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E-mails reveal rift over insurance caps

Industry seizes on disagreements of state regulators

By Robert Weisman
Globe Staff / June 9, 2010

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The official in charge of monitoring insurer solvency at the state Division of Insurance sent an internal e-mail this spring warning that the rates the division imposed on health plans “have no actuarial support’’ and could lead to “a train wreck’’ in the industry.

Shortly after the division rejected proposed double-digit rate increases for small businesses and individuals, Robert G. Dynan, the division’s deputy commissioner for financial analysis, wrote to members of his staff on April 6 that “our jobs of monitoring solvency just got exponentially more difficult’’ as a result of “artificial price caps.’’

Dynan also complained that “this action was taken against my objections and without including me in the conversation.’’

After he was chided in an April 30 e-mail from Insurance Commissioner Joseph G. Murphy for making statements that were “unprofessional and counterproductive,’’ Dynan backtracked. Last Friday, he sent Murphy a letter apologizing for “the selection of words I used to express my private opinion’’ about the rate disapprovals.

The internal exchange, made public by insurance regulators late yesterday after the Associated Press requested the disclosure, came as six health insurance carriers in Massachusetts were challenging the rate caps in Suffolk Superior Court and in administrative hearings at the Insurance Division.

The caps were applauded by Governor Deval Patrick, who filed emergency regulations in February requiring insurers to submit proposed rates 30 days in advance for an intensified review.

Dynan was out of the office yesterday and could not be reached, a colleague said. Phone calls to his home were not returned last night. Insurance Division officials said he continues to work at the agency, heading up its financial surveillance unit. The unit monitors the financial health of carriers selling health insurance.

Murphy said the insurance commissioner has the responsibility to disapprove rates that are excessive or unreasonable. He said Dynan’s unit has never been involved in approving premium rates and would not be consulted in that process. Murphy also said health insurers themselves have agreed their solvency would not be threatened in the near term by state denial of their proposed rates.

“We are monitoring the situation extremely closely,’’ Murphy said. “Financial solvency is the bedrock of state insurance regulation. By their own projections, none of the insurers said they would be insolvent this year if their rates weren’t approved.’’

Insurance industry officials, however, were quick to seize on the sniping as evidence regulators were on shaky actuarial ground when they turned down 235 rate requests that would have taken effect April 1. The insurance carriers were required to continue billing small business and individual customers at rates from a year earlier.

The division’s internal rift “is very serious and should not be taken lightly,’’ said Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group representing most of the state’s heath insurers. Pellegrini said the Patrick administration’s rate caps are forcing carriers to lose money on their policies. The four major Massachusetts health insurers posted first-quarter losses totaling more than $150 million, blaming the bulk of the losses on the rate cap.

“These concerns raised by the deputy commissioner are very much the same kinds of concerns the health plans raised,’’ she said.

Dynan followed up the April 6 e-mail to his staff with a longer e-mail to Murphy on April 30 suggesting state officials should make an effort to settle the lawsuit filed by the insurers.

“There is the potential for catastrophic consequences to our non-profit health care industry if they are not allowed to charge actuarially sound rates,’’ he wrote. He also warned the rate cap could jeopardize the financial conditions of hospitals if they weren’t able to collect on bills sent to insurers.

Murphy responded with an e-mail that took issue with Dynan’s characterization of an “artificial price cap,’’ saying the division’s staff “completed a thorough and vigorous review’’ of data submitted by the insurers before denying the rate increases. “Negative and conclusory statements about the effect of the division’s actions on insurers and the market are unprofessional and counterproductive,’’ Murphy wrote.

In his apology last week, Dynan acknowledged his financial surveillance unit “does not and never has participated in rate filings, their approval or disapproval. I regret that the wording of my ill-considered e-mail could be misinterpreted to suggest that I or the unit did or should play such a role.’’

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