HHS Reprimands Payor for Excessive Rate Increases

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In its first such move under its new powers to review health insurance increases that exceed 10%, the U.S. Department of Health and Human Services (HHS) yesterday asked Everence Insurance to reduce its proposed premium increases to 5,000 patients in Pennsylvania.

HHS pegged the 12% hike as excessive, asserting in a reprimand that the company had, in determining the rate increases, based its request on national data rather than reliable and available state data”.

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

While HHS does not have the power to force Everence to reduce its planned increase, it hopes to put pressure on insurers by publicizing what the agency perceives as unreasonable premium hikes. “By shining a light on unjustified premium increases, we will hold health insurers accountable like never before,” HHS Secretary Kathleen Sebelius said in a statement.

Should Everence opt to disregard entreaties to reduce its rate increase, it will be required under the Affordable Care Act to post a justification of the rate increase request on its Web site within 10 days of the HHS rate review determination.

Responding to HHS’ request, Goshen, Indiana-based Everence defended the proposed increase, attributing the discrepancy in the HHS determination that the increase would result in a medical loss ratio (MLR) lower than the federal benchmark of 80 to the fact that HHS had calculated the MLR based on a one-year experience period, as opposed to the two-year period used by the company itself.

Moreover, Everence also faulted HHS’ determination that it should have used state data for its Pennsylvania members. “Essentially, our national experience and Pennsylvania state experience are the same for the two-year experience period,” said Dave Gautsche, Everence senior vice president of products and services, in a press release.

Because of its focus on small group plans, the insurer noted in its response to HHS that the two-year experience reduces volatility in its premiums. Everence asserts that such volatility can result in varying loss ratios that are 25% to as much as 100% higher when viewed on a yearly basis.