes Miller is on the right track. But just in case, to protect consumers, they drafted Senate Bill 1029 for the February special session. It would remove the authority of the Director of Department of Consumer and Business Services to exempt from public disclosure rate filing materials and require insurers to pay attorney fees and costs to consumers who contest health insurance rates.

 

The insurance industry says it has plenty of reasons to withhold information from the public. By revealing trade secrets, competitors could “duplicate our pricing methodology,” according to Victor Pagula, director of actuarial, underwriting and analysis at PacificSource. Pagula warned the new rules would lead to cherry picking for the more favorable risk groups, and those groups who use more medical services would pay even higher rates.

 

“This would only harm the consumers that the transparency law is intended to protect,” and set the stage for “anti-trust issues between insurance companies,” he told officials. “Substantial competitive injury is not only likely, it is almost guaranteed.”

 

If the Insurance Division doesn’t heed their warnings, several insurers hinted they might take legal action. “These new rules will invite instability, confusion, uneven treatment of carriers and litigation,” according to Theresa Neibert, manager of regulatory advocacy and consulting for Kaiser. “This may embroil the division in costly litigation.”

 

“Much of the information in our rate filings is proprietary trade secret information that should not be made publicly available,” wrote Dave Nesseler-Cass, compliance coordinator with Providence. Such information “would weaken our competitive abilities and have an overall effect of harming health insurance market competition.” 

 

Also raising legal objections, Nancy Nevins, manager of regulatory affairs for LifeWise, said the proposed rule exceeds the Division’s statutory authority and is unconstitutional.

 

“Rather than help consumers, the forced disclosure of trade secrets will exclusively help the actuaries of well-capitalized carriers selectively target markets to their advantage,” she wrote. “The law is crystal clear that the legal requirement that the government protect trade secrets from disclosure is in the best interests of consumers.”

 

A national association that represents 1,300 insurers around the country even got into the act. Called AHIP (America’s Health Insurance Plans), its regional director Leanne Gassaway wrote to the division: “Courts have long recognized that confidential pricing and market methodologies and other information qualifies as a trade secret,” adding that federal courts have routinely exempted public disclosure of rates, cost and pricing data so that competitors don’t have an unfair advantage over pricing strategies.

 

From the consumer perspective, Laura Etherton with OSPIRG believes Oregonians need to be protected from what she called “excessive health insurance rates.”

 

Consumers deserve to know why their health insurance premiums are going up, said Sean Moriarty, operations manager of CESSCO Inc., a construction equipment company. “If the carriers were charging reasonable rates, the laws and the Insurance Division to regulate them would not exist. The purpose of the rate filings is to protect the consumer from unfair rate increases, not to protect the carriers from themselves.”

 

Insurers haven’t submitted any evidence that they’d be harmed competitively, said Larry Kirsch, managing partner of IMR Health Economics LLC whose wife, Karen Kirsch, launched the first citizen challenge of a rate hike in decades against Regence. The insurers, Kirsch said, "have substituted rhetoric for fact and have conflated harm to competitors with harm to competition.”

 

“The current situation demands decisive regulatory action to tamp down increasingly unaffordable premiums resulting in a shrinking enrollment base,” he wrote. “While it is surely not a panacea, full disclosure of rate filings is a step in the direction of lowering information barriers and creating opportunities for more aggressive pricing.”

 

The insurers want the agency to “bless their filing” based on the assurance they that did their best. “That’s not how markets work,” said Linda Williams, an attorney and consultant who saw her insurance raise by 65 percent last year. “It’s bad public policy. And they’re playing on fears that disclosure will mean a reduction in the number of carriers offering small business and individual plans. This is simply a threat and should be treated accordingly.”

 

To review rate filings click here.

 

For related article on insurance premiums click here.

 

For related articles on rate regulation click here.