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HHS Fingers Another Life Insurer for Rate Hikes Under ACA Authority

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Health insurance rate hikes in five states have been deemed “unreasonable” by the U.S. Department of Health and Human Services, under the Patient Protection and Affordable Care Act of 2010 (PPACA), HHS Secretary Kathleen Sebelius announced today, this time  targeting Trustmark Life Insurance Company’s premium increases.

HHS alleged that Trustmark Life Insurance Company, a division of Trustmark Cos., in Lakeforest, Ill., has proposed “unreasonable” health insurance premium increases in Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. The increases would affect nearly 10,000 residents across these five states.

“It’s time for Trustmark to immediately rescind the rates, issue refunds to consumers or publicly explain their refusal to do so,” Sebelius stated.

To make these determinations, HHS used its new rate review authority from the PPACA to determine whether premium increases of over 10% are reasonable. 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.

HHS determined that the rate increases were unreasonable because the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions, the agency stated.

“We respectfully disagree with the assumptions and conclusions drawn today by [HHS]. Our premiums are driven by the rising cost and increased utilization of medical services,” Trustmark said in a statement to reporters.  

“As a smaller carrier, our loss ratios can vary significantly from year to year, and we take that volatility into consideration,” the company stated.

 ”Trustmark has been and will continue to be in compliance with all aspects of the Affordable Care Act, including requirements related to the Federal Medical Loss Ratio Rule [MLR],” the company stated. “If there are instances where we do not reach the required loss ratio as calculated under the federal regulations, we will, promptly and in accordance with the Affordable Care Act, rebate the difference to those customers.”

HHS pointed out that in the five states, Trustmark has raised rates by 13%. For small businesses in Alabama and Arizona, when combined with other rate hikes made over the last 12 months, rates have increased by 27.2% and 18.1%, respectively.

At the time that Trustmark submitted the rate increase, Pennyslvania did not have review authority, which is why HHS conducted its review. A new law will give Pennsylvania regulators rate review authority starting March 1, 2012, Trustmark said.

This is the second round of determinations by HHS of the reasonableness of proposed rate increases under PPACA.

In November, the first health insurer, another small carrier, identified by the HHS as charging too excessive a rate was Everence Insurance. HHS went after the Goshen, Indiana-based insurer, a ministry of Mennonite Church USA, for charging small businesses in Pennsylvania what HHS described as being “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,” Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services (CMS) stated back then.

However, Everence at the time 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.”

November’s HHS action, and today’s mark 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.

HHS said many states have the authority to reject unreasonable premium increases. Since the passage of the health care reform law, the number of states with this authority increased from 30 to 37, with several states extending existing “prior authority” to new markets.

HHS named New York, New Mexico, Connecticut, Oregon Rhode Island and even Pennsylvania, which houses both Trustmark and Everence, as examples of states that have acted. The state held Highmark to rate hikes ranging from 4.9% to 8.3%, down from 9.9%, HHS said.

Today’s announcement comes the same week that a report showed that health care spending growth, while still rising, has grown at a lower-than normal rate of about 4% in the past two years. That was greeted as good news by many in the administration and in some states.

Also, a 2010 study released by Mercer Consulting showed growth of almost 7% in the average employee health benefit cost to businesses.