Health insurers sue Mass. on rate denial
April 5, 2010 06:59 PM
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half dozen state health insurers, warning they faced collective losses
of hundreds of millions of dollars this year, today filed a lawsuit
seeking to reverse last week's decision by the Massachusetts insurance
commissioner to block double-digit premium increases.
The hikes would have taken effect April 1 for plans covering thousands of small businesses and individuals across the state. Insurers had proposed base rate increases averaging 8 to 32 percent. Rates for many businesses or families could have been higher, depending on factors ranging from their location to the age of their workforce.
Today's suit sets the stage for a showdown between state regulators and the health insurance industry. Governor Deval Patrick has made reining in runaway health care costs a centerpiece of his administration -- and his campaign for reelection -- contending they are stifling the capacity of small businesses to create jobs. At the same time, health insurers argue that government is forcing them to sell policies at a loss that is unsustainable as the cost of medical services climbs.
Insurance carriers will go before a judge Thursday in state Superior Court in Boston asking for a preliminary injunction against Insurance Commissioner Joseph G. Murphy's decision to reject 235 of 274 premium increases proposed by the insurers. Those rulings follow emergency regulations Patrick set requiring rates be submitted 30 days in advance for review by regulators, marking the first time the state has used its authority to deny health plan increases.
"What the commissioner did, we think, is going to create tremendous disruption in the marketplace," said Dean Richlin, a partner at Boston law firm Foley Hoag, who represents insurers.
Barbara Anthony, undersecretary of the state Office of Consumer Affairs and Business Regulation, which oversees insurance regulators, strongly defended Murphy's rulings and said the insurers' suit lacked merit. She said state law gives the commissioner the right to reject rates that are excessive compared to the benefits provided. "He's on firm legal ground in disapproving the rates," Anthony said.
Filing the suit were Blue Cross and Blue Shield of Massachusetts, the state's largest health insurer, as well as the five commercial members of the Massachusetts Association of Health Plans: Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Health New England, and Neighborhood Health Plan. All are nonprofit carriers.
Their complaint alleges that the state Division of Insurance acted illegally in three ways: by imposing a "rate cap" it had no authority to impose, by attempting to peg rates to a measure -- the medical consumer price index -- that does not predict future costs, and by violating a statutory requirement to enable insurers to charge adequate rates based on their projected costs in covering medical care.
"As a result of the commissioner's action," Richlin said, "the insurance companies will experience substantial and, in some cases, staggering losses. We estimate the collective loss among all of the insurers will run into the hundreds of millions of dollars just for 2010. There are some number that will face near-term solvency problems."
Three of the largest state health insurers -- Blue Cross Blue Shield, Tufts Health Plan, and Fallon Community Health Plan -- posted operating losses for 2009.
Anthony, at the Office of Consumer Affairs and Business Regulations, said the insurers' contentions were "specious" and revealed an industry out of touch with economic pressures others face.
"This is an outrageous response from an industry that claimed to be concerned about alleviating these escalating health care costs," Anthony said. "I think it's clear that the insurance companies are in love with the status quo where they get to continue to charge double-digit premium increases on small businesses and families."
While the suit predicts the plaintiffs "will suffer collective losses that threaten to amount to well over $100 million," the actual impact will depend on a number of factors such as the strength of their reserves and their ability to negotiate more favorable contracts with hospitals and physician groups. Some insurers already have been rebuffed in their efforts to renegotiate long-term contracts with such health care providers, according to insurance industry leaders.
"We're particularly distressed that this does nothing to contain the underlying hospital costs and doctor costs and drug costs," said James Roosevelt Jr., chief executive of Tufts Health Plan.
The hikes would have taken effect April 1 for plans covering thousands of small businesses and individuals across the state. Insurers had proposed base rate increases averaging 8 to 32 percent. Rates for many businesses or families could have been higher, depending on factors ranging from their location to the age of their workforce.
Today's suit sets the stage for a showdown between state regulators and the health insurance industry. Governor Deval Patrick has made reining in runaway health care costs a centerpiece of his administration -- and his campaign for reelection -- contending they are stifling the capacity of small businesses to create jobs. At the same time, health insurers argue that government is forcing them to sell policies at a loss that is unsustainable as the cost of medical services climbs.
Insurance carriers will go before a judge Thursday in state Superior Court in Boston asking for a preliminary injunction against Insurance Commissioner Joseph G. Murphy's decision to reject 235 of 274 premium increases proposed by the insurers. Those rulings follow emergency regulations Patrick set requiring rates be submitted 30 days in advance for review by regulators, marking the first time the state has used its authority to deny health plan increases.
"What the commissioner did, we think, is going to create tremendous disruption in the marketplace," said Dean Richlin, a partner at Boston law firm Foley Hoag, who represents insurers.
Barbara Anthony, undersecretary of the state Office of Consumer Affairs and Business Regulation, which oversees insurance regulators, strongly defended Murphy's rulings and said the insurers' suit lacked merit. She said state law gives the commissioner the right to reject rates that are excessive compared to the benefits provided. "He's on firm legal ground in disapproving the rates," Anthony said.
Filing the suit were Blue Cross and Blue Shield of Massachusetts, the state's largest health insurer, as well as the five commercial members of the Massachusetts Association of Health Plans: Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Health New England, and Neighborhood Health Plan. All are nonprofit carriers.
Their complaint alleges that the state Division of Insurance acted illegally in three ways: by imposing a "rate cap" it had no authority to impose, by attempting to peg rates to a measure -- the medical consumer price index -- that does not predict future costs, and by violating a statutory requirement to enable insurers to charge adequate rates based on their projected costs in covering medical care.
"As a result of the commissioner's action," Richlin said, "the insurance companies will experience substantial and, in some cases, staggering losses. We estimate the collective loss among all of the insurers will run into the hundreds of millions of dollars just for 2010. There are some number that will face near-term solvency problems."
Three of the largest state health insurers -- Blue Cross Blue Shield, Tufts Health Plan, and Fallon Community Health Plan -- posted operating losses for 2009.
Anthony, at the Office of Consumer Affairs and Business Regulations, said the insurers' contentions were "specious" and revealed an industry out of touch with economic pressures others face.
"This is an outrageous response from an industry that claimed to be concerned about alleviating these escalating health care costs," Anthony said. "I think it's clear that the insurance companies are in love with the status quo where they get to continue to charge double-digit premium increases on small businesses and families."
While the suit predicts the plaintiffs "will suffer collective losses that threaten to amount to well over $100 million," the actual impact will depend on a number of factors such as the strength of their reserves and their ability to negotiate more favorable contracts with hospitals and physician groups. Some insurers already have been rebuffed in their efforts to renegotiate long-term contracts with such health care providers, according to insurance industry leaders.
"We're particularly distressed that this does nothing to contain the underlying hospital costs and doctor costs and drug costs," said James Roosevelt Jr., chief executive of Tufts Health Plan.
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