Extending the battle over the impact of the new HMO premium tax, a Baltimore County Democrat urged her state Senate colleagues yesterday to support a measure blocking insurers' ability to increase rates without regulatory review.
The state insurance commissioner should be required to look at "soaring profits" and lavish executive pay, and to hold a public hearing before allowing health maintenance organizations to increase premium rates, Sen. Delores G. Kelley told the Senate Finance Committee.
Kelley testified before her fellow committee members in support of a bill she has introduced to require insurance regulators to review HMOs' surpluses and other financial information in considering rate requests.
The issue came to the political forefront last month after lawmakers overrode a veto by Gov. Robert L. Ehrlich Jr., putting into effect a 2 percent tax on HMO premiums to subsidize malpractice coverage for doctors.
Insurance Commissioner Alfred W. Redmer Jr. told HMOs that they could pass through the 2 percent as a premium increase if they notified him and gave subscribers 45 days' notice. Most HMOs filed almost immediately for premium increases.
Kelley said she introduced her bill because she was angered "to have it happen in such a blatant manner and having the commissioner encouraging it."
Kelley's bill won backing at yesterday's hearing from Maryland Citizens Health Initiative, a group seeking to expand health insurance coverage. It was opposed by several HMOs and an insurance trade group, which said current reviews protect consumers.
Sen. E. J. Pipkin, an Eastern Shore Republican and committee member, called Democrats' complaints "false outrage" because insurers long warned that they would pass a tax on to consumers.
`Sitting here bashing'
Noting that Redmer's Democratic predecessor had taken a similar position two years ago, Pipkin added, "This guy does it and whammo, we're sitting here bashing."
Redmer didn't appear at the hearing. Two of his staff members said their agency wasn't taking a position on the bill but told lawmakers there would be problems in trying to implement it.
Lester C. Schott, associate commissioner, said requiring HMOs to reduce funds in reserve before they are given approval for rate increases would be "contrary to our goal as solvency regulators." Insurance regulators, he said, need to protect consumers by making sure insurers keep enough money in reserve to pay future claims.
As for premium rates, he said, a competitive marketplace is a check on overcharging by insurers.
Donald P. Brandenberg, the insurance administration's chief actuary, said his staff reviews requests for rate increases by examining how much an insurer paid in claims in the previous year, projected increases in claims costs for the next year and what types of administrative and other costs the insurer could document. It doesn't look at how much cash the company has in the bank, he said.
"Carriers in general come in on the high side," Brandenberg said, particularly in regard to projections of future claims. "We tend to view it from the consumer side: How much do you need?" If he thinks projections are high, he said, he rejects a requested increase.
Brandenberg also said it is unclear in the bill how regulators, when reviewing the rates for a product in Maryland, could allocate profits, reserves and executive pay for multistate insurers with many products.
Vincent DeMarco, president of the health initiative group, said the bill, with disclosure and public hearings, could encourage other HMOs to follow the example of CareFirst BlueCross BlueShield.
CareFirst, the state's largest health insurer, which has been under pressure from lawmakers to do more to fulfill its nonprofit mission, announced this week that it would absorb the 2 percent tax rather than increase rates for its 330,000 HMO members. It said the after-tax cost would be about $13.7 million.
`Ink wasn't dry'
Other HMOs, DeMarco said, sent out increase notices "when the ink wasn't dry on that bill." According to the insurance administration, United Health and its HMO subsidiaries Optimum Choice and M.D.-IPA, Aetna, CIGNA, Coventry and Kaiser Permanente have filed for increases. Outside of CareFirst, they account for almost all of the Maryland HMO market.
Deborah R. Rivkin, a lobbyist for the League of Life and Health Insurers of Maryland, a trade group, told the lawmakers that Maryland's rate-review process is "rigorous" and that Kelley's bill would make it the "most onerous" in the country. The result, she said, would be to discourage insurers from competing in Maryland.
"We really do compete on our rates," she said. If one insurer sets rates too high, she said, customers "can drop us any time they want and pick up somebody else tomorrow."