The Obama administration is exercising for the first time one of the new authorities granted to it by the Patient Protection and Affordable Care Act, calling on Everence Insurance Co. to lower its health insurance rates after conducting the first federal rate review.

Everence had requested a 12% rate increase in Pennsylvania, but the U.S. Department of Health and Human Services determined that request was “unreasonably high.”

“We have called on this insurer to immediately rescind the rate, issue refunds to consumers or publicly explain their refusal to do so,” said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services, in a statement.

Everence said the proposed increase came as a result of rising medical costs. Dave Gautsche, senior vice president of products and services at Everence, said in a statement the company took losses on its small business health plan in Pennsylvania, yet it was not increasing rates above the trend of rising claims costs.

“Our products are built around having long-term trusting relationships with our small-business customers,” Gautsche said. “Our goal is to help them manage the high cost of health care, not make it higher for them.”

Everence also said the data HHS used to conduct its rate review may not accurately reflect the company’s proposal. Everence said its request was based on a two-year period, while HHS used a one-year period for its review. The shorter period of time may work for larger companies, but smaller companies tend to see wider rate swings for its small business clients, the company said in a statement.

In Pennsylvania, Everence covers just less than 1,800 individuals in its ShareNet plan, which was the subject of the federal rate review. Nationally, ShareNet covers 5,000 individuals.

Everence also noted it had applied the two-year time frame in all of its state rate filings in 2011, and each of those states approved its proposed rate increases.

Under the ACA, companies whose rate requests are deemed to be unreasonably high by the federal rate review process will have 10 days to either lower the rate request or file a justification with the department.

HHS said the review of Everence would be “the first of many” reviews it will conduct in addition to the reviews conducted by state insurance regulators. Proposals to raise rates by 10% or more will be reviewed.

“We hope that by publicizing the excessive premium hikes, we will empower consumers,” HHS Secretary Kathleen Sebelius said. “By shining a light on unjustified premium increases, we will hold health insurers accountable like never before, and help keep money in the pockets of Americans.”

HHS has also been supporting state rate review processes. In September, the department awarded $109 million to 28 states and the District of Columbia for improvements to their regulatory infrastructure for examining health insurance rates.

Those grants will go toward information technology upgrades, consumer education and communications, hiring new staff, expanding the scope of regulations and legislation and other projects. The funding is more than double the amount of rate review grants previously awarded under the Affordable Care Act

(c) 2011 A.M. Best Company, Inc.

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