Md. HMOs Hike Rates to Cover Med-Mal Tax

January 27, 2005

As some had predicted, health insurers in Maryland plan to raise their rates to cover a newly enacted two percent tax on HMO premiums.

The tax was a focal point of a bitter battle between Gov. Robert Ehrlich and state Democrats during a contentious legislative session last month. Ehrlich vetoed the bill, arguing in part that HMOs would pass the tax on to consumers. The General Assembly overrode the veto Jan. 11.

Two HMOs, Mid Atlantic Medical Services Inc. and Aetna Inc., have informed the state insurance commissioner that they are raising rates March 1. Kaiser Permanente plans to raise its rates on April 1. The state’s largest insurer, CareFirst BlueCross BlueShield, hasn’t filed notice of an increase, but a spokesman told The (Baltimore) Sun that an increase is inevitable.

About 1.2 million Marylanders are enrolled in HMOs — about a third of those are covered by private insurance, according to the Maryland Health Care Commission. A two percent rise in premiums could mean increases ranging from about $10 to $15 a month, to be paid by employers, by subscribers, or split between companies and their workers.

A spokesman for the governor blamed the legislature for moving ahead with the tax despite insurers’ repeated warnings.

“They were told repeatedly it would happen, and they chose not to believe it,” Donald J. Hogan, a legislative officer for the Ehrlich administration, told The Sun.

“It’s Economics 101,” Hogan added. “These companies are in business, and they have a duty to their shareholders to make a profit.”

House Speaker Michael Busch said he was disappointed that HMOs were passing on the full cost to employers and individual members, and that the state’s insurance commissioner didn’t hold a hearing on the increases. Busch said the legislature would look this session at insurers’ pricing, to see if they are shifting costs from large employers to small ones, and at insurers’ rates of reimbursement for doctors.

However, Busch said he wasn’t sorry he had pushed for the tax. He said the tax exemption granted to HMOs three decades ago meant that consumers covered by other forms of health insurance were, in effect, subsidizing HMOs. And, he said, ‘”the governor put us in a tremendous predicament” by calling a special holiday-week session of the legislature to pass malpractice reform without offering a way to pay for a fund to limit costs for doctors.

The tax will raise an estimated $65 million in the first year, creating a fund to hold down the cost of malpractice insurance for doctors and to increase payments to doctors who treat Medicaid patients. Doctors had complained that a 33 percent increase in malpractice rates scheduled to take effect Jan. 1 would drive some out of business. The fund will hold malpractice premium increases to five percent.

Two days after the override, on Jan. 13, the state insurance commissioner, Alfred W. Redmer Jr., issued a bulletin advising insurers that HMOs could pass along the two percent tax, but needed to give 45 days notice.

The effect of the tax pass-through will be greatest on small businesses or those who buy coverage individually, officials said. About 60 percent of the 450,000 Marylanders covered by policies for small employers — those with 50 or fewer workers — are in HMOs, according to Enrique Martinez-Vidal, deputy director of the health care commission.

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Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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