Without Amendments, Blue Cross Deregulation Means Skyrocketing Premiums

The following is testimony from Don Hazaert and Ryan Sullivan: 

Good morning Chairman Lund and Members,

My name is Don Hazaert and I am the Director of Michigan Consumers for Healthcare.  Joining me is Ryan Sullivan, Chief Policy Advisor for Michigan Consumers for Healthcare.

As you will recall from last session, the consumer community has expressed grave concerns regarding this legislation’s potential impact on public health in Michigan on several fronts.  We will focus our remarks today specifically to the rate review threat… but that in no way minimizes the myriad of other concerns that have been raised by consumers and that remain unresolved under this proposal. 

MCH has shared with each of you a summary handout and a copy of proposed amendment language establishing a uniform, truncated and meaningful rate review process within the Office of Financial and Insurance Regulation (OFIR) for all insurers.  This is the identical language consumers had recommended to this committee last session.  This language remains as essential today as it was last time around.

The legislation before us, if adopted without our recommended consumer protections, effectively eliminates all meaningful rate review procedures in Michigan.  This legislative proposal essentially allows insurers going forward to set unjustifiable rates increases on consumers and small business without any fear of meaningful state or third party intervention and effectively guarantees annual premium rate increases will far surpass annual household incomes in Michigan for the foreseeable future.

In regards to this packages’ impact on Blue Cross specifically, this proposal eliminates the public’s right to a hearing on future rate increases, eliminates the ability of the Attorney General or third parties to intervene on behalf of consumers, eliminates the only clearly defined standard of review for rate increases and, finally, eliminates the burden of proof requirement that rests with Blue Cross to justify its rate hikes going forward.  It is troubling to consumers that policymakers would consider eliminating these common sense safeguards that protect consumers and small businesses.  It is also puzzling that similar common sense safeguards are not currently in place for Blue Cross’ competitors.

Consumers agree all insurers should compete on a level playing field but we disagree that a level playing field should be defined as one where the insurance lobby gets to make all the rules.  With citizens now mandated by law to purchase insurance coverage, the state has an unmistakable obligation to ensure that rate hikes are justifiable and that consumers are not exploited.   A level playing field, therefore, from the consumer’s perspective, is one where all insurers go through the same meaningful, streamlined and equally applied rate review process.  We emphasize the word “meaningful.”  A meaningful, streamlined and equally applied process is exactly what our amendment language establishes.

As was explained last session by Laurie Sobel of Consumers Union, arguably the nation’s leading consumer expert on rate review, the current process in OFIR is entirely inadequate and must be reformed from top to bottom as part of any conversion proposal.  Just as a refresher, OFIR policies currently:

·      Lack any clear standard for review

·      Take no consideration of issues like an insurer’s surplus/profit or rate affordability

·      Are Silent on proof of burden

·      Their rules deny the public a right to hearing

There was some debate last session whether OFIR’s existing procedures constitute a “File and Use” model or “Prior Approval” model.  Just as a refresher, a File and Use model is when the industry gets to use whatever rate increase they file, regardless of whether there is 30 day delay.  A Prior Approval is a more meaningful process where rates are scrutinized and frequently rejected.

Well, we can all play with words. But here is the bottom line; is the Insurance Commissioner currently turning down rate requests from the Blue’s competitors under OFIR’s existing authority and procedures?  States with meaningful Prior Approval models force rate reductions as often as 20% of the time.

I would urge you to pose to the Insurance Commissioner two simple questions.   First, “tell us about all of the rate increases from the Blues’ competitors that you have turned down during your tenure as Insurance Commissioner?”  And, secondly, “tell us what standard of review you cited in finding those rates to be unjustifiable?”

If the Commissioner cannot answer your questions frankly and honestly, then you have a File and Use system, regardless of what those trying to sell you this deal tell you. If that is the case, and we are moving the entire insurance industry into a de facto “file and use” model, then every alarm bell should be going off for you as lawmakers responsible for safeguarding the interests of the individuals and small businesses back home.

