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Rhode Island insurance companies find procedural 'loophole' to halt medical inflation

Kim Morris | June 19, 2009

Three health insurance companies in Rhode Island withdrew plans to raise rates by as much as 16% after strong criticism by various activist consumer groups and elected officials. This grass roots opposition would have been enough to cause the state to deny the rate increase. The rate increase requests were based on anticipated benefit payments to doctors and hospitals over the coming months where the insurers are currently obligated to pay prevailing market costs provided by doctors, hospital, pharmacies and other medical providers for the ordinary and necessary medical services. Normally the insurers would be obligated to pay for the projected medical cost increases. Instead, the three insurers vowed to keep insurance rates and benefit levels the same. This move is a sharp departure from the traditional cost spiral of health care costs, but the reduced benefit payments will increase pressure on plan members and their medical providers.

According to Rhode Island insurance department regulations, the rate increase objections give the insurance companies a legitimate legal basis upon which to reject any increase in benefit payments, even when the medical cost is justified as an ordinary an necessary medical expense. Provider payments to doctors and hospital are based on contracts which are linked to the rate. Any increase in rates or benefits would now require a full hearing before the state Department of Business Regulation later this year - a move that the insurers are not inclined to request. It is not clear whether local doctors and hospitals can force the insurance companies into this formal rate increase procedure.

Spokespersons for the three insurers - Blue Cross, Unitedhealthcare and Tufts Health plan publicly criticized this development but might privately welcome the state's procedures. By avoiding a rate increase the insurance companies increase membership retention and may even gain members. The insurance companies will also benefit from the public and media sentiment to hold the line on health costs and come across as the "good guys" in this development. No comment was immediately available from the local medical or hospital associations. The Rhode Island Department of Business Regulation that might inherit responsibility for resolving this issue reportedly had no immediate comment.

These managed care plans are now acting as consumer-driven health plans by putting more of the purchase decisions with the plan members and their medical service providers. We recognize this as a rare but potentially effective solution to address medical cost inflation. On the surface this seems like a win for affordable health insurance effort. But we suspect that there will be more to this story as Rhode Island revamps its regulatory process under the proposed state budget.

Rates for Blue Cross and Unitedhealthcare are avilable nationwide at MedSave.com and these are currently two of the most popular insurance plans with Rhode Island residents. But we are not familiar with the online consumer rating and enrollment system (if any)for Tuft's health plan.

Tags : rhode island health insurance

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