States Acting to Curb Reunderwriting Practices by Insurance Companies

As health care costs increase and health insurance becomes less affordable, state regulators and insurers are beginning to "square off" over the practice of reunderwriting, in which insurance companies raise beneficiaries' premiums after illnesses or claims, the Wall Street Journal reports. Those who support the practice claim that it curbs rate hikes "for the healthiest customers" and "encourages" them to remain insured. Those opposed to the practice say it is bad for consumers and eliminates the risk-sharing benefit of insurance. Some states are taking steps to address the issue:

• Arkansas: After a review of state laws, officials were "frustrated" to learn that the state does not prohibit reunderwriting. They have asked the American Academy of Actuaries to review "the merits of the rating practice" before they draft legislation in the fall.
• Pennsylvania: Officials have launched a legal analysis to help them determine how to respond. Geoff Dunaway, an official with the state Insurance Department, said, "This really appears to run counter to the nature of insurance."
• South Carolina: Insurance officials are debating whether to issue a "bulletin" alerting insurers that reunderwriting is illegal in the state.

Group Works To Combat Other Premium Increases
Some 60 consumer organizations nationwide are teaming up as a group called the Americans for Insurance Reform to launch a campaign against "price gouging" in the insurance industry, the New York Times reports. The group is calling on state regulators to investigate price increases in insurance policy premiums, including those for health plans, and freeze prices on premiums for medical malpractice and other policies. Since Sept. 11, insurers have experienced "substantial losses" -- an estimated $50 billion -- but the group maintains that insurance companies have been "overcompensating by doubling and tripling" premium prices. J. Robert Hunter, the group's founder and director of the Consumer Federation of America, said that prices for standard commercial insurance coverage, including medical malpractice plans, are "two times higher than justified by the insurers' losses." Many state regulators said they have "no proof of overcharging" but are tracking rising prices, the Times reports. The group also said it is worried that state lawmakers will control rising premium costs by limiting the amount of damages a consumer can be awarded in lawsuits against insurance companies. President Bush last week advocated capping damages received through medical malpractice lawsuits. But Joanne Doroshow, executive director of the Center for Justice and Democracy, said, "It is not lawsuits that are driving this problem. This is a problem that has to do with the business practices of the industry as a whole" (Treaster, New York Times, 7/30).