Controversial Anthem rate request rejected as excessive

Acting Insurance Commissioner Barbara C. Spear has rejected Anthem Blue Cross and Blue Shield’s request to raise premiums by 19.9 percent for individual health insurance policies, agreeing with a hearing officer’s conclusion that the requested rate hike was excessive.

The ruling, released Friday, follows a contentious public hearing last month that drew criticism of both the insurer and the insurance department, which critics said did not properly scrutinize rate hikes.

In a proposed decision, which Spear adopted, hearing officer Mark R. Franklin wrote that it would be reasonable and actuarially sound to leave the rates unchanged for 2011.

The proposed rate increase would have affected the policies of an estimated 48,000 state residents, and would have taken effect Jan. 1. The plans are considered “grandfathered,” meaning that several new provisions of the health reform law will not affect them.

Anthem spokeswoman Sarah Yeager said the company is reviewing the ruling.

“As we review the Order, it is important to note that we understand and share strongly the concerns of our members over the rising cost and rate of utilization of health care services and the corresponding adverse impact on insurance premiums,” she said in a statement. “The increasing demand for medical services, including the use of new, expensive prescription drugs, and demand for advanced technologies are driving up the cost of health care at an unprecedented rate. Anthem remains committed to our individual market segment customers and to finding ways to manage health care costs.”

Spear’s decision drew praise from several officials who had criticized Anthem’s proposal.

Attorney General Richard Blumenthal, who testified against the request at the public hearing, called the ruling “a timely holiday gift for policyholders struggling with unemployment and a stalled economy,” and said the rejection was “virtually unprecedented.”

“The new commissioner apparently tossed the rubber stamp. This decision hopefully marks the dawn of a new era for the Insurance Department, real scrutiny and service to consumers. The department did what it’s supposed to do, but often has not: set rates based on facts,” he said in a statement.

Blumenthal urged Spear to give “similarly strong scrutiny” to other pending requests to raise rates.

Anthem had argued that the need to raise rates was driven primarily by health care costs and utilization.

Franklin wrote that many of the actuarial assumptions behind the proposed rate increase were reasonable. But he took issue with the insurer’s claim that it required higher rates because of underwriting “wear-off,” saying there was no explicit evidence to support the claim.

“The Department finds no actuarial merit to this adjustment,” he wrote.

Underwriting wear-off refers to the decline in health status of policyholders the longer they hold a policy, making them less good risks than when they originally purchased the policy. Anthem projected that claims would increase by 8.5 percent next year because of underwriting wear-off.

Franklin also found that the trend Anthem assumed in its projections was excessive. The conclusion that not increasing rates would be reasonable and actuarially sound came from a department calculation using a revised trend figure and removing the underwriting wear-off from consideration.

In his proposed ruling, Franklin wrote that some objections raised during the public hearing were not the basis for a decision on rates.

“Affordability…is relative to each person and subjective, and although of overall concern, is not a standard for rate review within the statute or standard actuarial principles,” he wrote.

Some of the people who testified at the hearing took issue with Anthem’s explanations for the proposed increase. Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illnesses, pointed to statements from the chief financial officer of WellPoint, Anthem’s parent company, suggesting that people were using fewer medical services than expected.

Others spoke of struggling to afford the cost of their Anthem policies. Scotland resident Jennifer Bass described giving up her car to save on auto insurance so she could continue to pay her $478 monthly health insurance premium.

The Connecticut State Medical Society sought intervenor status in the hearing, but was denied. The group argued that Anthem unfairly blamed doctors for the rate increases when payments to physicians had remained flat.

In a statement Friday, medical society Executive Vice President Matthew C. Katz called the ruling “a victory for patients and a victory for physicians.”

“This goes to show that public testimony in a transparent process works,” he said. “CSMS has been advocating for this kind of transparency in health-insurance regulation for years. This case will stand as an example of why public hearings are necessary before regulators consider approving excessive rate hikes.”

Anthem and the insurance department have been targets for criticism from consumer advocates and state officials over the past year. Earlier this year, they drew ire after Anthem requested, and the department approved, rate increases of up to 47 percent for some health policies that had changed to meet new requirements of the health reform law.

Both Anthem and then-Insurance Commissioner Thomas R. Sullivan noted that the higher premiums covered more expansive benefits; the plan with the 47 percent increase previously covered only $500 in prescription drugs per year, and raised the limit to $750,000 to comply with health reform. But their arguments seemed to do little to quell public anger.

In October, a group of labor and community groups called for Sullivan’s ouster. That same day, he announced that he would hold a public hearing on Anthem’s 2011 rate filing – the 19.9 percent request.

Sullivan resigned to take a position in the private sector before the hearing was held.