Although a large portion of the $20 million that health insurance giant Anthem Wellpoint agreed to pay Colorado policyholders will simply funnel back to Anthem, the settlement and the new $1 million that Colorado insurance industry regulators will receive this year through the new health reform legislation sends a strong message to insurers to deal fairly in the state, according to consumer advocates and commissioners at the state’s regulatory Division of Insurance.
Division of Insurance Commissioner Marcy Morrison told the Colorado Independent that the federal cash will bolster the Division significantly and increase rate reviews like the one that forced Anthem to agree this month to a $20 million settlement.
“The $1 million coming from the Affordable Care Act will expand our ability to drill down on these reviews because it will fund six new positions,” she said. “The money comes with strict accountability, but if we’re accountable– telling the federal government who we hired and why and their qualifications and what they’ll be doing and how we’re spending the money– that funding will be renewed for four of five years.”
Upon inspection, the Anthem settlement (pdf) is a half victory, albeit a big half victory. The company settled to end the review and avoid a legal battle. According to the terms, Anthem will provide credit to policyholders affected by three rate hikes levied last year on individual market policies and pay cash to customers who canceled their Anthem policies after paying the new rates.
Yet Anthem admits no wrongdoing in the settlement and details of the review are sealed according to the terms of the settlement. Anthem will pay no fines and the three rates under question will remain in place. That means Anthem is paying the difference between the unhiked and hiked rates to itself as a way to, in effect, retain the higher rates. In other words, it’s losing a lot less money than it has to gain from the settlement.
Ideal from a consumer perspective would have been to cancel the elevated rates and for Anthem to pay back the money it has received from the hikes in addition to any fines. As it is, the rates remain high, and Anthem breaks even because it would never have received any of the money it is now being forced to credit to customers had the rates been rejected in the first place. What’s more, once Anthem hits the $20 million mark it is now paying partly in credits to itself and partly in cash to consumers who dropped Anthem– likely a little more than a year from now– then customers get walloped all over again with the nearly 20 percent rate hikes Anthem levied last year. At that point, the corporation’s profit margin in Colorado picks up where it left off.
Nevertheless, the feeling among the consumer groups and regulatory personnel involved here who spoke with the Colorado Independent is that you take victories, even half-victories, against large insurance corporations where you can get them.
“Fines or no fines, we think this is a good decision for Colorado,” Dede de Percin, executive director of the Colorado Consumer Health Initiative told the Colorado Independent. “This $20 million goes back to consumers this year, right away, when people really need it. We’re not having a drawn out legal battle. This means, say, $220 for people, and that makes a difference this year. It also puts insurers on notice that the [Division of Insurance] is doing its job.
“We know from similar cases in California roughly what Anthem was guilty of — those looking to solve the mystery can look there,” she said.
Morrison is similarly circumspect.
“In a big picture way, yes, you could say that Anthem is paying itself back this money. I don’t know how many people left Anthem. Those people will be taking the money and Anthem will not be getting that money back.”
She said that the lesson from the settlement is that consumer complaints matter.
“We had more complaints than ever before in the four years I’ve been here and I think that can be traced to the fact that there were three rate hikes in a year and on the individual market. People in that market pay higher premiums anyway, so it spurred them to complain and that made us look at the rates again.”
Morrison admitted that, as the Colorado Independent reported earlier this year, the division at first approved the Anthem hikes. Supervisor of Rates and Forms at the insurance division Tom Abel said the Anthem hikes came as little surprise when he reviewed them last fall because larger rate hikes have become the norm. At the time, de Percin noted, however, that state law, namely the FAIR Act which the Consumer Health Initiative was instrumental in passing a few years ago, makes Colorado insurance rate reviews extremely thorough.
Morrison said the FAIR Act was certainly helpful but that the federal Affordable Care Act cash for her division could not have come at a better time.
“It’s so challenging to hire new staff given the economy and the state budget. This is chance for us to do more, to do the very best job we can.”
Morrison will hire six new staffers on year-to-year contracts with the money and expand and improve the division’s online presence as part of an effort to increase transparency. She plans to hire a tech person to ramp up the website and post rate filings and reviews and so on.
“We’re also hiring an actuary and an attorney who will look at the new [health reform] regulations. Presently we use Attorney General’s office staffers and they don’t have much time.”
Morrison said her office reviews rates submitted by the 1200 health carriers in the state. De Percin guessed Morrison’s division looks at thousands and maybe tens of thousands of rates each year.
Like Morrison, de Percin was very upbeat about the changes she thinks will stem in Colorado from the health reform legislation. In fact, far from the “socialist government takeover” many warned against, de Percin thinks the reforms will partly serve to increase free-market competition.
“Colorado is a healthy and wealthy state, the kind of market in which insurers want to do business. We think competition will increase with the new exchanges provided by the federal law.
“I see the exchanges as a kind of mall that will actually provide more access to the market for smaller insurers. Everyone will get a storefront and we imagine there will be basic packages that consumers can choose from so, in order to win business, insurers will add extras, like better customer service, for example.”