Urges Re-examination of Recent Rate Increases After California Rejects Anthem Blue Cross Increase
Calls on States to Strengthen Their Regulatory Rate Review Authorities
WASHINGTON--(BUSINESS WIRE)-- U.S. Department of Health and Human Services Secretary Kathleen Sebelius wrote Governors and State Insurance Commissioners last night urging states to re-examine any WellPoint health insurance rate increases in their states after Anthem Blue Cross, a WellPoint affiliate, withdrew its plan to raise premiums in California by as much as 39 percent when auditors found the rate hikes were based on unreasonable assumptions.
“For too long in this country, Americans have been at the mercy of insurance companies, and have ended up paying a steep price,” said Secretary Sebelius. “Using faulty assumptions and loopholes, insurers have tried to game the system and consumers have ended up with one bad deal after another. In recent days and weeks, with the passage of the Affordable Care Act and some strong actions on the parts of states from Maine to California, the balance of power is starting to shift toward the American people.”
In February, Secretary Sebelius sent a letter to Anthem Blue Cross, calling on the company to publicly justify its proposed 39 percent premium increase in California. Anthem withdrew its plans for the premium increase in California last week after the California Department of Insurance found that the proposed rate increase was based on unreasonably high assumptions about the rate at which medical costs are increasing.
Sebelius’ letter to governors and state insurance commissioners urges them to not only check WellPoint’s assumptions, but also to work with local and state leaders to ensure they have the authority to review and approve insurance rate increases before they take effect.
“Working with my colleagues on the state level, we are sending a message to insurers that it is time to for them to put their customers first,” said Sebelius. “I sent this letter to encourage governors and insurance commissioners to follow California’s example and check the math on rate increases being proposed in their states and to ensure they have the strong regulatory tools they need to fight unreasonable increases.”
The text of Sebelius’ letter is below.
I am writing to call your attention to the recent withdrawal by Anthem Blue Cross, an affiliate of WellPoint, Inc., of the proposed rate increase of up to 39 percent for many of its California individual market policyholders. The California Department of Insurance found that the proposed rate increase was based on unreasonably high assumptions about the rate at which medical costs are increasing.
In light of this recent finding, I urge that, to the extent you have authority to do so, you re-examine any WellPoint rate increases in your state to determine whether any mistaken assumptions similar to those made in California were made in your state. Even small errors can mean unaffordable premiums for policyholders.
I also ask that you review the authority you have under your state law to determine whether you have all of the regulatory tools needed to approve health insurance rates before they take effect. The ability to require insurers to modify an increase if a proposed rate increase is unjustified has been shown to be effective in many states. The Affordable Care Act expressly contemplates support for state efforts in rate review, appropriating a total of $250 million to states to assist in meaningful rate review. We intend to issue guidance on applying for that funding in the near future.
Experience has shown that, where the prior-approval rate authority does exist, rate increases can be moderated, while still enabling insurers to earn a reasonable profit. Just last month, for example, a Maine court affirmed the Maine insurance commissioner’s decision to reduce Blue Cross of Maine’s proposed 18-percent rate increase to 10 percent.
When the Exchanges begin to operate in 2014, individuals and small businesses will be able to make apples-to-apples comparisons, and will have access to meaningful comparative price information. Insurers will compete on price, and will no longer be competing by segmenting the market, differentiating the product, and selecting out risk. Under the new system, competition will complement oversight to hold down rate increases.
In the meantime, however, individual and small business insurance purchasers have little or no bargaining power and limited access to meaningful comparative price information. That’s why state assistance is so necessary to prevent excessive rate increases.
I therefore urge you to review WellPoint’s rate filings for mistakes similar to those made in California, if you have the authority to undertake rate review, and, if you do not, to seek authority to prior-approve health insurance rates. Not only will funding be available to states that have and exercise such authority, but, more importantly, such authority and its exercise will enable state insurance departments to better protect consumers.
Note: All HHS press releases, fact sheets and other press materials are available at http://www.hhs.gov/news.
HHS Press Office
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