Published March 26, 2012
As health reform heads to the U.S. Supreme Court, the federal government is going full bore on insurers who hike premiums to cover health care’s soaring costs, increases that ironically continue to rise in part due to health reform.
The Department of Health and Human Services (HHS) late last week denied rate increases from two health insurers covering more than 42,000 Americans in nine states because they were too high, deeming them “unreasonable” premium hikes.
"Thanks to the Affordable Care Act, consumers are no longer in the dark about their health insurance premiums," said HHS secretary Kathleen Sebelius in a statement Thursday. "Now, insurance companies are required to justify rate increases of 10 % or higher. It's time for these companies to immediately rescind these unreasonable rate hikes, issue refunds to consumers, or publicly explain their refusal to do so.”
The nine states are Arizona, Idaho, Louisiana, Missouri, Montana, Nebraska, Virginia, Wisconsin, and Wyoming.
HHS also found the two insurers, John Alden Life Insurance and Time Insurance, were asking for rate increases as high as 24%, but would be “spending a low percentage of premium dollars on actual medical care.”
A spokesman for Assurant Health, parent of both John Alden Life Insurance and Time Insurance, tells FOX Business: “Assurant Health is committed to setting premium rates at a level that will allow us to continue to serve the needs of our customers. We believe our recent rate filings are reasonable and necessary. Assurant Health supports increasing access and the affordability of health care.”
The clampdown by HHS raises anew the debate over the role of the federal government in setting the costs of health insurance premiums, and why health reform has not stopped the rise in health-care costs, which continue to rise even after parts of the new law have already kicked in.
Health insurers have been attacked for gouging and overcharging consumers, and for arbitrarily denying coverage for preexisting conditions. Members of Congress have held hearings criticizing their profits and executive compensation as excessive.
Health insurance premiums rose 131% in the prior decade, as medical inflation rose only 31%, says the Kaiser Family Foundation.
Recently, health insurance premiums for employer-sponsored family plans rose an average 9% from 2010 to 2011, according to an annual survey of employer plans by the Kaiser Family Foundation conducted from January through May 2011. The increase compares to a 3% rise in the prior year.
However, the large part of health reform has yet to kick in -- the law takes full effect in 2014.
Of that 9% increase, health analysts assert that health reform is responsible for only one percentage point to three percentage points on average of the increase in premium costs. The remainder stems from rising health care costs, a rise the new law may not curtail.
But asserting that health reform is responsible for only the three-percentage point increase or so in insurance costs is an erroneous average to use, as it includes cost increases for all types of plans, from individual policies to large group plans.
Instead, a survey of 26 health insurance plans covering 32 million Americans by Aon Hewitt released last year found the new health-reform law was responsible for a higher percentage of increased insurance costs, depending on the type of plan.
Aon Hewitt found that health insurers reported premium increases due to the health law of an average 4.7% for individual policies, an average 1.5% for small group plans, and an average 0.8% for large group plans.
The increases now in coverage costs are due to what insurers must now provide under the new law, despite President Barack Obama’s vow that the new law “could save families $2,500 in the coming years.”
The recent increases are for things like covering preventive care without deductibles or co-payments; letting adult children remain on their parents’ health insurance plans until age 26; covering children with preexisting conditions; and increases in yearly limits to coverage.
Also, health insurance costs continue to rise as the baby boomer population ages, and due to technological advances in medicine.
Meanwhile, health reform doesn’t give federal regulators like the HHS the authority to stop health insurers’ rate increases. State insurance regulators have the authority to reject or reset any rate increase that they deem excessive or unjustified.
However, the new law does give HHS the power to force insurers to open their books to the federal government and publicly justify their rate hikes.
It also gives HHS the power to pressure the states to kick insurers out of new state-run health insurance exchanges, possibly a corporate death knell.
Specifically, when Congress wouldn’t give HHS the power to regulate and stop rate increases in health reform, the reform bill instead did an end-run around that with a provision, resulting in a 136-page rule, that gives HHS largely unchecked power to step in where the states already regulate.
HHS, the new law says, was required to establish a process for the annual review of “unreasonable increases in premiums for health insurance coverage” in conjunction with the states.
HHS also gets to determine whether insurers “prominently post such information on their Internet websites.”
If health insurers don’t reset their rates lower, they could then be denied the opportunity to sell insurance in new state-run health exchanges now being launched under health reform.
Or they could face public humiliation.
In September 2010, after some carriers spoke honestly about rising costs, HHS secretary Sebelius warned that "there will be zero tolerance for this type of misinformation and unjustified rate increases."
All of this is meant to uphold health reform, that the government will protect taxpayers who now under the law must buy health insurance or face government fines.
But the issue with the nine states raises anew the controversy over whether these moves entail further political control of health care, or federal price controls on private insurance premiums.
This is one big part of the vast ad hoc powers that health reform handed to regulators, to swat the insurance industry for rising health costs that the new health reform entitlement is already powering higher.
However, HHS also released a report Thursday showing that fewer insurers have proposed double-digit rate increases since the agency began reviewing them in 2011.
"According to the report, in the last quarter of 2011 alone, states reported that premium increases dropped by 4.5%, and in states like Nevada premiums actually declined," the agency noted.
Meanwhile, insurer Anthem Blue Cross says in a statement it will raise health insurance rates for nearly 600,000 Californians by as much as 20% on May 1. California Democrat Senator Dianne Feinstein has sponsored legislation that would require HHS to regulate rates in states that do not require prior approval from the states they operate in for rate hikes.