By: Kamal Menghrajani
If you were a California business making nearly 28 percent profit, would you change your business strategy if someone asked you nicely?
Probably not.
In a nutshell, that’s what’s going on between California’s Department of Insurance and the health care insurer Aetna.
The Department of Insurance has many jobs, one of which is to make sure that rates stay reasonable by regulating what insurance companies can charge consumers ... with one exception.
According to Insurance Commissioner Dave Jones, “I have that authority for auto insurance, for homeowners’ insurance, for property insurance, for casualty insurance -- basically for almost all other insurance lines, except health insurance and HMO products.”
Jones doesn't like it. “It's quite a loophole, and it's a loophole through which health insurers and HMOs have been driving ever-increasing rate hikes –- 10-20-30-40 -- sometimes as much as 80 percent annual rate increases.”
This time around, Aetna increased their PPO rates by 1.8 percent for the quarter that began April 1st. This seems like a modest hike, but it brings up the total rate hike in the last year to 8 percent, and it means that small businesses are paying 30.3 percent more for health insurance than they were two years ago.
Since the Commissioner cannot force Aetna to offer more reasonable rates, he can only ask.
And this time, Aetna declined.
“This is the first time that a health insurer has disregarded our request that it lower its rate increase,” said Jones. Both sides did extensive studies to look at the projected increases in Aetna’s cost of providing care. Aetna did an internal analysis and had a third-party actuary confirm and certify their projections. The Department of Insurance did their own actuarial study, based on the company’s claims history. But, the Department said the increase did not seem warranted and labeled it “unreasonable."
Add this to the Commissioner’s report that Aetna made 27.7 percent profit last year and generated $1.7 billion for their national parent company, and it’s easy to understand why Jones doesn’t think Aetna needs to be asking more of its California subscribers.
“No other industry is making the kind of record profits, except the oil industry, that the health insurers and HMOs are making. And they're making those excessive profits at the expense of ordinary Californians, California's families, and California's businesses,” said Jones.
Aetna Director of Communications Susan Millerick says that the company is using that $1.7 billion to improve the services they provide.
“The dividend to the parent is re-invested in the business,” she said. She gave some examples of where the money might go: faster claim processing time, investments in new technology, consumer tools – things that will ideally make healthcare more affordable.
But if they are making health care less expensive, how can they justify charging more for it?
“You have to make the investment and you have to encourage consumers to use [tools to make better health care decisions],” she said. “Until consumers really embrace their roles ... and realize that they can make informed choices, you’re not going to see the cost curve bend.”
For now, Commissioner Jones says there is nothing he can do about the current increases. “The health insurers and HMOs can raise the rates as high as they would like. And they do,” he said.