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WellPoint weighs in on California rates

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A unit of WellPoint (NYSE:WLP) is disagreeing with California regulators about how much the unit is trying to increase its small group health insurance rates, as well as about whether the increases are reasonable.

The California Department of Insurance said the pending increase will average 10.6 percent per year over two years.

Anthem Blue Cross, the WellPoint unit, said that, after including the effects of benefits changes, average rate of increase will be 7.5 percent. Over 24 months, the average increase will be 12.1 percent, the unit said.

Anthem Blue and the California department are clashing over an Anthem Blue rate filing that could change rates for 52,400 Anthem Blue small-group customers this month. The unit has a total of about 250,000 small-group plan enrollees in California.

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires an insurer to spend 80 percent of small group revenue on health care and quality improvement efforts. PPACA also gives regulators the authority to give extra attention to rate increases that are 10 percent or higher, and the law and federal regulations require insurers that raise individual or small group rates 10 percent or more to post explanations of the increases on the Web.

PPACA and California state insurance laws and regulations do not give the California department the authority to reject small-group health rate increases.

Anthem Blue reported that it expects the medical loss ratio (MLR) on the small-group business affected by the rate increase to exceed the 80 percent PPACA threshold.

Anthem Blue estimates the California small-group health insurance business produced a profit margin of about 1.2 percent, the unit said.

“The rate increases in the small group market are not unique to Anthem Blue Cross,” the unit said in a statement.

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The rate increases “represent an economic reality faced throughout the entire industry as health care costs continue to escalate faster than our state’s economy as a whole,” the unit said.

If Anthem Blue Cross turns out to be wrong about small-group claims costs, then the PPACA minimum MLR rules will require the unit to pay rebates to the small-group customers, the unit said.

Many major players in California’s small-group market are raising rates faster than Anthem Blue is this quarter, the unit added.

California Insurance Commissioner Dave Jones said Anthem Blue overstated its underlying costs by adding charges for Patient Protection and Affordable Care Act (PPACA) health insurance premium taxes that will be due in 2014 in 2013 rates.

The California general counsel has ruled that a health insurer should not include charges related to taxes that will be due in a later year in premiums for the current year, in part because some of the individuals and groups that do business with the insurer in the current year might not be doing business with the insurer in the year when the taxes are due.

Jones said the California department is calculating that increases over two years could be as high as 19.4 percent for some Anthem Blue small-group customers affected by the filing now being discussed.

“My authority is limited to reviewing the rates that are filed,” Jones said Tuesday at a news conference. “The health insurers can set whatever rates they want — and they do exactly that.”

The Associated Press contributed information to this report.

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