This week’s Cavalcade of Risk included an article from the Healthcare Economist about a bill in the CA legislature that would require health insurance premiums to be approved by the state Insurance Commissioner before they could go into effect. The concern from those opposed to the bill is that giving the Insurance Commissioner the final say when it comes to premiums could mean that carriers wouldn’t be able to raise premiums enough to cover claims. In that case, the result would either be that carriers leave the state, claims go unpaid, or the overall quality of healthcare would decline.
In Colorado, health insurance premiums have to be approved by the Division of Insurance before they can be instituted. Carriers are required to file rates with the DOI, and failing to do so is not tolerated (Humana recently got hit with a whopping $299,000 fine by the Colorado Division of Insurance, part of which was for using rates that had not been filed with the DOI). In the past, the approval process was relatively quick, but things got a bit sticky last year when the DOI started receiving numerous complaints about the large rate increases on Anthem Blue Cross Blue Shield individual policies. The DOI had approved the 2010 Anthem rates when the carrier had filed them in the fall of 2009, but apparently the approval process had involved only a quick, cursory check. In the spring of 2010, the DOI went back and did a much more thorough analysis of the Anthem rates. After several months, an agreement was reached in which Anthem agreed to refund $20 million to about 90,000 insureds, but the 2010 rates were allowed to stand and no action was taken against Anthem by the DOI. Following that incident, the DOI did a much more in depth review of the rates filed by all carriers last fall.
Even with the detailed scrutiny of rates by the DOI last fall, we didn’t really see any difference in terms of overall rate increases in 2011 compared with the previous few years. Double digit rate increases were still the norm this year from most carriers, and those rate increases were approved by the DOI. Just because the Insurance Commissioner has to approve rates does not mean that rates won’t increase or won’t increase by a large amount. I can’t say for sure that things in CA would be the same, but the Colorado DOI doesn’t just approve or reject rates based on what seems fair or a desire to keep rates low. Instead, they look at the factors that go into each carrier’s rate calculations and determine if the new rates are justified by the claims data. If the rates are justified, they’ll likely be approved – even if the amount of the increase is distastefully large. The DOI is not trying to keep premiums artificially low or force carriers to cut out legitimate claims expenses. Having rates approved by the DOI does not mean that the people of Colorado get smaller-than-average premium increases. Rather, it means that although our rate increases are sometimes substantial, we know that those rates are justified as a reflection of increasing claims costs.