As federal health reforms take effect, Aetna proposes rate cuts

More than 15,000 Aetna customers could see their health insurance premiums drop by between 5 and 19.5 percent later this year, reflecting, at least in part, a new federal requirement that limits how much insurance companies can spend on nonmedical costs.

The proposed rate cuts would affect state residents covered by Aetna individual health plans and, if approved by the Connecticut Insurance Department, would take effect Sept. 1. The average rate cut would be 10 percent, according to documents filed by the company.

Beginning this year, the federal health reform law requires insurance companies to spend at least 80 percent of the money they collect in premiums on health care costs for individual and small-group plans, and 85 percent for large-group plans. The percentage is known as a medical loss, or medical care, ratio. Insurers that don’t meet the mark will have to give customers rebates.

Although the 2011 medical loss ratio won’t be known until the end of the year, Aetna’s filing said the company anticipates issuing rebates for the individual plans and is trying to bring them to a reasonable rate level.

Figures in the filing show that Aetna spent 54.3 percent of the premiums it collected from individual plans on medical claims last year. The number is not directly comparable with the 80 percent medical loss ratio requirement because health reform allows insurers to count expenses beyond medical claims, such as quality improvement efforts, as health care costs.

Aetna spokeswoman Susan Millerick said the request for a rate decrease reflects lower-than-anticipated medical costs in the state.

“We are always assessing our pricing to ensure that it is competitive and reflects the costs of medical services in the market,” she said. “We will continue to review our pricing to ensure that it is competitive and delivers value to our customers in the future.”

Millerick said the company considers medical costs, regulatory requirements and its competitive position in determining its rate requests.

“In this case, a key factor was the good experience,” she said.

Under the new medical loss ratio requirement, an estimated 9 million people nationwide will be eligible for rebates, according to the U.S. Department of Health and Human Services. HHS says that more than 20 percent of people who receive coverage through the individual market are in plans that spend more than 30 cents of every premium dollar on administrative costs, and another 25 percent are in plans that spend between 25 and 30 percent of premium dollars on administrative expenses.

People getting rebates for individual plans would get an average of $164, HHS projected.

CIGNA paid rebates to customers related to its medical loss ratio for the first quarter of 2011, although it’s not clear how many Connecticut residents were affected because the company does not release state-level information.

Anthem Blue Cross and Blue Shield expects the medical loss ratio for its individual market plans to be above the required threshold this year, a spokeswoman said. If not, the company will issue rebates.

The requirement does not apply to health plans that are self-insured, which is common among large employers.

State Heathcare Advocate Victoria Veltri said she wasn’t surprised that companies are issuing rebates or seeking to lower premiums because the medical loss ratio for individual market plans has been below 80 percent in the state. Lowering premiums is preferable to issuing rebates, Veltri said, so customers could pay the right amount up front and don’t have to wait to get money back, although she said the rebate requirement provides a safeguard.

Veltri called the medical loss ratio requirement one of the most important changes in the federal health reform law.

“It’s a really, really important requirement because it really focuses the discussion on what is actually being spent on what we expect our health care dollar to be spent on,” she said.

Some insurers and states have sought to loosen the medical loss ratio rules. The health reform law allows HHS to adjust the requirements for states where it has been determined that the standard is likely to destabilize the individual insurance market. Maine’s request has already been approved; nine other states and Guam have also requested adjustments.

Connecticut is not seeking an adjustment, insurance department spokeswoman Donna Tommelleo said. Veltri said she was pleased the insurance companies appear to be trying to comply with the requirement rather than seeking to change it.