Aetna Latest Company to Scale Back Rate Hike Amid Regulatory Scrutiny

By Jeff Jeffrey
A.M. Best Co.
April 29, 2011

Aetna Inc. became the third major health insurer in California to announce that it would back away from proposed rate hikes for roughly 43,000 policyholders in the state, opting to raise rates by an average of 12.2% as opposed to the 17.9% increase the company originally announced. Aetna's decision comes after the company agreed to postpone the implementation of the increase until July 1 at the request of California Insurance Commissioner Dave Jones.

The reduction is expected to save Aetna policyholders $6.7 million in premiums. Jones said the 60-day delay has saved customers another $1 million.

Aetna has argued that the real driver behind rising health insurance costs is the cost of medical care and that limiting the company's ability to raise rates could affect its financial future. "Long term, our financial viability in the individual health insurance market in California could be impacted by the inability to implement rates which adequately address the rising cost of health care services in the state," the company said in a statement.

"Aetna policyholders will benefit from Aetna’s decision to lower their proposed July 1 rate increase," Jones said in a statement. "Aetna has agreed to a reduction of their most recent increase, but Californians have experienced unsustainable health insurance increases year after year and they want me to have the authority to reject excessive rate increases. A.B. 52, which would give me that authority, passed out of the Assembly Health Committee this week."

For Jones, Aetna's decision to reduce its rate increase marks the latest victory in his multi-pronged push to expand the regulatory role of the Commissioner's Office in the health insurance market.

Jones, a former member of the California Assembly, has been pushing for the passage of A.B. 52, which would give him the authority to reject rate increases that are determined to be excessive. While the California insurance commissioner currently has the authority to reject excessive rate increases in auto, life and other lines, the commissioner's hands are tied when it comes to health insurance lines.

That bill was recently approved by the Assembly's Health Committee and has been sent to the chamber's Appropriations Committee (BestWire, April 27, 2011).

In the meantime, Jones and other insurance regulators in California have stepped up their criticism of health insurers looking to raise their rates.

Last month, Anthem Blue Cross Life and Health Insurance Co. agreed to slash its rate increase from 16.4% to 9.1% and to delay increases to co-payments and deductibles by 10 months from the effective date the company had originally requested after drawing fire from Jones.

The cut was expected to save Anthem Blue Cross individual and family plan health insurance policyholders at least $40 million. The company has roughly 600,000 individual and family plan policyholders in California (BestWire, March 22, 2011).

Another company Jones asked to hold off on rate increases, PacifiCare of California, agreed to defer its premium increases by 60 days beyond their anticipated effective dates (BestWire, Jan. 31, 2011).

And then there is the case of Blue Shield of California Life & Health Insurance, which has been the target of much recent criticism from insurance regulators in the state.

Last week, the Financial Solvency Standards Board asked Blue Shield of California to explain two recent rate hikes that the state's Department of Managed Health Care said have increased rates by an average of 37.5%, affecting more than 70,000 policyholders in California (BestWire, April 21, 2011). Blue Shield of California is expected to be responding to that request soon.

In March, Blue Shield of California Life & Health Insurance withdrew a request to raise premiums altogether after Jones pointed out that the total effect of the three rate increases would have raised premiums by as much as 87% for some policies (BestWire, March 17, 2011).

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