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Commonwealth Fund Study Shows CA Health Insurers Increased Profits In Individual Market Despite New Medical Loss Ratio Requirements

Commonwealth Fund Study Shows CA Health Insurers Increased Profits In Individual Market Despite New Medical Loss Ratio Requirements

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By: California Department of Insurance

SACRAMENTO December 6, 2012 - Commissioner Dave Jones pointed to a new study released by the Commonwealth Fund to demonstrate the benefits and shortcomings of the Medical Loss Ratio (MLR) law in states without the authority to prevent excessive health insurance premium increases.

The Commonwealth Fund study shows that in California's individual market, health insurers lowered their administrative costs by an average of $14 per member in 2011, but increased their profits by $88 per member during the same time. This resulted in an average increase in overhead costs per insured (in the individual market) of $74.

"The goal of the medical loss ratio requirement is to make sure more of the money we pay in health insurance premiums goes to actual medical care, but it does not limit the price that health insurers and HMOs can charge and thus does not limit their profits or administrative costs," said Insurance Commissioner Jones. "Some families and businesses received health insurance premium rebates this past summer because insurers failed to meet the medical loss ratio, but this study indicates that at the same time some insurers increased their profits. I have long pushed for the authority to reject excessive health insurance rate increases and this study provides further evidence of why this change in the law is long overdue in California. Health insurers and HMOs continue to impose double-digit premium increases each year and are making larger profits when selling to individuals and families even during these tough economic times."

In July, 2012, the California Department of Insurance (CDI) announced that by August 1, 2012, approximately 1.9 million Californians would receive a health insurance premium rebate, as a result of the provisions in the Affordable Care Act. These rebates totaled $73.9 million, with an average rebate of $65 per family. However, the Commonwealth Fund study indicates that California health insurers increased their profits in the individual market at the same time. In the group market, the study indicates that insurers decreased profits, but increased administrative costs in California. At the direction of Insurance Commissioner Jones, the Department of Insurance is in the process of auditing the major health insurers in California to verify compliance with the state and federal Medical Loss Ratio laws. The audit is to ensure the accuracy of the data used by each carrier to calculate MLR rebates to consumers. Once the audits are completed the Department will be able to announce whether any consumers are owed additional rebates from 2011.

"In California, my department will continue oversight of the MLR rebates by health insurers to make sure policyholders are receiving the appropriate health insurance premium rebate," Commissioner Jones added. "However, policyholders still lack adequate consumer protection from steep rate hikes, because I do not have the authority to reject excessive rate increases."

Commissioner Jones has tried to pass legislation to authorize the Insurance Commissioner to reject excessive health insurance rate hikes for the past six years. He authored such legislation when he served in the State Assembly and as Commissioner has sponsored such legislation. Though the State Assembly has passed the legislation repeatedly, it has died in the State Senate each year as a result of health insurer and HMO lobbying. A ballot initiative has qualified for the 2014 ballot to give the Insurance Commissioner the authority to prevent excessive health insurance and HMO premiums.

Rebate breakdown by health insurers regulated by CDI:

- Blue Shield of California Life & Health Insurance Company: $10.8 million rebate to policyholders in the individual market; approximately 239,595 subscribers impacted; $45.15 average rebate per subscriber;

- Kaiser Permanente Insurance Company: $277,034 rebate to policyholders in the individual market; approximately 21,823 subscribers impacted; $12.69 average rebate per subscriber;

- Connecticut General Life Insurance Company (CIGNA):$3.4 million rebate to employers in the large group market; approximately 89,575 subscribers impacted; $37.70 average rebate per subscriber;

- Anthem Blue Cross Life and Health Insurance Company: $1.3 million rebate to policyholders in the individual market; approximately 407,429 subscribers impacted; $3.16 average rebate per subscriber;

- Aetna Life Insurance Company: $3.4 million rebate to employers in the large group market; approximately 84,428 subscribers impacted; $40.50 average rebate per subscriber;

- PacifiCare Life and Health Insurance Company: $789,615 rebate to employers in the large group market; approximately 63,600 subscribers impacted; $12.42 average rebate per subscriber.

 

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