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State looks to change health insurance rate setting process for individuals, small businesses

The State House dome.Lane Turner/Globe Staff

Consumer and business advocacy groups have long decried rising health insurance premiums, warning that health care has become increasingly unaffordable.

The Massachusetts Division of Insurance has responded to the cries for action with draft regulations that, advocates say, could slow the growth of premiums and increase transparency into the rate setting process for hundreds of thousands of individuals and small businesses.

The regulations would reduce the number of chances insurers have to file rate increases for small businesses and require insurers to provide information to the public to support their rates for individuals and small businesses. A public session would be part of the annual review process.

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A public hearing on the draft regulations is scheduled for Thursday.

The state-approved rates are the basis on which insurers set premiums for individuals and small businesses, and consumer groups say the new process would help them better understand and communicate to residents why increases are happening.

“A transparent process would [inform] not just groups like ours but others about what decisions are being made,” said Amy Rosenthal, the executive director of consumer advocacy group Health Care For All.

Yet insurers worry that the new process isn’t about increasing transparency, but politicizing the state’s rate review process.

“We are concerned that a public hearing process will unnecessarily politicize the rate development process and will distract from efforts to address the underlying drivers of health care costs,” said Lora Pellegrini, CEO of the Massachusetts Association of Health Plans.

The changes could impact the rate process for thousands. In 2018, 307,000 individuals and their dependents were covered under fully insured, individually purchased health care coverage, and 454,000 people under fully insured coverage purchased by small employer group purchasers — classified as having up to 50 eligible employees.

Under the current rules, insurers set rates for individuals and small businesses at the same time, a group known as the “merged market.” Rates set in the first quarter apply to individuals for the rest of that year, whereas small business rates are set quarterly for whoever is renewing their insurance in that quarter.

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The process happens with such frequency that Kevin Beagan, deputy commissioner at the Division of Insurance, told the state’s Health Policy Commission last year that the division chose not to push back more forcefully on high increases one quarter, given the timing of when the rates would need to be available.

There is currently some negotiation between the division and insurers about the rates. While the division is able to reject rate increases it feels are “excessive, inadequate, or unfairly discriminatory,” the process has only been used once in the last decade . The rejection process is also cumbersome, requiring hearings on the specifically rejected rate in tight time frames.

The division began looking at reforms around the same time that a state council was established in 2019 to look at rates set in the “merged market.” A report released by the council in January also suggested an annual and more transparent rate-setting process.

In addition to adding a more public-facing process, the draft regulations would change the current quarterly rate review process for small businesses to an annual one, though the process as it’s being discussed among insurers and consumer groups could also allow insurers to request quarterly rate changes for the small business group as part of the annual process.

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A spokeswoman for the Division of Insurance said the changes were to make the process more transparent and better support stability and affordability of plans offered in the merged market.

Jon Hurst, president of the Retailers Association of Massachusetts, said a public process could help illuminate why insurers are pressing for higher rates, and shine a spotlight on what he called the true drivers of higher spending — namely, doctors and hospitals.

“We should at least try to pull back the curtain and try to look at these providers a lot closer than what we’ve done,” Hurst said. “Because what we’ve done to date just isn’t working.”

Blue Cross Blue Shield of Massachusetts, the state’s largest insurer, declined comment.

Pellegrini, of the Massachusetts Association of Health Plans, said in a statement that insurers are already limited in the amount they are allowed to spend on administrative expenses, with requirements to return excesses to customers in the form of premium rebates.

Further restricting rates without addressing the increases charged by providers, hospitals and drug makers could render health insurers insolvent without truly solving the issue of rising spending, Pellegrini said.


Jessica Bartlett can be reached at jessica.bartlett@globe.com. Follow her on Twitter @ByJessBartlett.