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Obama set to warn insurers over 'rate gouging'

President Obama is set to meet with industry executives to warn them against imposing hefty increases in anticipation of tighter regulations under the new health care law.
/ Source: The New York Times

President Obama, whose vilification of insurers helped push a landmark health care overhaul through Congress, plans to sternly warn industry executives at a White House meeting on Tuesday against imposing hefty rate increases in anticipation of tightening regulation under the new law, administration officials said Monday.

The White House is concerned that health insurers will blame the new law for increases in premiums that are intended to maximize profits rather than covering claims. The administration is also closely watching investigations by a number of states into the actuarial soundness of double-digit rate increases.

“Our message to them is to work with this law, not against it; don’t try and take advantage of it or we will work with state authorities and gather the authority we have to stop rate gouging,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “Our concern is that they not try and, under the cover of the act, get in under the wire here on rate increases.”

The law does not grant the federal government new authority to regulate health care premiums, which remains the province of state insurance departments. But with important provisions taking effect this summer and fall, the Obama administration has repeatedly reminded insurers — and the public — that it will expose industry pricing to what the health secretary, Kathleen Sebelius, has called a “bright spotlight.”

The White House meeting coincides with Monday’s release of a survey by the Kaiser Family Foundation, a nonprofit health policy research group, that found that premiums for the policies most recently bought by individuals had increased by an average of 20 percent.

“The survey shows that the steep increases we have been reading about over the last several months are not just extreme cases,” said Drew Altman, the foundation’s president.

Mr. Obama’s message to insurers will serve to put the industry on notice and position the White House politically should voters start to link premium increases to the new law. With the law expected to play a significant role in the midterm elections, the president has been using his platform to sell the bill’s most immediate benefits and, by extension, to defend Democrats in Congress who risked their careers to vote for it.

'Patients' bill of rights'
He will do so again Tuesday; after his private meeting, Mr. Obama will appear in the East Room, where he will highlight new regulations to protect consumers from discriminatory insurance practices, end lifetime limits on coverage and ban unjustified revocations of coverage.

Mr. Axelrod likened them to “essentially a patients’ bill of rights, the strongest in history.”

White House officials said Tuesday’s attendees will include top executives from 13 leading health insurers, as well as Karen M. Ignagni, the president of America’s Health Insurance Plans, the industry trade group. Five state insurance commissioners also are expected to attend.

The insurers have attributed this year’s increases to skyrocketing medical costs and to the economic downturn, which has prompted healthier consumers to forgo health insurance, leaving a sicker and costlier pool to cover.

“Our companies are receiving rate increase requests from hospitals across the country of 40, 50 and 60 percent,” said Robert Zirkelbach, a spokesman for the trade group. “That has a direct impact on the cost of health care coverage.”

But a report released Monday by Health Care for America Now, a coalition that supports the new law, stressed that the growth in premiums in the first eight years of this decade had far exceeded medical inflation — 97 percent to 39 percent.

The new law requires the health secretary to work with states to establish a process for annual reviews of “unreasonable increases in premiums.” Administration officials said Monday that they were still writing regulations to define “unreasonable increases.”

Mr. Obama’s approach to the health insurance industry has rarely been subtle, starting with his campaign, when he spoke of his dying mother’s struggle to persuade her insurer to cover her cancer treatments.

In March, with his health bill hanging by a thread in Congress, Mr. Obama ducked into a White House meeting with insurance executives to deliver a letter from an Ohio cancer survivor who had dropped her coverage after learning her premiums were rising 40 percent.

But for all of Mr. Obama’s browbeating, the new health care law stopped short of giving the administration the power to reject or limit rate increases. Instead, it established the annual reviews, starting next year, and makes available $250 million in grants to states to implement the review process.

States that accept the grants must recommend whether insurers with patterns of excessive pricing should be allowed to market policies through newly created exchanges, which will help individuals and businesses shop for coverage starting in 2014. Insurers also will be required to justify increases deemed unreasonable on their Web sites.

In the closing weeks of the health care debate, the White House offered a proposal to give the health secretary authority to deny unreasonable increases. It did not make it into the final legislation, but Senate Democrats have reintroduced it as a standalone bill.

The regulatory clout of state insurance departments varies widely, with some having minimal power to block rate increases. But in recent months, several states have taken unusually assertive steps.

In California, state regulators announced that they would order independent reviews of increases being sought by four large health insurers. That move came after the department discovered miscalculations in rate requests by Anthem Blue Cross, prompting the company to withdraw its plan to raise premiums by as much as 39 percent.

In Massachusetts, the administration of Gov. Deval Patrick, a Democrat, used long-untapped power to deny 9 of 10 rate increases requested by the state’s insurers, provoking a lawsuit from the industry. A court in Maine recently upheld a smaller rate increase for that state’s largest insurer — 10.9 percent instead of 18.1 percent — that had been ordered by the insurance superintendent.

In New York, Gov. David A. Paterson, a Democrat, signed legislation this month giving the state power to block unreasonable rates. And in Pennsylvania, Gov. Edward G. Rendell, also a Democrat, announced two weeks ago that his insurance commissioner, Joel Ario, would investigate large increases by the state’s biggest insurers.

“The plans are cherry-picking the best risk,” Mr. Ario, who will attend the White House session, said in an interview.

The federal law, which will require that most Americans obtain insurance, includes a number of provisions intended to slow the growth of premiums. For instance, insurance companies soon will have to spend at least 80 percent of revenue from premiums on claims, as opposed to administration and profit.

Insurers have warned since early in the debate that the overhaul might result in increased premiums for many consumers. The Congressional Joint Committee on Taxation and the nonpartisan Congressional Budget Office found otherwise, projecting that it would have minimal effect on group premiums, which account for 83 percent of the market. Their analysis forecast that premiums for individual policies would rise faster than they would without the new law, but that the increases would largely be offset by government subsidies.

Whatever the law’s ultimate effect, many of this year’s most egregious rate increases were announced well before it was clear the bill would pass.

Reed Abelson contributed reporting from New York.

This story, "As Law Takes Effect, Obama Gives Insurers a Warning," originally appeared in The New York Times.