Insurer rate cap overturned in MA

[Greenbeard]

Last Thursday, a new development in the friction between state government, health insurers, and providers took place in Massachusetts.

Rate cap for insurer overturned:

In a blow to the Patrick administration, an insurance appeals board yesterday overturned the state’s cap on health premium increases for small business and individual customers covered by Harvard Pilgrim Health Care.

The three-member administrative panel — which consists of attorneys who work for the state Division of Insurance — found that rate increases Harvard Pilgrim initially sought in April are reasonable given what it must pay to hospitals and doctors.

That ruling trumped the Insurance Division’s earlier finding that the requested increases were excessive, a view that reflects Governor Deval Patrick’s campaign to curb health costs.

Nearly 30 states require that a state insurance official approve health insurance premium hikes and about a dozen other states require insurers to file proposed rate increases with the state in advance of the change. In recent months, controversy has arisen in multiple states over insurer requests and state government responses: in Maine a reduced increase in Anthem Blue Cross Blue Shield's rates allowed by state regulators was upheld by state courts in April; in California, Anthem backed off a proposed 39% rate increase after admitting "errors" in its calculations showing their necessity; Connecticut allowed Anthem Blue Cross Blue Shield to raise rates to a lower level than they requested (as in Maine) last year; and so on.

The Massachusetts saga has been interesting because after regulators rejected certain premium hikes, insurers in the state briefly stopped issuing new policies. But last week's decision gets right at the issue:

“The decision shows what we have been saying all along,’’ said Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group based in Boston. “The denial of carrier rates was inappropriate.’’

Instead of trying to cap rates, Pellegrini said, lawmakers should pass legislation limiting the ability of health providers to charge ever-escalating prices.

The issue namely being that providers are using market clout to drive up reimbursement rates from insurers, something suggested a few months ago in a report from the Massachusetts Attorney General's office:

Massachusetts insurance companies pay some hospitals and doctors twice as much money as others for essentially the same patient care, according to a preliminary report by Attorney General Martha Coakley. It points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

The yearlong investigation, set to be released today, found no evidence that the higher pay was a reward for better quality work or for treating sicker patients. In fact, eight of the 10 best-paid hospitals in one insurer’s network were community hospitals, which tend to have less complicated cases than teaching hospitals and do not bear the extra cost of training future physicians.

Coakley’s staff found that payments were most closely tied to market leverage, with the largest hospitals and physician groups, those with brand-name recognition, and those that are geographically isolated able to demand the most money.

The same suggestion was brought up in a Health Affairs paper about the California market few months ago. Not too long after that came out, the Sacramento Bee published an investigation showing that California hospitals are raking in a lot more than it costs them to treat patients:

Between September 2008 and October 2009, California hospitals charged health insurers an average of 53% more than the amount they reported that it cost them to provide services to insured patients, according to a Sacramento Bee investigation.

It'll be interesting to see Massachusetts' next move.