This article shows a possible trend for insurance companies to consolidate into their own home regions. The new 80% rule is the law making them do this. This means less competition and possibly higher prices for consumers now in Indiana.
The nation’s third-largest health insurance company is the latest to leave the individual policy market in Indiana in another sign of diminishing competition to benefit consumers who purchase policies through a state insurance exchange under the federal health care overhaul.
Aetna Inc. informed the Indiana Department of Insurance in an April 29 letter that it intends to cancel all individual policies on Dec. 1. The letter was made public last week in a letter from Deputy Insurance Commissioner Robyn Crosson to the Centers for Medicaid and Medicare Services and posted on the state’s federal health care overhaul website, www.in.gov/aca/.
Aetna spokesman Scot Roskelly said Wednesday the carrier currently has only 700 individual health insurance policies in Indiana, making up only a small fraction of the market, and will remain in other sectors, including small group coverage.
“The administrative costs of overseeing just 700 members are relatively high,” Roskelly said.
However, Crosson, in her letter, said Aetna was leaving the Indiana individual market over a rule in the federal health care overhaul that insurers essentially must dedicate 80 percent of the premiums they collect to medical care. Anything less than 80 percent would be paid as rebates to policyholders the following year.
Crosson said Aetna and four other insurers — Pekin, American Community Mutual, Cigna, and Guardian Life — cited the 80 percent rule, known formally as the medical loss ratio, as their reasons for leaving the individual market in Indiana over the past year.
Indiana’s health insurance market for individuals is dominated by Indianapolis-based Anthem with a 65 percent share, according to Crosson’s letter and the state’s Medicaid actuary, Milliman Inc. Anthem and four other companies control 90 percent of the market.
However, consumer advocates say the exodus of Aetna and other companies likely will result in fewer choices and higher costs for consumers under health insurance exchanges to be established in 2014 under the federal health care overhaul. The exchanges will pool the resources of large groups of people to offer more affordable health insurance.
About 200,000 Indiana residents now have individual polices rather than employer-provided coverage. About 875,000 have no insurance at all, a number Milliman forecasts to fall by about half by 2019 while the number of individuals with policies swells to between 450,000 and 875,000.
“In Indiana and most other states, the anticipation is that most of the new coverage offered through the exchanges will be through individual policies,” said public health insurance advocate David Roos of Covering Kids and Families of Indiana. “Aetna is not a small player.”
The Insurance Department’s health care director, Logan Harrison, said it’s not clear how Aetna’s departure from the individual market will affect an Indiana insurance exchange offering individual coverage. He stressed that the state has not decided yet whether it will create an exchange itself or leave it up to the federal government.
The Insurance Department has asked CMS for a waiver that would phase in the 80 percent rule, which took effect Jan. 1, over several years. It has proposed a medical-loss ratio of 65 percent this year, increasing gradually to 80 percent in 2015. It’s not clear when CMS will decide whether to grant Indiana a waiver. Other states also have requested waivers.