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California deems health insurer's rate hikes 'unreasonable'
By Insure.com staff

The California Department of Insurance says Aetna's most recent quarterly health insurance rate increases for small employers are unreasonable.

Insurance Commissioner Dave Jones asked Aetna to withdraw the April 1 rate hikes, but the insurer plans to implement them anyway.

The rate increases would average 8 percent on an annual basis, with some small California employers receiving up to a 21.4 percent annual increase, according to the department.

The state insurance department reviews rate filings to determine whether premiums are reasonable, but it does not have the authority to force insurance companies to withdraw or lower proposed rate increases, even if regulators find they are “unreasonable.”

Last year, Aetna and other health insurers voluntarily withdrew proposed rate hikes at the request of the department.

Actuaries for the state say Aetna made projections about medical costs that were not supported by the company's actual claims experience. The department also determined the Aetna subsidiary selling health insurance in California made a 27.7 percent profit in 2011, paid $1.7 billion in dividends to its parent company and is increasing rates beyond the U.S. Bureau of Labor's medical cost inflation index.

However, Aetna's rate filing states the medical cost inflation index is retrospective; premiums are based on future spending. Aetna also notes that a portion of the rate increase is due to a change in benefits. Excluding those changes, the annual average increase would be 5 percent.

A bill that would give the commissioner the authority to reject excessive health insurance rates is pending in the California Senate. Before he was elected commissioner, Jones authored three similar bills when he served in the California Assembly.

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