Koller puts brakes on ‘health reform’ surcharges by state’s insurers

PROVIDENCE – Without notice to state regulators, local health insurers have begun imposing a surcharge on group premiums – roughly 2 to 3 percent – to reflect what they say is the extra cost of complying with federal health care reform.

The charges are showing up on quotes from Tufts Health Plan and Blue Cross & Blue Shield of Rhode Island for policies starting Oct. 1, when many small businesses typically renew their coverage. They are not itemized or even described in footnotes, but built into medical costs.

UnitedHealthcare of New England does not appear to be adding the surcharges, but it has filed a request with Health Insurance Commissioner Christopher F. Koller to begin doing so.

Koller only learned of the insurers’ actions through a Providence Business News inquiry on Tuesday. On Thursday, he sent a letter to all three carriers barring them from imposing any surcharges “unless and until” they are approved by his office.

“We need to make sure that health plans justify any costs that they quote to businesses, and that in doing so, they follow state laws,” Koller said in an interview prior to sending the letter.

The surcharges are separate from the 6 to 9.9 percent rate hikes that Koller approved for plans renewed this year (he approved additional hikes effective Jan. 1), and from standard adjustments for each group.

A small business covered by Blue Cross, for example, would face a base-premium hike of 9.8 percent, then adjustments for its members’ age, gender, family makeup and health status, then another 1.8 to 3 percent for the cost of reform.

For a family premium of $13,770 per year – the U.S. average in 2010, according to a recent Kaiser Family Foundation report – that means a total hike of as much as $1,763, including $248 to $413 for the health reform surcharge alone.

Tufts, meanwhile, which got a 9.3 percent rate hike for this year, is adding a 2 percent surcharge, or $275 for that average family premium, with minor variations by plan.

United did not answer repeated questions about its practices, but issued a statement by CEO Stephen J. Farrell that “we continue to follow the rate guidelines” issued by Koller and “have been working closely with our customers to ensure they understand any plan design changes that may be needed to comply with the new federal health care legislation.”

Reports of similar charges have begun to appear across the country, but in those reported cases, insurers actually notified regulators and/or sought the required approvals.

That wasn’t the case in Rhode Island – despite the fact that the state has a very tightly regulated health insurance market that requires approval for every aspect of rates.

Koller’s office reviews and approves the factors that make up base rates – medical costs, administrative costs, profit and reserve allowances – and for small groups, the allowed variances are defined by law.

Insurers also have to file their rating manuals with Koller, explaining how they calculate rates based on the allowed factors. And for small-group quotes, they must use a standard form to disclose what factors increased or decreased each group’s premiums, and by how much.

For these surcharges, however, only United had filed a request with Koller as of Thursday, and none of the insurers had publicly disclosed what it was doing until a reporter inquired.

Brian P. Pagliaro, senior vice president for sales and client services at Tufts, said the company did give brokers a heads-up, as part of regular updates on health care reform.

But asked whether Tufts had cleared its surcharge with Koller, he replied: “That’s got nothing to do with [Koller] – those are federal mandates.”

In a follow-up interview, Pagliaro said the surcharge reflects changes in covered benefits, similar to how rates would rise if you reduced copays or added, say, unlimited chiropractic coverage.

Specifically, he said, the surcharges reflect expanded coverage of preventive care and durable medical equipment, the elimination of annual and lifetime caps, parity between mental-health and medical coverage, and the inclusion of dependents up to age 26 in family plans.

“We support health reform at Tufts,” he said, “but it increases the premiums.”

Blue Cross did not provide as much information, but spokeswoman Kimberly Reingold did explain that the reason surcharges vary by group is that employers are starting from different points. Some plans already cover preventive care without copays, for example, after the deductible is met, while for others, the copays must now be eliminated.

But now, with Koller stepping in, insurers will have to prove that they got the math right, and that they can legitimately add these surcharges to premiums.

In his letter, he requires that the supplemental rate-hike filings include at least a description of the benefits currently provided and how they will change to comply with the law, and analysis supporting the premium hike sought to cover each change.

Koller said his office will work as quickly as possible, but it may not be done in time to help employers renewing their coverage for Oct. 1.

In the meantime, he said in the interview, “I think that the employer and their broker should work to understand what a health plan is charging and why, and make sure they get comparisons from different insurers. Information is very important.”