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Insurance industry on edge

Ruling on rate cap complicates pending requests for increase

By Robert Weisman and Todd Wallack
Globe Staff / June 26, 2010

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An appeals panel decision to overturn the Patrick administration’s cap on Harvard Pilgrim Health Care premiums for small businesses and individuals has created more uncertainty for regulators, health insurers, and their customers as state officials prepare to rule next week on another round of proposed premium hikes.

The three-month dispute has pitted insurers who insist the cap is forcing them to lose tens of millions of dollars against state government leaders who contend soaring rates are crippling small companies and working families. It is also intensifying pressure on both insurers and state officials to rein in the rising costs of doctors visits and hospital procedures charged by Massachusetts health care providers.

Regulators say they won’t back off from continuing to challenge rate hikes they consider excessive. But as part of a stepped-up review of rate requests, they now will take a closer look at what insurers pay different providers, Barbara Anthony, state undersecretary of consumer affairs and business regulation, said yesterday. One question they will ask, she said, is “Why are carriers paying one hospital $500 and another hospital $1,500 for an MRI?’’

Insurance broker Mark S. Gaunya, co-owner of Borislow Insurance Agency in Methuen and president of the Massachusetts Association of Health Underwriters, said he anticipates having “longer conversations’’ with customers about the implications of the changing state decisions. “I don’t want to yo-yo my clients, jerk them around,’’ Gaunya said. “All of this has been very disruptive to my clients.’’

Customers of Harvard Pilgrim, meanwhile, were bracing for the possibility that the Wellesley-based insurer could impose a rate increase retroactive to April 1 after Thursday’s appeals panel decision. Harvard Pilgrim officials said they have yet to decide whether to assess the extra costs.

“If I told you that I may cut your salary, would you be concerned?’’ said Albert Correia, vice president of operations for Cambridge Biomedical Inc., a Boston laboratory testing company with 30 employees that buys insurance for employees from Harvard Pilgrim. “I look at my insurance bill and I have to be prepared that I am going to be hit with another bill. You should be worried.’’

Insurance Commissioner Joseph G. Murphy is scheduled to determine by July 1 whether to approve rate increases — most of them double-digit — requested by Harvard Pilgrim, Blue Cross Blue Shield of Massachusetts, Fallon Community Health Plan, and smaller carriers on insurance plans up for renewal in the three months ending Sept. 30.

Murphy said yesterday that he remains committed to the enhanced rate review set forth in emergency regulations Governor Deval Patrick instituted in February as a way to control rising health care costs.

But Murphy’s mission is complicated by Thursday’s move by an independent administrative panel at the state Division of Insurance to invalidate his April 1 denial of Harvard Pilgrim’s premium rate hikes for the current three-month period. Murphy said he “strongly disagreed’’ with the panel’s decision. But some of the insurance companies’ justifications for the next round of proposed increases are identical to those the appeals panel upheld for Harvard Pilgrim.

“Nothing materially changed in our submission,’’ said Sharon Torgerson, Harvard Pilgrim spokeswoman, referring to the insurer’s rate requests for the upcoming July-through-September period. “Therefore, we see no actuarial basis to deny these rates.’’

Industry officials, especially from other insurers in the process of pressing their own appeals, are waiting to see whether Murphy sees it the same way.

“How the commissioner integrates this decision into his ruling is a huge question,’’ said Dean Richlin, a partner at the Boston law firm Foley Hoag who is representing five Massachusetts health insurers, including Harvard Pilgrim, in a lawsuit against the rate cap.

Amie Breton, spokeswoman for the state attorney general’s office, said her office might contest the appeals panel decision in Suffolk Superior Court. “We have 30 days to appeal,’’ Breton said.

The decision by the appeals panel of three department lawyers — Susan L. Donegan, Jean F. Farrington, and Stephen M. Sumner — highlighted a widening rift in the Division of Insurance over the rate caps. The dissension first came to light earlier this month when the division released e-mails from Robert G. Dynan, deputy commissioner for financial analysis, who warned rate caps could lead to a “train wreck’’ in the insurance industry. The division is responsible both for approving rate increases and for ensuring the financial health of state health insurance carriers, goals that can sometimes be at cross purposes.

While the three lawyers on the appeals panel technically work for Murphy, they are deputized as independent authorities when they preside at appeals hearings. In the case of the insurers’ appeal, Murphy designated Donegan as the ultimate arbiter when the companies sued the division and a superior court judge ruled they must exhaust administrative appeals before going to court. All three are protected from retaliation by their union membership.

Their decision restored 25 of 235 rate hikes Murphy rejected in April. Rulings on challenges to increases denied to other insurers aren’t expected until July or August. But, Anthony promised, premium rates “will continue to be disapproved if they’re found unreasonable or excessive. We’re not going away.’’

Lora Pellegrini, president of the Massachusetts Association of Health Plans, said it was time for state officials to turn their attention to solving the underlying problem of escalating health care costs rather than making it difficult for insurers to run their businesses. “This has been a failed policy,’’ she said. “I think the administration is at war with itself.’’

For small businesses burdened by ever-rising health premiums, the administrative panel’s decision offered no relief.

“The rate increases leave us floored every year,’’ said Ken Brier, a partner at Brier & Guerden, a five-employee Needham law firm. “You can’t believe it keeps going up 25 percent year after year.’’

Robert Weisman can be reached at weisman@globe.com; Todd Wallack at twallack@globe.com.