Patrick Targets Health Care Cost Increases | Should health care providers be regulated like utilities?
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Gov. Patrick has proposed limiting the amount hospitals and insurers can hike up fees.
When Gov. Deval Patrick announced emergency changes to the way health insurance companies report rate increases to the state, neither the state’s health insurers nor hospitals and doctors were happy.
The changes went into effective immediately on Feb. 10 and require health insurers to file rate increases for small business premiums 30 days before they take effect. That allows state officials to review and possibly reject increases deemed unreasonable or excessive.
Additional Oversight
Not only do the increases have to be filed early, but insurers also have a laundry list of additional supporting documentation that must be filed to justify the rate increase.
Insurers say the regulations do not get at the root of the problem, which is not insurance premium costs, but health care costs.
Hospitals, on the other hand, say the regulations are too heavy-handed when Patrick should be more stringently regulating insurance premiums.
“The problem is the regulations will do nothing to get at the main elements that reduce premium costs, which are the health care costs,” said Eric Linzer, senior vice president at the Massachusetts Association of Health Plans, a consortium of health insurance agencies from around the state.
In addition to the emergency changes that require insurers to file for rate changes, Patrick is also proposing legislation that would limit what both insurers and hospitals can charge.
James Kirkpatrick, senior vice president for health finance and managed care at the Massachusetts Hospital Association, said Patrick’s plans to cap increases that hospitals can charge is unfair.
Patrick’s reforms limit rate increases for providers to be no more than the consumer price index for medical services, which is set by the U.S. Department of Commerce. Insurer premiums cannot increase more than 150 percent of the medical services CPI.
“On the one hand insurers have more transparency in filing information, especially related to small business premiums,” Kirkpatrick said.
“For hospitals, all of our contracts and rate increases are limited to the medical services CPI. The effect is a lot more for hospitals.”
Patrick’s legislation also requires small group market insurers to offer a network plan that is at least 10 percent below the cost of other plans in their system, and it gives the division of insurance authority to cap increases for administrative expenses.
While neither insurers nor providers seem happy about the changes, the state government reviewing rate increases and having the power to reject them is nothing new.
Utility Control
The system is similar to that used by the state’s Department of Public Utilities when reviewing electricity rate increases. That process, however, is a much larger and more cumbersome legal one.
Each investor-owned utility in the state must file a rate increase request before raising the price to distribute electricity in Massachusetts.
The state’s Department of Public Utilities holds a rate filing case, which can take months or even years. The process includes public hearings, a filing by the state attorney general usually attempting to prevent a rate increase and extensive study by DPU officials.
Then, a decision is rendered. An appeal can be made directly to the state Supreme Court.
The new health insurance regulations are not as stringent as those that use to be in place in the automobile insurance industry. Before 2008, the auto insurance industry in Massachusetts operated in a fixed-rate setting environment where the state would dictate one common insurance rate that could be charged by all insurers.
In April 2008, the system switched to managed competition in which auto insurers file rates with the Division of Insurance that are approved or disapproved.
Gerald Fels, president and CEO of Commerce Insurance in Webster, said he was initially skeptical about the government not being sympathetic to insurer rate increase requests. Insurers ask for rate increases for a reason, he said. If the increase is not allowed or if it is reduced, it could impact an insurer’s ability to operate.
But since the review has been in place Fels said it has not been an issue.
In the case of health insurance, Fels said the insurers are just passing through the costs of the service. They take a small portion to run the business, but the majority of the costs are from the providers.
“There’s still an underlying issue of the cost of medical care,” Fels said. “Insurers are just the middle men. They have no control over the costs.”
Joseph G. Murphy, the commissioner of the state Division of Insurance, said the recent changes Patrick outlined for health insurance reform, along with the 2008 auto insurance changes, are an effort to find a “happy medium” between direct rate setting by the state and having no regulation of the rates.
“We’re trying to get both of them to end up in the middle, which is appropriate regulations and rates being filed with supporting documentation,” he said.
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