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Obama administration calls on health insurer to reduce rate hike

Using a tool in the new healthcare law for the first time, officials call the 12% increase 'unreasonable.'

November 22, 2011|By Noam N. Levey, Washington Bureau
  • Health and Human Services Secretary Kathleen Sebelius said the review of Everence Insurance Co. was "the first of many."
Health and Human Services Secretary Kathleen Sebelius said the review… (Mark Wilson, Getty Images )

Reporting from Washington — The Obama administration called on a health insurance company to reduce a planned rate increase in Pennsylvania, using a tool in the new healthcare law for the first time to pressure insurers to restrain rising premiums.

Officials at the Department of Health and Human Services said Monday that Everence Insurance Co.'s plan to raise rates by 12% next year on about 5,000 people who work for small businesses in Pennsylvania was "unreasonable."

That rate is not justified by what the insurer was expected to pay out in medical claims in the state, said Health and Human Services Secretary Kathleen Sebelius.

"We're calling on the insurance company to immediately withdraw this rate and provide refunds or credits to any beneficiaries who have already paid the unreasonable amount," Sebelius said, promising that the Everence review would be "the first of many."

Officials at Indiana-based Everence stood by the rate increase and disputed the federal government's analysis, asserting that their review of claims data justified the premium hike.

"We have no plans to make any changes," said spokeswoman Judy Martin Godshalk, adding that the company would welcome a discussion with federal regulators.

The healthcare law that President Obama signed last year does not give federal or state insurance regulators any new authority to prohibit rate hikes like the Everence increase in Pennsylvania.

But the law allows government officials to require insurers seeking increases to publicly justify them, a move that proponents hope will persuade companies to think twice about proposing excessive hikes. Everence, a subsidiary of a ministry of the Mennonite Church, has 10 days to post an explanation on its website.

Insurance premiums have historically been regulated by state governments. But oversight has varied substantially from state to state, with some doing almost no review and some actively blocking rates they deem excessive.

The Obama administration this year announced it would review any rate increase above 10% in states that did not have the capacity to do reviews themselves.

The Department of Health and Human Services is reviewing 35 such increases. And administration officials have completed two, including the Everence rate hike in Pennsylvania.

They have already determined that an 11% increase that Everence is imposing on customers in Montana is reasonable.

An additional 77 rate increases of more than 10% are being reviewed by state regulators around the country, the agency said.

noam.levey@latimes.com

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