Waiver would let Iowa health insurers save cash

Written by ADAM BELZ

Health insurers could avoid paying $3.4 million in rebates to customers if federal regulators allow Iowa to delay a component of health care legislation meant to curb insurance company profits and overhead.

Six insurers pulled out of Iowa's individual health market last summer after the Obama administration's health care legislation was passed, state regulators said. Part of the law requires insurers to spend at least 80 percent of premiums on health care, and if they don't, they must refund customer premiums until the math works out.

State regulators fear that even more companies will leave, making Wellmark even more dominant. Regulators argue less competition could lead to higher prices.

The rule affects a small portion of the health care market, the 182,000 individuals and families in Iowa who buy their own health insurance directly from insurers. Premiums tend to be more volatile for individual policies than for those bought by employers and other large groups, which can negotiate for lower rates and spread risk among employees and members.

Iowa is one of 12 states that have asked for waivers. Nevada, New Hampshire and Maine have already received approval.

Susan Voss, Iowa's insurance commissioner, asked the U.S. Department of Health and Human Services to let Iowa gradually impose the rule, allowing insurers to spend 60 percent of premiums on health care in 2011, 70 percent in 2012 and 75 percent in 2013.

"They're going to have to conform eventually," Voss said. "We did a stair step of how much they had to get to each year."

Wellmark - which controls 81 percent of the individual health insurance market - already spends 91 cents of every premium dollar on medical costs, so the rule won't affect the company directly, according to information the Insurance Division supplied to the Department of Health and Human Services.

But none of the state's other top seven health insurers meets the standard. Companies with smaller pieces of the market than Wellmark have a harder time following the rule. With only a few thousand policies, the amount an insurer spends on medical costs can vary widely, depending on whether customers make catastrophic health claims.

Voss said insurers' ratios are in part determined by multiyear contracts. Several insurers told her they could meet the loss ratio by 2014, but not this year, and they don't want to leave the market.

"Wellmark Blue Cross and Blue Shield can deal with it, but it'll be the smaller carriers," said Bob Skow, chief executive of the Independent Insurance Agents of Iowa Association. "We could find ourselves becoming a state with very little choice in health care."

More than four of every five Iowa individual health insurance policies are already with Wellmark. That's 148,913 policies for individuals and families. The 23 other companies in the market have a combined 33,080 policies. The largest of those is Time Insurance.

Voss said the six companies that left because of the new rule are National Health Insurance Co., Pekin Life Insurance Co., Humana Insurance Co., American National Insurance Co., American National Insurance Co. of Texas, and Standard Life and Accident Insurance Co. The Principal Financial Group also withdrew from the market, but the company insisted the move had nothing to do with the new legislation.

Sen. Jack Hatch, a Des Moines Democrat and one of his party's leaders on health care issues, said the insurers who can't meet the standard in the new law are charging too much for health insurance, and he doesn't mind if they leave the market.

"That's the standard line that you'll get from insurers, insurance agents and people who are selling the policies that have a high administrative cost," Hatch said. "Having these smaller companies rip off consumers even more for a longer period of time because of the waiver request isn't going to have any impact on whether we have a monopoly. We already have a monopoly."

The company furthest from the standard in 2010 was American Republic Insurance, which is based in Des Moines and sells health insurance in 34 states.

"We have not had conversations with the commissioner about leaving the individual health market, although we have discussed the factors that could cause disruption to the marketplace," the company said in a statement.

American Republic has 1,185 policies in Iowa, and in 2010 spent about 40 percent of premiums on medical costs. The Insurance Division estimates American Republic would have to pay $1.2 million in rebates to policyholders in 2011 under the new rule. Even if Iowa's request for a waiver is approved, the division estimates the company would have to pay $1.8 million in rebates over the next three years.

Elizabeth Powell, senior vice president of health markets for American Republic, said the company's loss ratio for 2010 was skewed by a high volume of new business - on which there are few claims - and the absence of any high-dollar medical claims. It was an unusual year, she said.

She said the company is constantly revising its strategy, but for now has no plans to leave Iowa.

"It's a very important market for us, because it's our domicile state," she said.