health care reform lawWith the threat of having to rebate customers if they make too much profit, Anthem Blue Cross withdrew its request for premium increases as high as 39%. That's great news for an estimated 800,000 Californians who buy individual health insurance policies from Anthem Blue Cross, a subsidiary of WellPoint.

The decision was not because Anthem cared about consumers. Instead, it was because under the new health care law, companies will have to rebate customers beginning in 2011 if they don't spend at least 80% of their premiums on health care. This new rule requires commercial insurers to maintain what's called an 80% "medical loss ratio." That loss is what is actually spent on medical care. The other 20% can be spent on salaries, overhead and profits.
In addition to the profit restrictions of the new law, Darrel Ng, a spokesman for the California Department of Insurance, told the Los Angeles Times that Anthem notified the department that they were withdrawing their November rate request after the department let Anthem Blue Cross know earlier this week that "we would likely find their filing unacceptable due to errors." He said the department had showed them the evidence, and "they agreed that they had made mistakes." The rate increases were originally set to take effect March 1, but they were delayed after the public outcry and rage from senators and representatives during the health care reform debate.

Unfortunately, it doesn't mean there won't be a rate increase in California. Anthem plans to revise its rates and file again with the California Department of Insurance as soon as possible. Anthem's corporate office issued this statement with the withdrawal: "By refiling our individual rate requests, we will also utilize updated and real-time medical utilization information, as well as address inadvertent miscalculations related to the way in which we estimated our future medical costs in our initial filings."

Clearly, Anthem had not even used updated, real-time medical utilization information when it asked for the 39% increase in rates. This clearly shows why strong legislation is needed to regulate unreasonable requests for premium increases.

Sen. Tom Harkin (D-Iowa), during a hearing of the Senate Committee on Health, Labor Education and Pensions, said "about 22 states in the individual market and 27 states in the small group market do not require a review of premiums before they go into effect ... This is a gaping hole in our regulatory system."

Unfortunately, even with all the time spent debating the health care bill, no one thought to add a protection for consumers prior to the start date of the new exchanges for purchasing health insurance in 2014, so the old rules will stay in effect and health insurance companies can quickly jack up rates between now and then. Sounds very similar to what happened with credit card rates before the new CARD act took effect in February.

While this move in California shows that clamping down on profits can help to keep health insurance premiums reasonable in states that do review premiums before they go into effect, that doesn't help everyone. The Anthem case shows there's a gaping hole, and its time to shut that hole with true health insurance rate regulation nationwide.

Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score" and "The Pocket Idiot's Guide to Medicare Part D."

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