Pattern of rate hikes spurs probe of Pa. insurers

The Pennsylvania Insurance Department, concerned that health insurers are raising rates before new federal laws kick in, said Wednesday that it was investigating the state's nine largest health insurance companies.

The announcement was made by the governor's office in response to what it declared was a pattern of controversial rate increases.

"This level of increase is not about passing on increases in health spending, which average in the 5 to 10 percent range," Gov. Rendell said in statement describing premium increases of more than 50 percent for some small businesses.

"This is about companies' trying to get the highest possible rates before the federal reforms take effect."

Neither the governor's office nor the Insurance Department could provide any specific examples of 50 percent increases.

"To shine a spotlight on this situation increases the chances that the carriers will be more moderate in what they do," Insurance Commissioner Joel Ario said.

The investigation will focus on whether insurance carriers are increasingly using medical questionnaires and drug profiling to set rates.

Both practices are legal in Pennsylvania, which allows medical underwriting - basing premium prices on the health of those insured.

However, Ario's investigation - centered primarily on premium hikes for small businesses - is not focused as strongly on the state's two largest insurers, Independence Blue Cross in Philadelphia and Highmark Inc. in Pittsburgh, because neither uses medical underwriting as a basis for pricing premiums for small business clients. Highmark had wanted to start that practice, but was dissuaded by the state.

Although all the insurers, including Independence Blue Cross, rely on medical underwriting when selling policies to individuals, the two largest Blues believe that they are at a competitive disadvantage in the small group market because they don't base premiums on medical history. Other insurers, according to area brokers, will look at medical history, deny coverage or hike renewal rates for groups with older or sicker people, forcing the customer to switch to Independence Blue Cross, which must insure all comers. That puts the two Blues in the position of having to insure a disproportionately large group of sicker and more expensive people.

Independence Blue Cross spokeswoman Elizabeth Williams said her company thinks the state should enact legislation requiring all insurers to abandon medical underwriting for small-group customers in favor of community rating, a more broad-based approach.

Under the federal health legislation passed in March, medical underwriting will not be permitted starting in 2014.

"There probably is some strategic game-playing while it is still quasi-legal to get out in front of these regulations," said Mark V. Pauly, a health economist at the University of Pennsylvania. "You may as well do your darndest now [to raise prices], then give concessions later and sound reasonable, if not noble."

The president of a trade group for insurers, the Insurance Federation of Pennsylvania, said the state's health insurers had not been using that strategy.

"We recognize that come 2014 there will be different rules," said the group's president, Samuel R. Marshall. "We won't be able to do medical underwriting, and we're moving toward that."

He said the group had proposed that the state forbid medical underwriting by Highmark and Independence Blue Cross, which command half the market, and that the state limit premium increases based on medical conditions to 25 percent for the other insurers.

The investigation began in February with a department survey of various practices. Results from that survey, Ario said, suggested that the insurers were expanding the use of medical profiling. Now, the investigation will focus on that practice, he said.

Among the seven other insurers being investigated are Aetna Inc., UnitedHealthcare Inc., and Coventry Health Care Inc., all of which write policies locally.

The state also plans to apply for a $1 million federal grant intended to help states increase oversight of insurance rate-setting.