Mandates Can Invalidate Premium Guarantee Periods

[AllenChicago]

For curiosity, I asked that an October 1st health insurance policy be sent to me, for personal delivery to a client.

I knew that this carrier wouldn't put the 9/23/2010 reform mandates into effect until January 1, 2011 for OCT/NOV/DEC policies. But, I thought that the 12 month rate guarantee meant just that... no premium increase for the first 12 months of the policy. I was WRONG.

While the policy document itself said, "Premium Guarantee: 12 Months",
the premium schedule letter that was in the policy folder said: (Paraphrasing) "Due to the Healthcare Reform Act, we will be adding all the benefits of that act to your policy effective January 1, 2011. At that time we will send you out a new benefits addendum and ADJUST YOUR PREMIUM ACCORDINGLY."




My MGA called to the company for an explaination. To make a long story short, a company can "adjust" premiums even during a premium guarantee period if the government (Federal or State) mandates an increase in benefits.

Since this company uses a Group Certificate to insure individual policyholders, when the certificate renews in January 2011, all policies effective 10/1/2010 thru 12/15/2010 will have their premiums adjusted upward on Janaury 1st. (This company only allows 1st and 15th eff dates) The increase will be about 4%.

I've had 7 policies issued with this company with October 1st, or later, effective dates and 4 more in underwriting. These clients and potential clients are expecting to get the 9/23/10 benefits on January 1st, but they're also expecting a 12 month premium guarantee.

Going forward, I'll be sure to tell potential clients about the 4% "Obama Adjustment" and associated benefit enhancements that will both be effective on January 1, 2011. Just thought it interesting that a single policy binder could say "12 month rate guarantee" in one place and on another page say that your premium will be going up in a few months.

-Allen

 

[dgoldenz]

That's how I thought it would work, but I haven't seen the actual policies with how the guarantee is written yet. I think it would be a bad PR move for the insurance companies to adjust the rates on recently issued policies, but would definitely expect an increase on January 1st for new policies. There is an administrative expense for issuing all of the policies and they may get a lot of cancellations if people get increases very shortly after buying a new policy. Just my opinion.

 

[AllenChicago]

In most cases, I agree that a premium increase 3 months into a policy is a bad P.R. move. Thankfully, most of my clients are small business owners who don't really follow the small premium changes. They just call me when there's a BIG one.

I suppose if a Group plan is written for OCT/NOV/DEC, they will get a 1/1/11 premium increase along with their benefit enhancements too. It could be really bad PR for a group to get an unexpected premium increase within 3 months of starting a new plan.
-ac

 

[Post Quartermaster]

Since this company uses a Group Certificate to insure individual policyholders, when the certificate renews in January 2011, all policies effective 10/1/2010 thru 12/15/2010 will have their premiums adjusted upward on Janaury 1st. (This company only allows 1st and 15th eff dates) The increase will be about 4%.


-Allen

That is one of the many reasons I don't write IFP business with carriers that use a group/association chassis.....

 

[jbage007]

You guys are such weenies. In California, effective with 10/1 effective dates (i.e. as of NOW), Blue Shield has withdrawn its 12 month rate guarantee altogether. In the long run this may be a more politically correct move - who knows?

 

[669comche]

The only saving grace is that this will be that everyone is getting a rate increase.

100% preventative for a 4% increase. Thats an easy sale.

 

[AllenChicago]

That is one of the many reasons I don't write IFP business with carriers that use a group/association chassis.....

This "Group/Association" is one of the easiest to sell because most small business owners (my primary market) feel that groups provide benefits not available to individual policyholders. This makes them VERY receptive to learning more during the initial contact.

In Illinois, these type of plans haven't historically had mid-year price increases. Blue Cross, Aetna, Humana, and other Non-Association plans do. The Association-Group only increases once per year, on the individual policyowner's renewal date. At least its been that way since 2001. But it looks like health reform just changed that for the OCT thru DEC 2010 new clients.
-AC

 

[LGilmore]

Go back and check your old policies... the right to adjust premiums due to mandates or other government interventions has always been there.

Usually it goes "your premiums are guaranteed for 12 months, unless government.... "

 

[2112Greg]

LGilmore, that's correct, all guarantee periods have had that caveat. Additionally, it's subject to change in these circumstances - when there is a customer-directed change in coverage, such as a change in benefit or deductible. The other is when there is a change in location that has a different rate structure.

There is a lot of troublesome semantics here, though. Some companies will say premiums could change when and only when that actual person's certificate changes. Other companies are more vague and indicate that rates can increase if the mandates, in general, that may not effect a person's exact coverage, but will still have the right to 'adjust' rates. For example, how the effect that child-only PX exclusions will have on an adult's policy...this is a gray area.

There is a lot of openendedness how mandates will effect the guarantee period where the mandate does not change the person's coverages/benefit.

 

[somarco]

Aetna instituted 3 rate increases on existing policyholders in the first 5 months of the year. That didn't go over very well especially since there was no advance warning which is typical for Aetna.

Then they announced that new business would have a 12 month guarantee but after the first year they can raise rates as needed.

I have more trouble keeping Aetna business on the books than any other carrier.