No more excuses! Distinguishing “need” from “desire” when insurers want to raise rates

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By Dena Mendelsohn on Tuesday, May 27th, 2014

(This is the 3rd in series of blog posts on health insurance rate review)

As we explained in our earlier blog posts, health insurance companies are starting to submit to state and federal officials information on what health insurance policies they plan to offer and at what price. It’s a fact of life that costs are constantly increasing and nowhere is that truer than in the health care sector. However, how much they go up each year is open for debate and a central factor in how insurance companies set their rates.

This summer, experts at consumer advocacy organizations like Consumers Union will take a deep dive into the justifications health insurers use to set their base rates, the building block for health insurance premiums. The hard work is in separating valid needs for price increases from indefensible excuses. Not everything about 2015 will be more expensive for health insurers than years past, and the cost to health insurers is not as certain as they may want us to believe.

First, Obamacare reduced insurers’ expenses by effectively providing several months of taxpayer funded marketing through ads and outreach asking people to get signed up for coverage. Increased enrollments will likely be magnified in 2015, when enrollment technology will be easier for consumers to use, the penalty for failure to buy insurance will be larger, and more people are aware of their health insurance options. In addition, the job of selling health insurance is now much less complicated. New rules prohibit insurers from digging through your healthcare history to try to determine what price to charge you or whether to offer coverage at all.

Second, it is not at all clear that the cost of medical care for consumers will increase at the same rate as previous years (or greater). Insurers will calculate their rates for next year based in part on predictions of the increase in cost of medical care combined with the increase in use of medical care. This concept, known as medical trend, is explored more fully in a later blog post in this series. In the meantime, consumers should approach insurer claims of increased costs with skepticism.

Third, insurers have been operating under a set of programs known as “the Three Rs” to help insurers mitigate the risk of all the new changes in the health insurance market. Check out our soon to come blog installment for more on the Three Rs. For now, just remember that several safeguards put in place to protect insurers against many of the challenges they often mention.

In considering insurers rate requests, there are a number of documents to look at to see whether insurers really need more revenue. Financial statements may be obtained from state insurance departments or from the NAIC’s website for a small fee. State agencies also may have a supplemental report on executive compensation. For-profit companies’ financial filings are available on the Securities and Exchange Commission (SEC) website or on company websites. Consolidated statements show the financials for all affiliates in an insurance company. Finally, and perhaps most simple, news reports are helpful in gathering financial information, such as this press release and this news report.

Not all premium increases are unreasonable; health insurers must pursue premiums that will keep them financially solvent. Consumers should demand that premiums reflect the cost of paying for actual medical care along with necessary and reasonable administrative costs and modest profits (for for-profit insurers). Insurers that under-price their policies risk insolvency, which in most cases isn’t good for anybody.

Keep your eyes on this blog. May is the start of the rate review cycle and we will post a series of blogs helping consumers navigate their way through the process. For more details in the meantime, check out Consumers Union’s rate review site and click here to join our movement and receive periodic updates and communications from Consumers Union Advocacy on this and other topics of interest to consumers like you.

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