Aetna gets the scarlet “U”

Earlier today, Insurance Commissioner Dave Jones announced he was declaring
Aetna’s recent quarterly health insurance rate increase for small employers as “unreasonable.”

This is notable as the first *formal* finding of an “unreasonable” rate hike by the Department of Insurance for health insurance rate increases under the Affordable Care Act and companion implementing state legislation, SB1163(Leno).

To be clear, this wasn’t the first time that insurers filed unreasonable rate hikes–it is the first time that a health insurers refused to reduce or retract a proposed rate increase at the request of the Insurance Commissioner. The Department of Managed Health Care, which has also been negotiating rates with insurers, did declare an Anthem Blue Cross rate hike as unreasonable last year.

We have been pleased that state regulators have been using their new powers under the Affordable Care Act to review and challenge rate hikes–and that in many cases the insurers have responded–Commissioner Jones estimated that the plans under his jurisdiction alone rolled back rates over $107 million in 2011. This shows that oversight matters.

But this also shows why more oversight authority is needed, especially when a plan goes ahead with a rate increase anyway. In this specific case, Aetna is going ahead with its April 1 health insurance rate increases for small employers, which is an average 1.8 percent increase, which contributes to an average 8 percent increase annually (with some small businesses receiving up to a 21.4 percent annual increase) and an average 30.3 percent increase over 24 months for small employers with Aetna’s PPO health insurance policies. So while the specific increase for this quarter was relatively small, it was on top of significant recent rate hikes, and it was not justified–the Department says their “actuaries found that Aetna made projections about medical cost increases that were not supported by Aetna’s actual claims experience,” and was in excess of medical inflation. Also, the Department “determined that the Aetna subsidiary selling health insurance in California made a 27.7 percent profit in 2011, paid $1.7 billion in dividends to its parent company.” More details on the Department’s findings and Aetna’s rate filing are available to the public.

It’s troublesome that in a bad economy, Aetna could do so well, and still seek to squeeze more out of their small business customers, even after significant recent rate increases, and the specific request of their regulator. A pattern of “unreasonable” rate hikes could make a difference in Aetna’s ability to do business in the new Exchange–but ultimately, California regulators need more authority to oversee this market.

This is another example of the need to pass AB52(Feuer), legislation to allow state regulators to deny unjustified rate increases. The request to Aetna was not unreasonable, and neither is the bill.

Health Access California promotes quality, affordable health care for all Californians.