April 12, 2010 | last updated March 24, 2012 11:24 pm

Health Insurance Brokers: €˜It's Complete Chaos' | The state's move to cut premium rate hikes has the industry in a tailspin

Gov. Deval Patrick's administration, and the state's Division of Insurance, made headlines recently when they announced they had shot down nearly all of the small business health insurance rate increases planned by insurers, including Worcester-based Fallon Community Health Plan.

The bold move to reject the premium hikes was so ill-received that insurers banded together to sue the state.

But the war of words that ensued in the press left two important groups scrambling quietly on the sidelines: insurance brokers and their small business clients.

"It's complete chaos," said Paul Pietro of Mid-State Insurance Agency Inc. in Worcester. "It's a complete nightmare."

Regulatory Power

The debacle for brokers began in mid-February when Patrick enacted emergency legislation requiring that health insurers submit rate increases for small businesses 30 days before they go into effect to allow the Division of Insurance a chance to review and possibly reject rates.

After reviewing rate requests that ranged from 8 percent to 35 percent hikes, the division, led by Commissioner Joseph G. Murphy, disapproved 86 percent of the increases on April 1.

Insurers immediately cried foul and four days filed a suit against the state in Suffolk Superior Court in Boston, alleging that the state has acted beyond its power and has set artificial rate caps.

Most insurance brokers are sympathetic to both sides.

For example, Todd McDonald, president of Aisling Partners Insurance Brokerage LLC in Worcester, can feel the pain of the more than 140 small businesses he has as clients. They've seen 30 to 40 percent rate increases this year. McDonald's own business saw health insurance rates jump more than 36 percent.

Other brokers reported that they've been unable to get new rate information from insurers since April 1, leaving any businesses looking to purchase health insurance for their employees in the lurch.

With DOI's decision to disapprove rates and the subsequent lawsuit, McDonald said his company and clients have been left with no idea how much they'll have to pay in health insurance premium this year.

"That creates a tremendous operational challenge for all parties," McDonald said.

According to Commissioner Murphy, some businesses are being charged rates that have been disapproved by the state and others are being charged the previous rates that were established before the increases were applied for.

Other insurance brokers are questioning the state's rationale behind disapproving almost all of the rate increases that were requested. Four of the state's insurers had all of its rates rejected while another 2 had all but one of the increases rejected. Three insurers had no rates thrown out.

David Shore, a vice president at the Protector Group in Worcester, said if the end goal of the state is to lower health care costs, then disapproving insurance rate increases is not the way to do it. Insurance rates, he said, reflect about 90 percent of the cost of providing health care, with insurers taking about 10 percent for administrative costs.

"Obscene prices are the result of many factors, not just the insurers," he said.

Increases, he said, arise in part because the cost of medical care is rising. If insurers are not allowed to cover their costs then they could, in a dire circumstance, go out of business.

"We want low rates, but we also need solvent insurers," said Chris Powers, senior vice president of Benefit Development Group in Worcester.

State officials said they are constantly monitoring health insurers' financials to ensure they remain solvent.

Barbara Anthony, undersecretary for the state's Office of Consumer Affairs and Business Regulation, defended the actions of the DOI, saying that state officials thoroughly reviewed each of the rate increase requests and rejected those that were found to be excessive. No rates or caps were set by the state, she said.

"We can't let ourselves get distracted from the job at hand, which is reducing costs," Anthony said. "We're hearing excuses, rationales, invented chaos and manufactured disruptions to throw us off the path that we need to be going on, which is reducing costs for small businesses."

Other brokers say there are a multitude of factors that have lead to costs rising for insurers.

For example, in 2006, the state enacted its own health care reform, mandating that all residents have health insurance. But, some brokers argue that the penalties for not having insurance are not strong enough, causing some residents to not purchase health insurance, and only get it when they are sick, leading to increased costs for the whole system.

Also, the 2006 reforms merged the individual insurance market into the small business market, which could be contributing to the increases in small business insurance rates. Other brokers say the mandated care that insurance plans are required to provide, for example for prescription drug benefits, are driving up the costs of the plans.

A hearing on the insurers' lawsuit was expected to be held April 8. The insurers have asked the court to review the case on an expedited timeframe and hope it will be resolved by this summer.

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