HHS Flags First ‘Unreasonable’ Premium Increase

Updated at 4:35 p.m. with comments from Everence.

Everence Insurance of Pennsylvania on Monday became the first insurer flagged by federal regulators for having an unreasonable rate increase.

The insurer, a for-profit arm of the Mennonite Church USA, raised rates starting in September by 11.6 percent for its ShareNet policies covering 4,800 people working for small businesses in the state.

Now the insurer has 10 days to either withdraw the increase or post on its website the reasons it finds the increase to be justified.

While federal regulators can’t force the insurer to do so, “we’re calling on them to immediately withdraw the rate and provide refunds or credits to anyone who has already paid,” HHS Secretary Kathleen Sebelius said in a press call.

In a written statement, Everence said HHS used a one-year calculation to determine how much the insurer is expected to spend on medical services. But, because it is a small insurer that can see widely varying annual spending, Everence said it calculates based on two years’ worth of claims data. When using that calculation, Everence says it spent nearly 82 percent of premium revenue on medical care in Pennsylvania, not the lower amount estimated by HHS.

“Federal law doesn’t require a change in the rate increase based on the HHS statement,” the insurer said. “The rate increase allows Everence to cover the increasing cost of medical services for its members.”

Under the 2010 federal health law, states – or in some cases the federal government – must review premium increases of 10 percent or more, and insurers must publicly justify increases deemed unreasonable. Information is also posted on a federal government website.

The law does not give the federal government power to reject increases, but about two dozen states have given reglators authority to approve or disapprove of some types of insurance premium changes, according to the National Conference of State Legislatures. While most states are doing their own review of premium increases, HHS steps in when states either can’t or won’t do so.

In Pennsylvania, HHS conducted the review of Everence’s rate increase, because state regulators there don’t have the authority to scrutinize rates charged to small businesses.

Of 114 rate increases currently under review nationwide — for policies covering about 450,000 people — 37 are being done by the federal government, said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services.

Everence sought the increase because of rising costs, it said in its filing. But after looking over all the numbers submitted by the insurer, HHS said that the company had based its assumptions on national data instead of available state data, resulting in the unreasonably high premiums.

If it keeps the rate increase, Everence will spend only 63 to 67 percent of its premium revenue on medical care, said Larsen.  That falls short of the 80 percent required under the federal health law.

The insurer also sells policies to individuals in Montana, where 11 percent increases this year were reviewed by federal officials but were not found to be unreasonable.

Sebelius said the new rules – and the ability for states and the federal government to flag some as unreasonable – send a message to consumers and insurers that “the era of unchecked rate increases is over.”