No sooner did I report yesterday that the Obama Administration is seeking to accelerate the timeline on healthcare reform, then HHS Secretary Sebelius issued a letter to state governors and insurance commissioners urging them to re-examine any WellPoint rate increases — this after the company admitted to “inadvertent miscalculations” in the criteria it used in California to unsuccessfully attempt to push through a 25% individual rate hike.
Sebelius urges states “to review WellPoint’s rate filings for mistakes similar to those made in California, if you have the authority to undertake rate review, and, if you do not, to seek authority to prior-approve health insurance rates.” She adds, “Even small errors can mean unaffordable premiums for policyholders.”
WellPoint withdrew its rate request in California after state regulators found the proposed increase was based on unreasonably high projected medical cost increases. WellPoint expects to revise and resubmit the request. How much fallout can be expected — for WellPoint and health insurers in general — from heightened scrutiny by the states? Justin Lake of UBS notes:
The potential for further mathematical mistakes is clear given the thousands of rate filings that are likely to be removed, although we believe in the case of WellPoint there is minimal risk of ‘systemic’ mistakes similar to that made in California….That said, it is impossible to predict the trajectory and severity of the political fallout from the WellPoint California issues and general ‘demonization’ of the managed care group.
Or as Sebelius says in her letter:
Experience has shown that, where the prior-approval rate authority does exist, rate increases can be moderated, while still enabling insurers to earn a reasonable profit. Just last month, for example, a Maine court affirmed the Maine insurance commissioner’s decision to reduce Blue Cross of Maine’s proposed 18-percent rate increase to 10 percent.
Sebelius notes that healthcare reform will provide states with $250 million in funds to help with rate reviews. She also points out that when insurance exchanges come online in 2014, purchasers will have meaningful comparative price information. She adds, however, that in the meantime, “individual and small business insurance purchasers have little or no bargaining power….That’s why state assistance is so necessary to prevent excessive rate increases.”
All of which brings us back to comments I reported on yesterday from George Olsen of Williams & Jensen: “The Secretary is trying to jump out in front and accelerate the process…The Administration is very concerned about premium increases” prior to the creation of health insurance exchanges in 2014.