Health Insurers in Arizona Face Federal Scrutiny

January 18, 2012

Health insurance companies in Arizona are facing scrutiny from Washington as federal authorities have taken over reviews of rate increases of 10 percent or more from the state.

The Arizona Republic reported that federal regulators have called one company’s most recent rate increase unreasonable and vowed thorough reviews of 32 other health-insurance plans that are pursuing double-digit rate increases.

On Sept. 1, the U.S. Department of Health and Human Services took over reviews of health-insurance rate increases of 10 percent or more from the Arizona Department of Insurance when the federal agency said Arizona was among the states that didn’t have regulations in place for effective rate review.

The federal government does not have the authority to reject or modify health-insurance rate increases in Arizona because state law does not allow such oversight.

But consumers might see some rate relief under the new federal health care law. The Affordable Care Act requires that 80 to 85 percent of revenue collected by insurance companies be spent on medical care instead of administrative costs and profit. Insurers that don’t meet that ratio must issue rebates to customers beginning later this year.

Still, some observers question whether the federal law ultimately will result in long-term rate relief for Arizona consumers.

Federal authorities said last week that Trustmark Life Insurance Co.’s plan to raise health-insurance rates on Arizona consumers by 13 percent is unreasonable and called on the company to rescind, refund or justify the rate increase.

The federal agency has started similar reviews and posted detailed rate information on 32 other health-insurance plans that will raise rates from 14 to 44 percent this year for thousands of Arizona consumers.

Trustmark representatives disputed the conclusions from the federal agency. It said its rates are driven by rising costs and increased use of medical care. The company added that because it is a smaller insurer, the amount of money it spends on medical care can swing widely from year to year.

The company said it will maintain compliance with the nation’s new health care law.

The federal oversight of Arizona’s health-insurance industry has generated a backlash among insurers.

Insurance companies have urged the Arizona Department of Insurance to beef up its rate review so that companies don’t have to submit paperwork to the federal government when they seek to increase rates.

Erin Klug, spokeswoman for the Arizona Department of Insurance, said insurers want to avoid sending duplicate paperwork to the federal government and the Arizona agency.

Under Arizona law, health insurers that sell policies to individuals still must submit paperwork to the Department of Insurance detailing proposed rate changes. Insurers that sell small-group policies only need to provide a certificate each year that indicates their filings comply with Arizona law.

Klug said her agency is using proceeds from a $1 million federal grant to investigate how the state can improve its rate-review process to pass muster with the new federal requirements. The Department of Insurance expects to submit proposed changes to the Governor’s Regulatory Review Council.

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