The Cost Issue

Any healthcare reform has to take into account costs and insurance company profits. Sandy Praeger, Kansas insurance commissioner and chair of the Health Insurance and Managed Care Committee of the NAIC, says that administrative and claims costs must be "hard and fast" so that companies aren't "pushing administrative costs into claims."

The medical loss ratio is a key point when regulators look at how companies define costs. "They need to reserve enough to pay claims," she says, and adds, "We have standards for that as well." Some state regulators, she says, have the authority to order refunds to policyholders if a company's risk reserves get too high, although she admits, "We haven't seen that in a while."

Certainly, she says, companies deserve scrutiny to make sure they're not putting excessive money into profits. "When they [file] they're supposed to demonstrate that. All of us [state regulators] have the authority to deny a rate increase if we think it's excessive. Even states that don't have prior approval, even California, has authority to come back after the fact. [The regulator there] has hired outside actuaries [to review the Anthem-proposed 39% rate increase]." Regarding the transfer of funds from an insurance entity to its parent, thus leaving it short and in need of a rate increase, that, too, is something regulators have authority to examine. "We normally don't allow that," she says, speaking of such transfers. That is exactly what some charge is happening, that companies are reserving too much in profit margins rather than putting the money into paying claims.