Thursday, January 12, 2012

I Hope Trustmark Tells HHS to Go Pound Sand

Today, the Department of Health and Human Services announced that, "Trustmark Life Insurance Company has proposed unreasonable health insurance premium increases in five states—Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. The excessive rate hikes would affect nearly 10,000 residents across these five states."

The HHS statement continued, "In these five states, Trustmark has raised rates by 13 percent. For small businesses in Alabama and Arizona, when combined with other rate hikes made over the last 12 months, rates have increased by 27.2 percent and 18.1 percent, respectively. These increases were reviewed by independent experts to determine whether they are reasonable. In this case, HHS determined that the rate increases were unreasonable because the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions."

I hope Trustmark tells HHS to go pound sand.

Here inside the Beltway, there is this assumption that the health insurance market is not competitive and health insurance consumers--in this case small employers--are helpless without the federal government. From the HHS statement: "Before the Affordable Care Act, consumers were in the dark about their health insurance premiums because there was no nationwide transparency or accountability."

Baloney.

We can all have a vigorous debate about just how well the health insurance market has worked to control health insurance costs and readers of this blog know I haven't exactly been an insurance industry apologist on that score.

But anybody who thinks there is no "transparency" or no "accountability" in the small group market has never been there.

Small group carriers regularly see 30% of their block "churn" in a given year as they lose business to competitors. It is not unheard of for an entire block to turn over every few years. There are tens of thousands of health insurance agents and brokers tripping over each other out in the market--their trade association claims 100,000 members. If the incumbent agent isn't continually "check bidding" for his customers that agent can be sure lots of his competitors will be knocking on that client's door with lower rate quotes.

There is no market in America any more competitive than the small group health insurance market. Does competition work to control costs? That's another story. But a lack of competition is not what ails the small group health insurance market.

I have no idea whether Trustmark's rate increases are reasonable or not, or whether they made mistakes in calculating them. I am certain they know they will lose lots of business if these increases are not competitive.

Is a 27% rate increase justifiable at a time when health insurance cost trend is at historic lows? I don't know--it depends where the rates started. My point is that knowing a carrier's rate increase percentage tells you nothing about whether that rate is reasonable or not. It is the absolute rate that matters. Maybe Trustmark erred in setting these rates in the first place and is now playing catch-up.

What matters to a health insurance buyer is not the rate increase or even the medical loss ratio, what matters is the price--which insurer has the lowest price for the same benefits.

Who will know whether the final price is reasonable or not? The small group customer who, upon getting a 27% rate increase, will demand the business go out to bid--presuming the agent hasn't already done that. It the rate is not competitive, the business will very quickly be moved to another insurer where it is.

This rate increase action by HHS is just political grandstanding as the Obama administration tries to sell a still unpopular law.

But it is dangerous grandstanding.

Let me tell you something you may find counterintuitive about the small group and individual health insurance markets. It is the little and often "inefficient" carrier that keeps the big guys honest. These guys often come in and out of markets necessarily undercutting the dominant players' rate base to get a foothold in the market. And, by the way, Trustmark is a mutual company owned by its policyholders. The big guys would like nothing more than to get rid of these little "pests" that upset the market order. And, HHS appears to be doing its best to comply.

This rate oversight action by HHS amounts to nothing more than the jumbo insurance company full employment act. If HHS thinks an oligopoly in the health insurance market, where only a very few big guys dominate the market, is the way to create competition, they are well on their way.

Unless Trustmark, and the little guys like them, just tell HHS to go pound sand.
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