Massachusetts Rejects Small Business Health Plan Rate Increases

Massachusetts’ Division of Insurance has rejected  the lion’s share of proposed small group rate increases from the state’s largest nonprofit insurers – citing new regulations  requiring justification for rate increases in excess of medical inflation.  The state has long had the authority to deny proposed rate increases – and this is the first time it has done this.

Some of this is politics – Governor Deval Patrick’s likely Republican opponent was a CEO of one of the health plans – and this is an opportunity for Patrick to score ‘easy’ points against the health insurance industry, which is an easy target.   National health care reform considered this approach, at which point Karen Ignani  of America’s Health Insurance Plans said

“Regulating premiums won’t do anything to reduce the soaring costs of medical care. This would be like capping the prices auto makers can charge consumers, but letting the steel, rubber, and technology manufacturers charge the auto makers whatever they want.”

Will this move by Massachusetts regulators lower costs?

Probably not.

The idea is that the health plans, with no ability to pass on cost increases, will do a better job in negotiating fee schedules with providers, and will improve their existing medical management capabilities.  However, provider rates are already locked in –and health plans have long since implemented the medical management programs with the largest potential to decrease cost. 

What else can health plans do? 

They can change benefit design – but it’s too late to do this for April, 2010 accounts. (Most small businesses have an April 1-March 31 health plan year).  Beyond that, they can take a loss on the small business portion of their portfolio, and take this out of their reserves.   However, the Division of Insurance which has rejected these rate increases is also responsible for being sure the health plans have adequare reserves.  These two goals are likely to come into serious conflict over the next 12-24 months.

Lowering the cost of health care delivery will require more than an emergency regulation allowing the Division of Insurance to freeze health plan rates.