The Obama administration on Monday called on a Mennonite-owned health insurance company to cancel its proposed 11.6 percent rate hike, marking the first time the government has tried to pressure a private company under the new health care law.
While Pennsylvania-based Everence Insurance said it needs to raise rates on about 5,000 customers to cover costs, Secretary of Health and Human Services (HHS) Kathleen Sebelius called the increase “unreasonable,” holding it up as evidence that the government has an important role to play in reining in the cost of coverage.
“This sends a message to insurers around the country that the days of unchecked, double-digit increases are over,” Mrs. Sebelius said.
But Everence officials disputed the methods used by HHS to reach its conclusion, arguing that the agency calculated the plan’s loss ratio over a one-year period, instead of calculating rates based on a two-year period that they said would give a better idea of gains and losses.
“The Everence experience indicates that a longer experience period reduces premium volatility, which works better for group clients,” said Vice President Dave Gautsche. “We’d welcome the opportunity to have a conversation with HHS officials about how we determine our rates.”
For their part, HHS officials accused Everence of calculating loss based on nationwide statistics instead of just within Pennsylvania. That method, they said, would have led the company to predict fewer losses — a claim Everence denies.
“The issue here was the company used the national experience, which has a much higher loss ratio than the local experience in Pennsylvania,” said Steve Larsen, a director for HHS.
With the first plan to be ruled unreasonable by the administration, Everence indicated it would not back away from the rate hike, although the Mennonite-affiliated company will be required to publicly justify it on the website healthcare.gov.
On Sept. 1, HHS began scrutinizing companies that want to significantly raise premiums. A provision in the Affordable Care Act requires insurers to notify the government and submit to a rate review when they want to hike rates by at least 10 percent — one of several measures aimed at making coverage more affordable for Americans.
States, which can either conduct the rate reviews themselves or farm it out to the federal government, are being awarded $250 million in federal grants to set up or improve their rate-review process, but the federal funding is not accompanied by enforcement authority.
Even if states or the federal government deem a premium increase to be unreasonable, they still lack the authority to reject the proposal, despite efforts by Sen. Dianne Feinstein, California Democrat, to include such a provision in the health care law.
So far, insurers nationwide have submitted 114 plans covering about 450,000 people for review, with HHS responsible for reviewing 37 of them, Mr. Larsen said. The agency has already deemed an 11 percent hike Everence is imposing on Montana customers to be reasonable.
The cost of health care coverage is an issue fraught with tension, with medical costs and premiums continuing to rise faster than the rate of inflation. The average annual premium for family coverage this year increased 9 percent over 2011, reaching $15,073 — a figure that has doubled since 2001.
• Paige Winfield Cunningham can be reached at email@example.com.
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