State calls Aetna health insurance rate hike ‘unreasonable’
By Jan Norman
The Orange County Register, April 5, 2012
Connecticut-based Aetna Life Insurance Co. has raised its health insurance premiums on small employers with 73,000 members an average 30.3 percent over two years, which the California Department of Insurance on Thursday called “unreasonable.”
The latest increase effective April 1 is an average 8 percent annually with a 30.3 percent hike over 24 months for small employers with Aetna’s PPO health insurance policies.
The department found that Aetna made projections about medical cost increases higher than the U.S. Bureau of Labor’s medical cost inflation index and unsupported by Aetna’s actual claims experience.
Aetna released the following statement:
“While rate increases are never easy, our rates are based on actuarially sound data and reasonable projection of future cost, which will impact approximately 16,000 customers. Our Medical Loss Ratio is at 86.7%, which is higher than any of the filed rates by our competitors. Medical loss ratio is the percentage of health insurance premiums that insurers use to provide health care to their customers.”
In making its finding, the Department of Insurance noted that the Aetna subsidiary that sells health insurance in California made a 27.7 percent profit in 2011 and paid $1.7 billion in dividends to its parent company.
http://www.ocregister.com/articles/insurance-347932-aetna-health.html
Aetna California rate filing (185 pages):
http://www.insurance.ca.gov/0250-insurers/HlthRateFilings/upload/AetnaHAO0010.pdf
We are inundated with stories about “unreasonable” rate increases by private health insurers, so why should we bother with this one?
Remember that the default benchmark for defining “essential health benefits” to be offered in the state health insurance exchanges will be the small group plan with the largest enrollment in the state. This two year 30.3 percent premium increase is for small employers with Aetna’s PPO health insurance policies. These plans will typify the new national standard for private health insurance exchange plans.
If you believe Aetna, their medical loss ratio (MLR) is 86.7 percent which is well within compliance of the 80 percent MLR requirements for individual and small group plans. Since medical loss ratios are dependent on how much the insurers spend on actual health care, this premium increase should signal what we might expect for small businesses, certainly if the individual mandate is struck down by the Supreme Court and adverse selection continues.
Even if the mandate is upheld and insurers are able to include healthier individuals mixed in with the sick, actual health care costs continue to increase well in excess of the rate of inflation and will still result in “unreasonable” premium increases.
The insurers are correct when they say that health insurance premiums are increasing because health care costs are increasing. But what is especially relevant are the reasons that Aetna gives for our high health care costs and what Aetna is doing to try to control them (obviously not very successfully).
Read pages 43-49 (labeled 1-7, but 43 pages into the filing) of the Aetna California rate filing (link above). You will see that Aetna has absolutely no control over many major factors contributing to health care inflation. You will also see that Aetna is fumbling around with many programs that will have little impact on health care costs, except that they do increase administrative expenses. You will also see that several of their measures smack of the intrusive and choice-limiting insurer behaviors of the managed care revolution.
Instead of sympathizing with Aetna in their ineffectual struggles to control health care spending, we should look at their waste and their intention to sacrifice high system performance on behalf of their own business interests. Foremost we should look at those perverse cost increases over which Aetna pleads they have no control and then imagine the power that our own single payer national health program would have in the same situation.
You really have to read the 7 pages to better understand the power that we would have, though keep in mind that this was written by Aetna in their own defense. Fortunately, you don’t even need to read between the lines to see why we should fire all of the private insurers and put in place our own beneficent single payer monopsony. Then we would have much more control of our own health care destiny.