Wednesday, November 23, 2011

The ACA And Rate Increases For Businesses

The Department of Health and Human Services (HHS) has announced that Everence Insurance of Pennsylvania is charging small businesses unreasonably high premium increases. This is the first federal rate review under the Patient Protection and Affordable Care Act (ACA). Anyone surprised?

Under the ACA, HHS, in conjunction with the states, is charged with establishing an annual review process, which will require insurers to submit a justification for any "unreasonable" premium increases (Public Health Service Act Sec. 2794(a)).

The HHS review found that Everence's 12% rate increase for small businesses in Pennsylvania was excessive. After reviewing the rate, independent experts determined the choice of assumptions the company based its rate increase on reflected national data rather than reliable and available state data. These assumptions resulted in an unreasonably high premium in relation to the benefits provided, according to HHS.

"We have called on this insurer to immediately rescind the rate, issue refunds to consumers or publicly explain their refusal to do so," said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare and Medicaid Services.

Companies can either reduce their rate hikes or post a justification on their website within ten days of the rate review determination.

For more information about rate review and to find rate increase information in each state, visit

Rate Increases The Norm? 

This latest revelation that a health insurer might be charging an unreasonable rate increase brings back the last few decades of rate activity in the health care industry.

Use to be that there were only two situations in which health insurers raised rates:

  1. Health insurers raised rates when their costs were increasing because…well, because their costs were increasing.
  2. Health insurers raised rates when their costs were not increasing because…well, because they knew that sometime in the future their costs would increase.

Doesn’t seem to leave much room for anything but cost increases, but just in case, insurers now have another reason for cost increases: the ACA itself.

A variety of analysts have looked at the potential costs to employers, and the higher projections suggest that the ACA could add 3% to health care premiums each year (for example, click here.

So you would expect that a friend of mine was quite upset when her retiree health care premiums from a major U.S. oil company increased from $312 to $450 a month, and the increase was blamed directly on the ACA. If HHS thinks 12% is high, what would the reaction be to an increase of 44% (if, that is, the plan were subject to a rate increase review—it’s self funded and not subject to review). 

My friend promptly changed plans--she is healthy so there wasn't much problem. But initially she believed the reason for the rate increase--at least until I explained that it was unlikely the ACA was responsible for such a boost.

And what happens when her new plan uses the ACA to jack up their prices?  For one, she won't be as surprised.

Not yet a subscriber to Wolters Kluwer Law & Business? A comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform implementation and other recent developments in employee benefits, just click here.

Already a subscriber to Wolters Kluwer Law & Business? Get this additional information on health insurance rate reviews:

PS: Happy Thanksgiving (Click herefor more on why I am thankful this Thanksgiving).

PPS: This is my final blog posting for Health Reform Talk. After more than 30 years involved in writing about and analyzing health care benefits, I am retiring at the end of the year. I have enjoyed the ups and the downs of the health care scene, and I look forward to the excitement of the Supreme Court deliberations on the ACA next summer.—SAH


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