Health insurance giant Aetna Inc. is imposing excessive rate hikes on more than 5,000 small employers, according to California’s insurance commissioner.
Commissioner Dave Jones lashed out Thursday at the third-largest U.S. health insurer for raising premiums as much as 20% on some small businesses starting Jan. 1. The average increase of 10.7% will cost small employers and their workers $23.5 million in excessive premiums, according to the state.
But Jones has no power to stop it. California voters last month soundly rejected Proposition 45, which would have enabled him to block rate hikes that his department deemed unreasonable.
Aetna said its rate increase was justified based on the expected medical costs for employers. The Hartford, Conn., insurer rejected the state’s request for a lower increase. The state said a 2.6% increase was more appropriate for this group of 64,000 employees and dependents.
All this comes at a time when some employers are questioning why health insurance rates keep climbing amid a historic slowdown in medical spending and decreases in uncompensated care as the federal health law expands coverage to millions of Americans.
Jones added his voice to that debate Thursday.
“There should be savings passed on to businesses and consumers,” he said in an interview. “Employers large and small should be asking their health insurer why they aren’t benefiting. What is frustrating for me is I know these rates are excessive and I can’t do anything about it.”
Proposition 45 received strong support in early polls this fall, but health insurers and industry allies spent more than $50 million attacking the initiative in TV and radio ads.
Jones suggested that Aetna boosted its proposed increase from 3.6% to 10.7% in subsequent filings to the state in October as support was slipping for Proposition 45.
“I would observe in October that widely available polls indicated Proposition 45 was failing and likely to fail in the election,” Jones said.
Aetna denied that politics played any role in setting its rates. Rather, the company said the increase reflects the rising cost of medical care and the second filing was based on additional claims data.
“While rate increases are never easy, our rates are based on actuarially sound data and a reasonable projection of future cost,” Aetna spokeswoman Cynthia Michener said. “Increases in medical costs and utilization for our members enrolled in our small group plans continue to exceed the rate at which we have been able to increase premiums.”
This month, federal officials said U.S. health spending grew 3.6% last year, the lowest rate ever recorded. That was down from 4.1% in 2012 and far below a jump of nearly 10% in 2002.
The Obama administration has also estimated that U.S. hospitals will have $5.7 billion less in uncompensated care this year because they are getting more paying patients thanks to the expansion of coverage under the Affordable Care Act.
Some employers and consumer groups say health insurers should negotiate lower prices from hospitals and other providers as a result of those factors — and then reduce premiums.
Echoing those concerns, state regulators said Aetna’s projections for future medical spending were excessive.
In state filings, Aetna said it expected underlying medical costs to rise 7.1% as providers raise prices and customers receive more care. For instance, Aetna said the cost for an inpatient hospital admission jumped 6.7% on its small-employer plans.
Consumer groups pointed to Aetna’s premium increase as further proof that California needs rate regulation. After a defeat at the ballot box, that debate might be returning to Sacramento.
Anthony Wright, executive director of Health Access, a consumer advocacy group, said “we are very much looking to revisit this issue in the Legislature. This is another example of why we need to move forward.”
Premiums for workplace health insurance in California have jumped 185% since 2002, more than five times the 33% increase in the state’s inflation rate, according to the California HealthCare Foundation.
Jones warned that Californians shouldn’t expect relief any time soon.
He said “the ongoing trend of unreasonable rate increases imposed on California businesses and families over the last decade is likely to continue in 2015.”