Uodate on MA Heakth Insurer vs. DOI Court Standoff

As I mentioned in a previous post health insurers took state regulators to court over the denial in their requested premium rate increases. Yesterday the judge ruled:

A Suffolk Superior Court judge yesterday denied a request that would have let six Massachusetts health insurers go forward with double-digit rate hikes for tens of thousands of small businesses and individuals, setting up a protracted battle that could become a test of government’s role in controlling health care costs.

Judge Stephen E. Neel’s decision against granting the preliminary injunction sought by insurance companies means the state’s rejection of 235 proposed rate increases stands for now. The higher rates would have taken effect April 1.

The judge rejected the companies’ contention that the insurance market would be thrust into chaos if they could not quickly institute the higher rates. But the ruling is not the final chapter in the battle. Insurers are pursuing appeals within the Division of Insurance. If their appeals are turned down, the court would take up the case later this spring.

During the appeals process, last year’s base rates for what is known as the small-group market will remain in effect. Neel also denied the insurers’ request for an expedited trial.

The case has focused a national spotlight on the tug of war between regulators and a health care system over mounting costs for consumers and businesses.

Governor Deval Patrick, who imposed emergency regulations that set the stage for regulators to reject premium increases, hailed Neel’s decision as a victory for small businesses and families that have been burdened by years of rising health care expenses.

Blue Cross-Blue Shield CEO says it is time for change.

“Unless insurers can give us a good reason why, when everything else is flat, they deserve 20 percent, 30 percent, and in some cases 40 percent increases, they’re going to be denied,’’ Patrick said in an interview. He also called for restraint by hospitals and doctors as state officials work on plans to overhaul how health care payments are made.

Jay McQuaide, vice president at Blue Cross and Blue Shield of Massachusetts, the state’s largest health insurer, said the judge’s decision was limited to the issue of whether insurers could boost rates immediately and does not mean regulators will ultimately prevail.

“We’re confident in the final outcome of the case,’’ McQuaide said. “We’ll be playing the process out. We look forward to having an opportunity to demonstrate that the costs we filed are appropriate and reflect the expected medical costs of insuring these customers.’’

In his much anticipated ruling, Neel accepted the argument of Assistant Attorney General David A. Guberman, who contended that administrative appeals should be the first recourse for insurers as they seek approval for higher rates, rather than the lawsuit they filed against state Insurance Commissioner Joseph G. Murphy last week.

But the insurers are expected to press forward with their court action even as they navigate the appeals process within the insurance division.

The Massachusetts Association of Health Plans, a trade group representing five health insurance companies that joined Blue Cross in suing the state, issued a statement saying it was disappointed in the court ruling. It noted that four state insurers posted operating losses in 2009 due to escalating medical expenses.

“Making health care affordable needs to start with addressing the market clout of certain hospitals and physician groups,’’ the association’s statement said. The group’s members include Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan, Neighborhood Health Plan, and Health New England.

Insurers proposed boosting premiums by an average of 8 to 32 percent for about 50,000 policies that were up for renewal. Those policies covered 200,000 members, a pooled group of both individuals and small business owners.

In saying no to the increases, the state insurance commissioner called them “unreasonable in relation to the benefits provided and excessive.’’

In their lawsuit, the insurers alleged the insurance division exceeded its authority in rejecting the rate hikes. They claimed the move will cause them to collectively lose more than $100 million this year.

During a court hearing last week, the insurers’ lawyer, Dean Richlin, suggested some insurers might “go out of business’’ or go into state receivership if they can’t cover their costs.

Insurers had posted their proposed rate increases on the state’s Health Connector website last month in anticipation of winning approval for them. After they were rejected, regulators ordered the companies to remove the higher quotes and post new ones using base rates from April 2009. Some insurers last week said they were, as ordered, recalculating their rates; others said they were waiting for the court’s ruling on their request for injunction.

That has meant that for the past week individuals and small businesses have been unable to shop for insurance, or switch coverage to a new plan, through the Connector, an online exchange set up by the state’s landmark 2006 health care law.

“We’re pleased that the decision ends the uncertainty that has blocked individuals’ ability to buy health insurance coverage,’’ said Brian Rosman, research director for Health Care for All, a consumer group in Boston. “And the decision moves all of us who care about health care to focus on the underlying issues of our high cost medical system.’’

But Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a nonprofit policy research firm, said the judge’s decision is only likely to prolong a process that will inevitably return to the court. He said the insurance division will probably uphold the Patrick administration’s approach.

“This just extends the period of uncertainty and turmoil, which is unfortunate but predictable,’’ Widmer said.

In his ruling, Neel took issue with the contention that he needed to step in to prevent confusion in the marketplace.

On the contrary, he wrote, the “disruption predicted by plaintiffs would be exacerbated, not relieved, were the court to grant the injunction they seek.’’ By granting a preliminary injunction, he said, “the court would in effect be stepping into the commissioner’s shoes and approving those [higher] rates — but only for the life of the preliminary injunction.’’