Insurers’ rate quote practice is unfair to consumers

Shoppers are routinely asked to disclose their current provider’s rate, which all but guarantees that no one will provide coverage for much less.

Let’s say your barber is increasing the cost of haircuts. Is it fair for other barbers to require that you disclose how much you were being asked to pay before they say how much they’ll charge?

That hypothetical example illustrates the situation many California businesses find themselves in when they go shopping for health insurance. By routinely having to reveal the size of a rate increase to other insurers, they all but guarantee that no one will provide coverage for much less.

“It’s price fixing,” said John Antonelli, president of ARSLegal in Whittier. “If my company tried this, we’d be thrown in jail.”

His business, which handles document copying for law firms, has 135 employees. Antonelli said ARS had been paying about $600,000 annually to Blue Shield of California to provide health coverage to workers and their families.

But serious illnesses involving a handful of workers and their family members prompted Blue Shield to raise the company’s annual premium last year 60% to almost $960,000, he said.

So Antonelli had his insurance broker put out a request for quotes from other firms. He knew from experience that he’d have to disclose information about the general health of his workforce. What he hadn’t expected was a requirement among insurers that he also disclose how much Blue Shield wanted to raise his company’s rates.

The California Department of Insurance says this isn’t a legal requirement. But brokers and insurance-industry officials say it’s a standard practice to ask how much a company’s current insurer wants to charge for annual premiums.

“If you don’t tell them, you don’t get a quote,” said John Barrett, a Pasadena health insurance broker. “It’s that simple.”

From the insurer’s point of view, that’s understandable. Insurers will do everything possible to minimize their exposure to risk. The more they know about a company’s insurance history, the easier it is to tailor a policy that keeps losses at a minimum.

“That’s not price fixing,” Barrett insisted. “It’s full disclosure.”

But it also speaks to a distinct lack of competition in the marketplace. Knowing what a rival wants to charge can be a strong incentive for other insurers to keep their own prices high, said Laurence Taylor, a broker with Pegasus Capital & Insurance Services in downtown Los Angeles.

“It’s an unfortunate situation,” he said. “It makes things tough for employers.”

Antonelli’s position is that as long as he’s upfront about his employees’ insurance claims, why should he have to stack the deck in an insurer’s favor by declaring how much a competitor wanted to charge?

“I’m happy to tell you about the health of my employees,” he said. “But you give me a bid on your own, not based on what Blue Shield wanted to charge.”

In his case, the lowest bid received from another insurer for comparable coverage still represented a hefty 25% rate hike, which Antonelli reluctantly accepted.

California law limits how much insurers can charge businesses with fewer than 50 workers, so it’s relatively easy to obtain reasonable quotes from multiple providers.

Things are different for larger businesses. Because insurers have more latitude when it comes to prices, they’ll often seek whatever they think the market will bear.

For a medium-size company like Antonelli’s, with relatively little bargaining muscle compared with an enterprise with thousands of workers, that can be a real challenge. Such companies typically have to settle for whatever they can get from insurers.

One other thing that’s striking here: The punitive nature of filing claims. In Antonelli’s case, his company willingly paid about $600,000 a year for health insurance. But as soon as a few serious cases materialized — one worker had heart trouble, the spouse of another got cancer — Blue Shield jacked up the company’s rates.

That’s quite a product. Don’t use it, and it’ll cost you $600,000. Use it, and your cost will soar to almost $1 million. A Blue Shield spokesman declined to comment.

Patrick Johnston, president of the California Assn. of Health Plans, an industry group, said knowing how much another insurer is charging can be a crucial data point when determining a company’s medical risk.

“If the rate is high, it would suggest to other insurers that the claims experience is high and likely to remain high,” Johnston said. “Therefore, the insurer quoting the bid would be cautious about estimating on the low side.”

And that’s how you get a vicious cycle whereby insurance rates inevitably skew higher. All it takes is one large rate increase for all other insurers to fall in line, regardless of what their own due diligence might tell them.

A bill in Sacramento, AB 52, would have given state regulators the authority to block unreasonable rate increases. But it fell apart last week when backers acknowledged they didn’t have the votes to get it passed.

At the very least, lawmakers should take a closer look at insurers requiring a competitor’s renewal rate before offering a quote for health coverage. This is an unfair and unreasonable practice that tips the scales too far on insurers’ behalf.

Insurers should have access to relevant claims data in pricing their contracts. All parties should be making informed decisions when it comes to health coverage.

But lawmakers should prohibit the requesting of a rival’s rates. It serves to make insurers lazy in their price estimates and to encourage costlier policies.

Healthcare is expensive enough. We don’t need to perpetuate a system that makes things worse.

 

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