For the third time in three years, the Maine Supreme Court rejected an appeal by Anthem Blue Cross to a rate increase decision by then-state insurance superintendent Mila Kofman. Kofman found a proposed 9.2% rate hike by Anthem was excessive. She limited the increase to 5.2%, in part by reducing the company's profit margin in light of the company's financial strength, and the impact of the proposed increase on the insurance market and policyholders. Anthem challenged the decision, arguing the superintendent had no power to adjust profits under the state's prior approval rate regulation law. The Supreme Court found in Maine's favor.
Maine's rate regulation law (until last summer at least) prohibits excessive or unfairly discriminatory rate increases. 34 states in addition to Maine have similar authority to prevent excessive health insurance rate hikes. California has no such authority.
That can change in California, if enough voters download, print and sign the official ballot petition at www.JustifyRates.org. That initiative will require California health insurers to publicly justify and get rate increases approved before they take effect.
Any time regulators or consumer advocates suggest that rate regulation is crucial to holding down insurance prices, the insurance industry cries wolf and calls regulation "price fixing" or says it unconstitutionally deprives insurers of a "fair return." (See Kaiser Health News' Capsules blog for more on that claim in Maine.) Insurance companies made the same arguments when they challenged California's landmark insurance reform law, Proposition 103, which regulated auto and other property insurance. The insurance industry has consistently lost the fight – California's Supreme Court rejected the argument in 1989 and Maine's Supreme Court rejected it again today.
The Maine case confirms that effective insurance regulators can consider every aspect of a company's finances, from investment returns to the size of a company's surplus, and use those factors to decide if rates are reasonable. Sometimes that will mean telling a health insurance company it's got so much money in the bank that it should scuttle a rate hike entirely. That's the protection California consumers are missing, and that the ballot initiative circulating at http://www.JustifyRates.org will enact.