ANNAPOLIS - Maryland's Insurance Administration does not take insurance
company profits into account when it decides to allow rate increases, a
state insurance official told the Senate Finance Committee Wednesday.
Chief Actuary Don Brandenberg said the administration considers insurance
companies' pay-outs, administrative fees and expenses, and projections -- but
not soaring profits -- when it examines rate filings.
Failing to account for profits is simply not right, said Sen. Delores Kelley,
D-Baltimore County, who sponsored a bill to impose stricter standards on the
administration in evaluating rate requests from health maintenance
organizations. The bill was a response to several HMOs' announced rate increases
after the state taxed them 2 percent to help pay doctors' cost of malpractice
Brandenberg testified during the committee's Wednesday hearing on Kelley's
"It is incredible that such large and thriving companies would actually be
encouraged to pass through (rate increases) without any filing," of
justification for the hikes, Kelley told the committee. The current process "is
blatantly unfair to the citizens of Maryland."
Both UnitedHealth (MAMSI) and Aetna announced in January they would increase
premium costs to cover the 2 percent tax. Yet both are highly profitable
MAMSI's profits rose by 42 percent from 2003 to 2004 and its stock price has
soared 50 percent in the last year, according to its annual report. Aetna's
profits went up 34 percent from 2002-2003.
Kelley's bill, which has 27 Senate co-sponsors, would require rate increase
decisions to be based on those profits, as well as claims and other fees,
capital projects and executive compensation packages.
It would also require the insurance commissioner to reject a rate increase
without a proper filing and public hearing.
The MAMSI and Aetna hikes were immediately approved by Maryland Insurance
Commissioner Alfred Redmer without hearings in January. That action was
"unjustifiable," said Vince DeMarco, executive director of the Maryland
Citizen's Health Initiative.
"We believe," DeMarco said, "this bill will make sure something like that
doesn't happen again."
Bart Naylor, who consults on shareholder issues, said insurance companies set
their rates as high as they can to maximize profits.
The industry "has been corrupted into a system where there is so much
excess," Naylor said.
The state insurance administration goes to considerable lengths in
considering the 60-some rate filings and about a dozen rate hearings annually,
Brandenberg said, usually resolving filings through negotiations.
"It's often a contentious exercise," Brandenberg said. "It's a judgmental
It's a process that should stand, said opponents of the bill, including
Debbie Rivkin, executive director of the League of Life and Health Insurers of
Maryland's insurance rates are justified because they reflect the costs of
providing health care, she said. Strengthening restrictions on rate filings and
hearings would cause HMOs to flee Maryland, reduce the competitive atmosphere
and drive rates up, she said.
The bill "will exacerbate the problem, not help it," Rivkin said. "No one
(HMO) will ever come into the state."
The hearing occurred just two days after CareFirst BlueCross BlueShield
announced that it will absorb the state's new tax rather than increase rates.
CareFirst, a non-profit, is the largest insurance provider in Maryland.
Sen. E.J. Pipkin, R-Queen Anne's, said CareFirst's action shows HMOs are not
out solely to maximize profits and lambasted his fellow committee members for
considering reform after other HMOs promised to hike their rates in a December
"The companies testified that they're going to pass this (premium tax)
along," Pipkin said. "And yet we sit here with such outrage."
The House Health and Government Operations Committee will hear a bill March 2
to require HMOs to file rate proposals with the insurance administration and
rate changes with the commissioner.
Two Republicans have co-sponsored a bill to repeal the HMO premium tax. The
bill has been assigned to the House Ways and Means Committee. No hearing is
Copyright © 2005 University of Maryland Philip Merrill College of Journalism
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