Under the first such federal rate review mandated by the Patient Protection and Affordable Care Act (PPACA) an arm of the Health and Human Services (HHS) has demanded a Pennsylvania health insurer rescind its rates because its premium increases are too high.
The insurer in the spotlight is Everence Insurance of Pennsylvania. HHS went after the Goshen, Indiana-based insurer, a ministry of Mennonite Church USA and other churches, for charging small businesses in Pennsylvania "unreasonably high premium increases."
“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 & Medicaid Services (CMS).
However, Everence told National Underwriter, "based on the information we now have from HHS, we plan to keep the rate increase in place."
An HHS review has found that Everence’s 12% rate increase for small businesses in Pennsylvania was excessive. Independent experts, HHS claimed, determined the choice of assumptions the company based its rate increase on reflected national data rather than reliable and available state data, leading to an “unreasonably high premium in relation to the benefits provided.”
Everence (formerly MMA and Mennonite Financial) serves individuals, organizations and congregations by integrating finances with faith through a national team of advisors and representatives. The company offers banking, insurance and financial services with community benefits and stewardship education.
Today’s action marks the first of many reviews that HHS will perform in addition to insurance rate reviews already being done by states, the agency said. Proposals to raise rates by 10% or more will be reviewed.
PPACA includes features that are meant to promote transparency and hold insurers accountable for rate increases and how they spend your premium dollars. Under the rate review feature, which took effect on Sept. 11, health insurance companies must tell consumers when they want to increase insurance rates for individual or small group policies by an average of 10% or more.
“Focusing solely on premiums while ignoring the soaring cost of medical care will not make health care coverage more affordable for families and small businesses,” said Robert Zirkelbach, press secretary with America’s Health Insurance Plans.
“We hope that by publicizing the excessive premium hikes, we will empower consumers,” HHS Secretary Kathleen Sebelius stated. “By shining a light on unjustified premium increases, we will hold health insurers accountable like never before, and help keep money in the pockets of Americans.”
Everence is a very small writer in Pennsylvania, with fewer than 5,000 lives insured, and the Pennsylvania Insurance Department, which had just received the letter, had no comment.
Everence was mulling a response at press-time.
Everence responded after deadline, but in a very thorough treatment for a press release, but compared its state experience data with the national experience data as basically the same for the two-year period for claims experience. This isn;t the language of making refunds. The company stated:
Everence announced that it calculated its ShareNet rates in Pennsylvania based on a two-year experience period which results in a projected loss ratio* that is comfortably above the federal standard.
In its review, HHS stated the rate increase was “unreasonable” because it projected the plan’s loss ratio to be below the federal standard of 80%. However, the loss ratio calculated by HHS was based on a one-year experience period.
Loss ratio history for state and nationally
The loss ratio history for the Everence plan in Pennsylvania has been 81.6% over the two-year experience period used for rating, which is approximately equivalent to the national loss ratio of the Everence ShareNet plan. “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.
Based on medical-cost fluctuations that the ShareNet Plan experiences in Pennsylvania from year to year, Everence based the rate increase on claims experience over a two-year period. As a small insurer with years of experience rating small groups, Everence does not use the one-year measure of claims experience to set rates. The one-year basis often results in wider swings in rate changes under the ShareNet plan. For instance, for the past three calendar years, actual loss ratios have varied by over 25%, with one year being nearly 100%.
“The Everence experience indicates that a longer experience period reduces premium volatility, which works better for group clients,” said Gautsche. “We’d welcome the opportunity to have a conversation with HHS officials about how we determine our rates.”
Federal law doesn’t require a change in the rate increase based on the HHS statement. Everence implemented this health insurance rate change effective Oct. 1, 2011. The ShareNet premiums in Pennsylvania will have an average rate increase of 12.6%for groups renewing their plans Oct. 1, 2011, and gradually moves down to an average rate increase of 11% by July 1, 2012. The rate increase allows Everence to cover the increasing cost of medical services for its members.