Insurers seeking smaller rate hikes

By Robert Weisman
Globe Staff / February 15, 2011

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One year after the state’s biggest health insurers requested premium increases averaging 12 to 25 percent for small businesses and individuals, touching off a five-month battle with Governor Deval Patrick, the companies are limiting their proposed base rate hikes to under 10 percent for the year starting April 1.

Patrick administration officials, who last year rejected the double-digit rate increases, hailed the more modest requests as a victory in their campaign to contain soaring health costs. The proposals come as Patrick prepares to unveil legislation that will seek to further restrain spending by changing how doctors and hospitals are paid.

“The dynamic has been changed for health care in Massachusetts,’’ said Barbara Anthony, the state’s undersecretary of consumer affairs and business regulation. “Last year, we established firmly that the Patrick administration is not going to tolerate double-digit rate increases. The governor started a conversation, and the health care world got the message that those increases aren’t sustainable.’’

But insurers said they expect to lose money this year, as they did last year, in the so-called small-group health insurance market. April 1 is the most significant annual renewal date for that market, which covers about 800,000 Massachusetts residents who are self-employed or work for small businesses. The rates still must be approved by the state Division of Insurance.

“These are still inadequate rates,’’ said Jay McQuaide, vice president at Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer. “They are not sufficient to cover the medical costs of the people on the plans. But we recognize that the community expectations around affordable health costs are real, and we want to be a constructive, positive participant in getting the costs down.’’

While health insurers are eager to avoid being seen as driving excessive cost increases, some trends have been working in their favor.

Moderating health care use over the past year — an outgrowth of the slow economy — has helped to narrow their losses in the small-group market, making it easier to trim rate requests. “Because there’s been less health care utilization, we’ve been able to price accordingly,’’ said Patti Embry-Tautenhan, a vice president at Tufts Health Plan.

Insurers also have been taking a harder line in contract talks with hospitals and other medical care providers, offering incentives for them to limit the scope of physician networks and provide care in community settings. “Our customers are benefiting from our ongoing work to ensure members receive the most appropriate care in the most appropriate setting,’’ said Christine Cassidy, spokeswoman for Fallon Community Health Plan.

Blue Cross Blue Shield proposed average base rate increases of 9.2 percent for April 1, down from its 17.6 percent increase request last year, according to the state. Harvard Pilgrim Health Care requested average increases of 9.9 percent, down from 11.2 percent a year ago.

Tufts, which last month struck an agreement in principle to merge with Harvard Pilgrim, requested average increases of 9 percent, compared with 16.1 percent last year. And Fallon asked for average increases of 8.4 percent, down from 25.2 percent. Rates charged specific businesses can be higher, depending on additional factors such as the industry, location, and age of the workforce.

After state insurance Commissioner Joseph G. Murphy disapproved most of the insurers’ rate requests last year, freezing premiums at 2009 levels, the companies challenged the rate caps in Suffolk Superior Court. A judge declined to rule on the matter until the insurers completed their appeals within the insurance division.

An appeals panel overturned the rate caps for several insurers. But all except Fallon ultimately reached settlements with state regulators, voluntarily agreeing to keep the increases below 10 percent last year and not to apply the higher prices retroactively. Those agreements saved small firms and others about $107 million compared with what they would have paid under the initial rate requests, Anthony said.

The proposed rate hikes of 8 or 9 percent are still much higher than inflation rates for wages and consumer goods, but state officials said they represent progress in restraining the inexorable rises in health care costs, which have climbed by double-digit percentages for at least the past five years in Massachusetts.

Anthony said the Patrick administration is still not satisfied with the increases and will work to reduce the cost of health care.

One step in that direction, she said, was a state law passed last year that strengthened the insurance commissioner’s power to reject rates and authorized insurance-buying co-ops for small businesses. She said the next step will be a new bill that is expected to push hospitals and doctors to move from the current fee-for-service model to a “global payment’’ system. Under global payment, providers are given annual budgets to manage patients’ care and offered incentives for wellness and healthy outcomes.

Such moves are being applauded by small business advocates, who complain that employers are reluctant to hire workers partly because of the cost of health care.

“We’re absolutely pleased that we’re moving in the right direction,’’ said Jon B. Hurst, the president of the Retailers Association of Massachusetts. “But we still have a lot of work to do.’’

The smaller rate requests, and Patrick’s anticipated legislation, are also likely to shift the spotlight to hospitals and doctors, applying pressure on them to work harder to reduce the price of care, said Lora Pellegrini, the president of the Massachusetts Association of Health Plans. “Many of our members are operating on a break-even basis or losing money’’ in the small group market, she said. “So they’re clearly doing their part.’’

Robert Weisman can be reached at