My colleague, Ryan Sullivan, is about to discuss how the legislation before you, without our amendment language, is all but certain to at least double the effective rate increase year-over-year on small businesses and individuals in Michigan.  This is important information for you to have as you deliberate this issue further.  Ryan, would you like to proceed? 

Thank you, Mister Chairman and committee members.

My name is Ryan Sullivan with Michigan Consumers for Healthcare. I want to put rate review in the context of a couple of states that are moving in what we consider to  be the right direction.

New York is an interesting example of what happens when you water down regulatory protections like those Michigan now enjoys.

A few years ago, New York reduced its rate review powers. Not surprisingly, rates began to skyrocket and a couple of years ago, the state reacted by giving regulators more prior approval rate review powers.

As a result, state regulators recently approved increases that were much lower than insurers initially requested for 2013, while still taking into account the insurers’ medical costs, how much money went to administrative expenses and profit and how exactly the companies were allocating costs among offerings. They did all this while also ensuring that the companies remained solvent. It’s not all that different than the system we use to review Blue Cross Blue Shield rates today.

So what did this do for consumers? Insurers in New York, on average, requested a 9.5 percent increase for individual policies, they were granted an increase of just 4.5 percent—a reduction of more than half. In the small group market, insurers asked for an increase of 15.8 percent but received approvals averaging only 9.6 percent.

This translates into millions of dollars saved by consumers per year, while still ensuring that insurers are able to pay their claims and costs—and make big profits.

In other states with weak rate review, like Florida and Ohio, insurers have been able to raise rates by at least 20 percent for some policy holders. Remember: these rate increases can amount to several hundred dollars a month for consumers—money that could be better spent in other areas of the economy that sorely need it.

The proposed 20 percent or higher individual and small group rate increases in Florida and Ohio compare with about four percent for families with employer-based policies, in part because employers with large groups have a lot more bargaining power to keep rate increases in check.

So with a new mandate in place that requires millions to purchase insurance, it has never been more important to protect consumers from unnecessary rate increases—and nationwide data shows that insurers are regularly requesting increases that are not justified. Only a strong rate review process at the state level can mitigate that today.

Robust rate review policies can also translate into a different culture focused on empowering consumers to express their views on rate increases before they go into effect.

The insurance marketplaces that will be established later this year will help consumers in many ways. One great improvement will allow them to compare products and policies apples-to-apples to understand how to select the coverage that is right for them.

But this alone doesn’t fully inform or empower consumers where rate review is concerned. Doing that requires creating a culture that facilitates and welcomes consumer input in a meaningful way.

A good example of this consumer-friendly culture is Oregon:  The Oregon Department of Consumer and Business Services posts all correspondence between the Department and insurer actuaries on its website daily. The Department held five public hearings in a three month period to allow the public to participate and learn about rate review and cost drivers, three of which were streamed live.  The Department also developed new interactive comparison tools to allow consumers to compare issuers, and changed its rate filing requirements to aid consumers in determining the impact of a proposed rate change on their coverage.

So, yes, the policies and laws we pass regarding rate review matter tremendously. And when they are consumer friendly by design, they lay the foundation for a rate review culture where consumers can exert their power and pressure to keep rate increases as low as possible. We go from a largely industry-dominated rate review conversation to one that educates and empowers consumers, too, using the new communication tools we have to do so.

Strong rate review protects your constituents in some of the same ways they are protected when rate increases for utilities like gas, water, and electricity are well regulated and public input matters.

Health insurance is, like a utility, a necessary thing. And with the requirement that all Americans take personal responsibility to acquire insurance if they don’t already have it, we have to make sure we preserve, yet streamline, the important rate review powers Michigan has used to keep our insurance rates more affordable than many states over the years.

In closing, there is a lot of talk these days about regulatory reinvention in Michigan. But reinvention doesn’t mean you throw out a system that works quite well for consumers and replace it with a stripped down version that makes life easier for regulators and insurers. Reinvention means we work with the best parts of what we have today for the benefit of Michigan consumers, while providing clear, equal and streamlined rules and processes for insurers. We can do both at the same time.

Thank you for your time and attention. I’m happy to answer any questions you might have.