California Regulator Criticizes Aetna Rate Increase As ‘Unreasonable’

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A California insurance regulator ruled that an Aetna Inc. health-insurance rate increase was “unreasonable,” in the latest salvo of a long-running debate in the state over the cost of coverage.

The announcement by California Insurance Commissioner Dave Jones focused on a boost that affects small-group plans and became effective April 1. It was the first time the department has officially used a new ability, granted under a state law that took effect at the beginning of 2011, to call out rates as unreasonable.

But the regulator has been jawboning carriers over their rate filings, and he said in all previous cases insurers have agreed to modify their rate hike proposals before they were formally declared unreasonable. Most recently, the department said that WellPoint Inc.’s Anthem Blue Cross and Blue Shield of California both agreed to make changes to rate filings for the individual market.

Mr. Jones is supporting an effort, pushed by a group called Consumer Watchdog, to qualify an initiative for the California ballot that would give regulators the ability to reject health-insurance rate increases. A bill that would do the same, also supported by Mr. Jones, has so far failed to pass the state legislature. Health-insurance rates in California drew national attention in 2010, when the Obama administration took aim at WellPoint over the issue.

In the case of the new Aetna increase, the premium boost amounted to 1.8% on average for the second quarter of 2012 for small-employer PPO plans. Mr. Jones said that meant the carrier had gotten an average increase of 8% over last 12 months, and a total average increase of 30% over 24 months. The department said the increase will ultimately affect around 73,000 people, which it said was the number covered by Aetna’s small-group PPO plans in California.

Mr. Jones told the Health Blog that Aetna “was relying on projections of medical cost that our actuaries determined were not supported by the company’s own claims experience.”

In a statement, Aetna said its rates are “based on actuarially sound data and reasonable projection of future cost,” and its projections were certified by an independent actuarial firm. Aetna said it was projecting that it would spend a higher percentage of premiums on health-related costs – 86.7% — than others. An insurance department official said the regulator didn’t believe that projected percentage was supported by the claims data provided in Aetna’s filings.  An Aetna spokeswoman said the company stands by its numbers.

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