Feds call health insurer on carpet for 'unreasonable' premium hike

The first health insurer has been flagged by the federal government for lumping an “unreasonable” rate increase on customers. But the company says it’s done nothing wrong.
Everence Insurance covers thousands of people working for small businesses in the state of Pennsylvania. In September it raised health insurance premiums nearly 12% — an amount deemed unreasonable by the U.S. Department of Health & Human Services (HHS), which has been tasked with reviewing rate increases in excess 10% or more.
The HHS determined the company based its rate increase on national data rather than state-specific data, resulting in an “unreasonably high premium in relation to the benefits provided.”
If the rates remain unchanged, Everence will spend less than 80% of its premium revenue on medical care, according to calculations by the HHS. The health reform law requires insurers in the individual and small group markets to spend at least 80% of premium revenue on medical services.
Everence’s punishment: In addition to an unflattering news release being published on the HHS’ website, the company must either reduce their premiums to acceptable levels or post a justification on their website for the rate hike.
The feds don’t have the authority to demand the rates be lowered. Only about two dozen states have that power.
Everence responded by posting a statement on its website explaining the rate increases.
In it Everence claims the HHS used a one-year calculation to determine the company’s spending on medical claims. But because it’s a small insurer, Everence claimed it can see wide variations in its annual spending. Therefore, it uses two years worth of claims data to set its premiums. And based on its calculations, Everence says it’ll spend nearly 82% of premium revenue on medical claims.
Review process
The health reform law requires the HHS to review rate hikes in excess of 10% or more in states that do not have an “effective” review system of their own.
Insurers deemed to have unreasonably high increases in premiums have 10 days to either withdraw the rate hikes or justify the increases to customers.
The HHS has also been tasked with helping states strengthen their review processes.
The review rules only affect non-grandfathered plans sold in the individual and small group markets. The HHS sees those groups as being the most vulnerable to large rate hikes.
The feds believe the review process will bring more transparency to the rate-setting process. And by making consumers aware of exorbitant premium increases, it’ll put public pressure on insurers to curb drastic price spikes.