January 27, 2013

Maine Voices: Excessive oversight stifles insurance markets

Rolling back changes in rate review procedures for individual policies would hurt insurers and, ultimately, small businesses.

By JOEL ALLUMBAUGH

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Employees enter Anthem Inc. headquarters in Indianapolis. PL 90 lets Anthem Health Plans of Maine and other insurers implement individual policy rate hikes without forcing them “to lose money in other markets,” a reader says.

2003 File Photo/The Associated Press

PORTLAND - The Democratic majority in the Maine Legislature hopes to re-establish rate review procedures for individual health insurance policies that were changed last year under Public Law 90. On the surface, that sounds reasonable, but there is more to the issue.

Their arguments may lead you to believe that we've gone from an era of reasonable oversight of rate increases to a Wild West-style free-for-all system that allows insurers to raise rates at will. That is far from the truth.

In fact, the substance of the Maine Bureau of Insurance rate review responsibilities is largely unchanged from pre- to post-PL 90.

In the past, there was no federal requirement pertaining to rate review for individual insurance. Obamacare changed that: Any rate increase of 10 percent or more must now be reviewed by regulators.

At the state level, the change under PL 90 was modest. In the past, the Bureau of Insurance was required to review and approve individual health insurance rates before they could be implemented by insurers in the market.

PL 90 changed the law to say that an insurer still needs to file rates with the bureau, but it can apply those rates without specific approval, provided that it guarantees that it will meet minimum loss ratio requirements. The prior approval process is then triggered only when the requested rate increase triggers the federal review requirement.

Minimum loss ratio laws, for those who may not be familiar, require an individual insurer to spend in claims and quality improvement expenses at least 80 percent of the premiums collected. If it does not, it is required to refund premiums. These laws have been in effect for many years in Maine and are now a federal requirement under Obamacare.

Here's why this matters: We have adequate rate review procedures in place today. Rolling back the review requirements under PL 90 does not make rate review better; it makes it excessive. Excessive rate review adds cost and reduces competition that would otherwise provide more options and lower insurance rates for Maine consumers.

Anyone interested in this topic should review the Bureau of Insurance website and read the rate review procedures -- specifically, the rate review documents from the last Anthem individual insurance rate filing, which occurred after PL 90. Then tell me if you think the bureau's review was anything but thorough.

As outlined by the bureau, the process requires review of "all assumptions for reasonableness and consistency with historical trends." Doesn't sound like the Wild West to me.

Democrats are really looking to resurrect the public flogging that existed prior to PL 90, which consisted of public forums held throughout the state over each rate filing.

Supporters will state that those hearings pushed a 9.2 percent proposed rate increase by Anthem down to 5.2 percent in 2011. But they do not tell you that the rate increase of 5.2 percent removed any profit margin: These supporters essentially told Anthem that losing money was not a sufficient reason to raise rates, as long as it could offset those losses in other lines of business, such as its small-group sales.

Do we want to push one of the last insurers still operating in Maine's individual health insurance market out of the state? How long do you think an insurance company can lose money and stay in business? Is it any wonder we struggle to attract new insurers to do business in Maine? Can our small businesses really absorb higher insurance premiums because we want to force insurers to lose money in other markets?

It is worth noting that Anthem had the lowest rate increase for individual policies in decades in the first filing after PL 90, though other provisions of PL 90 deserve the lion's share of the credit. We also saw new insurance products introduced -- another phenomenon we have not seen in years. Insurance companies have told me in the past that "we do not want to invest in a dysfunctional market."

Be cautious when you hear the rhetoric on this issue. On the surface, strong rate review procedures sound very reasonable. In reality, rate review procedures today are not just adequate, but also effective. Our goal should be healthy insurance markets with adequate consumer protections.

Let's not repeat past mistakes when we are finally starting to strike that important balance.

Joel Allumbaugh is director of the Center for Health Reform Initiatives at The Maine Heritage Policy Center. He is also CEO and co-founder of National Worksite Benefit Group, Inc., an employee benefits insurance agency specializing in consumer-driven health plan strategies.

 

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