Under ObamaCare, HHS Orders Private Health Insurance Company to Rescind Premium Rate Increase

By Elizabeth Harrington | November 22, 2011 | 5:58 PM EST

Health and Human Services Secretary Kathleen Sebelius. (CNSNews.com/Penny Starr)

(CNSNews.com) – Under a new component of ObamaCare, Department of Health and Human Services (HHS) Secretary Kathleen Sebelius singled out a Mennonite insurance company for charging an “excessive” premium rate increase and demanded that the firm rescind the rate, in a conference call briefing with reporters on Monday.

During the call, HHS announced that under a new rate review program – as part of the Patient Protection and Affordable Care Act -- a premium increase of 12 percent on small businesses by Evernece Insurance in Pennsylvania was “excessive” and HHS called upon the company to “immediately rescind the rate, issue refunds to consumers or publicly explain their refusal to do so.”

“This is our latest step to take health care out of the hands of insurers and let families and small business owners spend their health dollars more wisely,” Sebelius said on the conference call.

“We hope that by publicizing the excessive premium hikes, we will empower consumers,” she said in an HHS press release.  “By shining a light on unjustified premium increases, we will hold health insurers accountable like never before, and help keep money in the pockets of Americans.”

Sebelius was joined on the call by Steve Larsen, director of the HHS Center for Consumer Information and Insurance Oversight, and Walt Rowen, a small business owner in Pennsylvania. “The days of unchecked and unfair double-digit rate increases are over,” the secretary said.

President Barack Obama. (AP Photo/Charles Dharapak)

“Around this time of the year, it’s been all too common for families and small business owners to open their mailboxes and find a letter from their insurance company saying their premiums are going up 20 or 30 or even 40 percent, often with little or no explanation,” she said.  “This kind of news can really spoil your holidays.”

The 11.58 percent average rate increase at Everence is the first to be subjected to an HHS rate review.  The company’s increase is only 1.5 percent higher than what the department calls the average, at 10 percent.

The rate review component of ObamaCare mandates health insurance companies to “inform the public when they want to increase health insurance rates for individual or small group policies by an average of 10 percent or more.”

Under the program, “insurance experts” in the federal and state governments are currently assessing 114 filings of premium increases to determine if they are “reasonable,” 37 of which are under HHS review, which started its analyses on Sept. 1.

The first “Unreasonable Rate Increase” was deemed for Everence’s ShareNet Employer Plan that affects 2,101 policyholders and 4,846 people, according to HHS.

Everence responded in a news release on Monday stating that, under the company’s calculations, the projected loss ratio, or the percentage of premiums that are used to cover health expense claims, is “comfortably above the federal standard.” The loss ratio essentially is the percentage of money paid out; for example, if an insurance company pays out $50 for every $100 it collects in premiums, its loss ratio is $50, or 50 percent.

In this March 23, 2010 file photo President Barack Obama signs the health care bill in the East Room of the White House in Washington. He is flanked by Marcelas Owens of Seattle, left, and Rep. John Dingell, D-Mich. Behind, from left are, Sen. Tom Harkin, D-Iowa., Senate Majority Whip Richard Durbin of Ill., Vice President Joe Biden, Vicki Kennedy, widow of Sen. Ted Kennedy, Sen. Christopher Dodd, D-Conn., Rep. Sander Levin, D-Mich., Ryan Smith of Turlock, Calif., Health and Human Services Secretary Kathleen Sebelius, House Speaker Nancy Pelosi of Calif., House Majority Leader Steny Hoyer of Md., Senate Majority Leader Harry Reid of Nev., Rep. Patrick Kennedy, D-R.I., House Majority Whip James Clyburn of S.C., and Rep. Henry Waxman, D-Calif. The Supreme Court said Monday it will hear arguments in March over President Barack Obama’s health care overhaul, setting up an election-year showdown over the White House's main domestic policy achievement. (AP Photo/J. Scott Applewhite, File)

“In its review, HHS stated the rate increase was ‘unreasonable’ because it projected the plan’s loss ratio to be below the federal standard of 80 percent,” the Everence release said.  “However, the loss ratio calculated by HHS was based on a one-year experience period.”

The company said that due to the volatility in premium rates, a two-year period represents better accuracy.

“As a small insurer with years of experience rating small groups, Everence does not use the one-year measure of claims experience to set rates. The one-year basis often results in wider swings in rate changes under the ShareNet plan,” the release said.  “For instance, for the past three calendar years, actual loss ratios have varied by over 25%, with one year being nearly 100 percent.”

“The loss ratio history for the Everence plan in Pennsylvania has been 81.6 percent over the two-year experience period used for rating, which is approximately equivalent to the national loss ratio of the Everence ShareNet plan,” according to the company.

“Essentially, our national experience and Pennsylvania state experience are the same for the two-year experience period,” said Dave Gautsche, Everence senior vice president of products and services.

“We’d welcome the opportunity to have a conversation with HHS officials about how we determine our rates,” said Gautsche.

According to Everence, “the ShareNet premiums in Pennsylvania will have an average rate increase of 12.6 percent for groups renewing their plans Oct. 1, 2011, and gradually moves down to an average rate increase of 11 percent by July 1, 2012.”

Everence is a ministry of the Mennonite Church USA and other churches.  The company touts the tagline, “Integrating finances with faith.”

“Everence offers a broad spectrum of financial services to people and groups who desire to integrate faith and values into their financial decisions,” according to its Web site.

Monday marked the first time Everence heard directly from HHS regarding the review, after receiving a letter from the department.  The company had only previously heard about the process indirectly.

(AP Photo.)

“Since this is the first time for this kind of review, we did not know if we were going to discuss it with HHS before a final determination was made or how that final decision was going to be made,” said Judy Martin Godshalk, public relations manager at Everence Financial.

“We hope we can discuss it with HHS,” she said.

HHS said it found Everence to be excessive because the company based its rate increase on national data rather than data for Pennsylvania.

“We have called on this insurer to immediately rescind the rate, issue refunds to consumers or publicly explain their refusal to do so,” said Larsen in the HHS press release entitled, “Health insurer charging unreasonable rate increases,” in reference to Everence.

If Everence does not withdraw the increase or publicly post a justification on its website within 10 days, the company will be in violation of federal law.

The HHS argues that rate review will protect the consumer. “Transparency and competition is being injected into a marketplace that is very often opaque to consumers,” said Larsen.

The HHS Web site will track the rate increases online to “help consumers make decisions about what coverage to purchase in the future,” Sebelius said.

“This historic transparency will bring real competition into an industry that for decades has operated in the dark,” she said.  “By shining a light on insurers, it is our hope they’ll think twice and check their math before submitting large rate hikes.”

During the briefing, Sebelius announced, “Today’s determination is the first of many that we’ll be issuing in the coming months and years.”

The Affordable Care Act will provide $250 million to states to conduct health insurance premium rate reviews.

CNSNews.com previously reported that health insurance premiums jumped by 9 percent since the passing of the Affordable Care Act, up from a 5 percent annual increase since 2007, according to a survey by the Kaiser Family Foundation.