National and California advocacy groups are tweeting about the recent decision by the California Department of Managed Health Care to find small-group rates proposed a unit of Aetna Inc. (NYSE:AET) to be unreasonable.
For the 12-month period that started July 1, Aetna proposed an average increase of 21 percent when compared with 2014 rates for plans covering 13,000 enrollees.
Department officials had no authority to reject or change the increase, but they classified it as “unreasonable” and “unjustified.” The department put out a press release about the ruling, and Shelley Rouillard, the director, said in a statement that, “Aetna’s pattern of unreasonable increases equates to price gouging.”
Aetna argued that it needs a substantial increase because new restrictions on underwriting are likely to leave it with a sicker, older, more-expensive-to-insure pool of enrollees.
Utilization of care has been going down, up until now, but the unit cost of the prescription drugs used has increased 17 percent, and per-patient amounts, or capitated amounts, for inpatient hospital care have increased about 18 percent, the company said.
The company also noted that the Patient Protection and Affordable Care Act (PPACA) is imposing extra costs. The company expects to pay $42 per member per month for the PPACA risk-adjustment program.
On the one hand, the actuaries who developed the Aetna small-group rates that took effect might be wrong. Maybe their projections are unreasonable.
On the other hand, it looks as if the Aetna pricing team is trying to balance the pressure to offer competitive, regulator-friendly rates with a need to come up with the cash to pay claims.
Competing, California-based small-group coverage issuers have announced smaller premium increases, but I wonder if that’s due partly to differences in business mix and, maybe, partly due to California-based issuers’ higher level fear of state regulator-issued press releases accusing them of patterns of rate increases that equate to price gouging. And, if the competitors are really offering a better deal, isn’t the logical course of action to let the competitors pry business away from Aetna? Why put out a mean press release?
On the third hand, maybe rate regulators in states like California should accuse away. They seem to have a deep faith in insurers’ ability to pull the money to hold claim increases to less than 10 percent out of the air. If they’re right, we could all benefit from figuring out new ways to benefit from the rate stabilization capacity of California air.
See also: Insurers fight California rate measure