I wrote last month about a proposal by our Governor to limit insurance rate increases for the individual and small business market in Massachusetts. While he has filed legislation on this front, he also has taken administrative action through his Division of Insurance (summary of both here). New DOI emergency regulations could be used to turn down any rate increase that exceeds 4.8%.
On February 14, DOI issued "filing guidance" to the insurance companies to carry out these regulations. Here's the disapproval section, requiring the previous year's rates to stay in effect if the new rates are not approved:
Health Plans may immediately re-file if a filing is disapproved, but the filing will be subject to at least another 30 days for review. Health Plans may not increase a rate from the prior year if the filing is disapproved. For example, if a group policy is renewing on April 1st, and the March 1st filing for April rates is disapproved, the prior April's rates must stay in effect until such time, if any, that the Health Plan's filing is deemed not disapproved. Health Plans must notify the affected policyholder if a filing is disapproved by the Division.
While I have made clear my predisposition for a wholesale state review of insurance payments to providers, the Administration's rulemaking is another matter altogether. This kind of piecemeal approach to regulation is ill-advised. You simply can't just look at one set of premiums and rule on their reasonableness by administrative fiat.
To the extent the proposed rates are reflective of the demographics and actuarial characters of the group's members, any attempt to use a predetermined price index as a threshold is, on its face, arbitrary. Beyond removing the proper price signal of the underlying cost of medical care and the risk characteristics of the population, turning down a proposed rate increase on these grounds introduces a level of turmoil into the market that will be difficult to unravel.
For those from out of state, please recall that the preponderance of these policies in Massachusetts are written by non-profit insurance companies, so there are no shareholders to bear the shortfall. Instead, the insurers will have to reduce capital reserves, modify plan designs, or cross-subsidize these policies with revenues from other policies. Where reimbursement rates are currently under negotiation, the insurers might attempt to put downward pressure on providers to sell services for this customer segment below cost to make things balance. If agreed to, this would lead to further cost-shifting to other subscribers; but it might be that providers choose not to sign up with insurers that request this. That would leave consumers with policies that do not include certain doctor and hospital networks.
In my days of regulating utilities, the appellate court would have found this kind of ratemaking to be arbitrary and capricious. Requiring investor owned utilities to sell certain services below cost might also have been found to be confiscatory. I don't know what legal standard would apply here, but I am guessing we might soon find out.
Fortunately, indications are that the proposed legislation is unlikely to make progress, but this administrative regulatory approach will move forward unless it is stopped. It should be.