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Health insurance companies face government crackdown

Maryalene LaPonsie | June 23, 2010

By: Maryalene LaPonsie

If you live in Pennsylvania and have health insurance, you may owe Governor Edward Rendell a thank you. In the face of small business health insurance rate increases of 50 percent and more, Governor Rendell has ordered an investigation into the premiums of the state's nine largest medical insurance carriers.

The Pennsylvania inquiry is the latest in a series of questions regarding health insurance rate hikes in the United States. In California, WellPoint withdrew its rate increase of 39 percent after outrage reached Washington and Health and Human Services Secretary Kathleen Sebelius started asking questions. The insurer later issued a statement apologizing for 'errors' that contributed to the excessive rate increase.

Other states opening investigations into medical insurance premium increases include Maine, New York and Massachusetts. In the Pennsylvania case, Governor Rendell acknowledged that there is a legitimate need for some companies to increase their health insurance rates. However, the recent premium rates for small businesses far exceeded the amount necessary to cover costs.

In a press release, Governor Rendell stated, "This level of increase is not about passing on increases in health spending, which average in the 5 percent to 10 percent range." He went on to say, "This is about companies trying to get the highest possible rates before the federal reforms take effect."

President Obama takes medical insurance companies to task

Governor Rendell's comments shed light on the perceived problem with recent health insurance rate increases. While health reform legislation passed earlier in the year will enact additional safeguards for consumers, some of those provisions won't be implemented for years, giving medical insurance companies an opportunity to make an end run around the law.

Just as credit card companies rushed to jack up interest rates before federal finance legislation went into effect this year, so to do health insurers appear to be hurrying to raise rates before health reform is implemented. The Kaiser Family Foundation recently released figures showing that, on average, premiums on health insurance for the self-employed and others in the individual market have increased 20 percent in the last year.

To address these concerns, the federal government is taking steps to prevent further unnecessary premium increases. The Department of Health and Human Services (HHS) is offering states grant money to further scrutinize premium hikes in their state.

In addition, President Obama called in the heads of the nation's leading medical insurance companies to discuss concerns with rate increases, as well as a new Patients' Bill of Rights being rolled out by HHS. Although HHS states the new consumer protections will have a negligible cost, insurers are skeptical. As Aetna CEO Ronald Williams told the Reuters news service, "I think there was a recognition that consumers are going to get more. When you get more, you pay more."

President Obama and HHS vow to closely monitor all health insurance rate increases. With the ultimate goal of health reform to provide more affordable health insurance options, the federal government hopes to avoid the irony of having the reform provisions push families out of their health insurance instead.

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