Health Insurance Companies Lose Money With Rate Increase Caps
Posted: Tuesday, May 18, 2010
by Yamileth Medina
VitalOne Health
It sounds inevitable: an industry banned from increasing its prices--despite what it claims to be accompanying higher costs--will see losses in its financial statements. In Massachusetts, it is already happening.
Major health insurance companies say that the caps on rate increases enacted by Democratic Governor Deval Patrick's administration have resulted in significant first quarter losses. In total, four firms lost over $150 million during the period, which ended on March 31.
On April 1st, insurers had their requests for premium increases for the small group health insurance market denied. They accuse the state government of making a politically motivated decision when refusing their proposed increases, some of which exceeded 30 percent and would impact nearly 800,000 residents. The refusals are currently under appeal, and there is also a lawsuit pending.
If the caps did not become effective until the close of the first quarter, why do they affect those results? According to generally accepted accounting principles, companies are forced to report subsequent events that will have an adverse impact before financial results are released, despite them occurring after the quarter closing.
Although the most recent figures are certainly a setback to shareholders, analysts do not predict any immediate problems with solvency. Diversification of their businesses, as well as their existing high level of capitalization, will protect them from major harm that would result from their health insurance plan products continuing to offer coverage at last year's rates. However, hurting largely local businesses when the country is only now just crawling out of an official recession is unappetizing.
Detractors brush off the industry's worries. They point to the nearly $2.5 billion in reserve funds the companies have. State officials believe that health insurance providers should work together with doctors and hospitals to help consumers afford policies.
Yamileth Medina is an up and coming expert on Health Insurance and Healthcare Reform. She aims to help people realize that they can find quality health insurance plans right now. Yamileth lives in Miami, FL.
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