THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Official who decried insurer rate caps feared for Fallon

By Robert Weisman
Globe Staff / June 30, 2010

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A high-ranking regulator who in April criticized the state’s cap on health insurance premiums was concerned about the financial health of Fallon Community Health Plan, a document released yesterday said.

The document, filed in connection with Fallon’s appeal of a Division of Insurance ruling freezing its rates at 2009 levels, said Deputy Insurance Commissioner Robert Dynan knew Fallon had sustained significant losses on plans covering individuals and small businesses.

Dynan, who is director of the insurance division’s financial surveillance department — which is responsible for monitoring the solvency of insurers — was thrust into the spotlight early this month when the division released internal e-mails in which he complained the rate caps have “no actuarial support’’ and could lead to “a train wreck.’’ Dynan was not involved in the division’s decision to reject proposed premiums.

But according to the document released yesterday, he recognized that Worcester-based Fallon needed to contribute more to its surplus while it increased a key measure of financial security called a risk-based capital level.

Fallon’s risk-based capital ratio fell to 271 at the end of 2009, from 566 two years earlier. If it drops below 200, insurers are required by regulators to submit a plan for improving their finances.

“Based on [Fallon’s] financial circumstances, Mr. Dynan was concerned about limiting [Fallon’s] small group insurance rate increases to 7.7 percent,’’ the document said, referring to the limit officials wanted insurers to set.

A Fallon spokeswoman, Christine Cassidy, acknowledged the document yesterday and said the insurer is making the adjustments needed to strengthen its finances. She conceded that Fallon, like other insurers, underestimated the costs of serving individuals and small businesses, market segments that were merged under state health reform. Because the market represents a greater share of business for Fallon than it does for other insurers, losses in the segment have been especially significant, Cassidy said.

Referring to the document, she said, “The information stands on its own. At this point, we are looking forward to closing the [appeal], seeing where we stand, and moving forward from there.’’

The document, called a “stipulation,’’ was agreed upon by Fallon and the insurance division. Fallon lawyers initially sought to cross-examine Dynan in a closed session as part of its administrative appeal, while the insurance division’s health care access bureau, which is defending the rate cap, sought to limit the scope of his testimony.

After an appeals panel consisting of three insurance division lawyers ruled Dynan must testify in public without limits on what questions were asked, the parties agreed to the stipulation rather than calling him to testify yesterday. It noted that Dynan’s analysis of Fallon’s situation and his opposition to the rate cap constituted his “personal opinion’’ and didn’t necessarily reflect the division’s views.

Fallon’s financial health has been a sensitive subject among regulators. All of the state’s major health insurers posted first-quarter losses, blaming the state’s rate cap, but Fallon was the only one that didn’t claim a special charge by drawing from its reserve.

Insurance Commissioner Joseph G. Murphy, who rejected rate hikes proposed by Fallon and others in April, issued a statement yesterday that did not specifically address Fallon’s finances. “We are constantly reviewing the condition of all insurers’ finances to ensure that companies meet their obligations to Massachusetts consumers,’’ it said.

Fallon and other health insurers challenging the rate cap through administrative appeals were given reason for hope last week when the insurance division’s appeals panel overturned the rate increase denial for Harvard Pilgrim Health Care. Decisions on the appeals of Fallon and other carriers are expected some time this summer.

Robert Weisman can be reached at weisman@globe.com.