"People faced with a 50 percent increase are far more likely to drop their insurance than to stomach that increase for the nebulous prospect of a future refund," said Carmen Balber, director of the Washington office for Consumer Watchdog, an advocacy group that has battled the insurance industry over health reform. And for those who stick it out, she said, "they've spent a year overpaying for their health insurance."

WASHINGTON, DC — Connecticut Insurance Commissioner Thomas Sullivan took another swipe at health care reform on Monday, arguing that proposed new rules aimed at reining in excessive insurance industry profits could have "dreaded unintended consequences."

The health care overhaul approved by Congress earlier this year included a requirement that insurance companies spend at least 80 to 85 percent of their premium revenues on actual medical care, as opposed to administrative expenses, CEO salaries, and profits.

Last week, state insurance regulators approved new rules that spell out in detail what insurance companies can count as medical care-and what must be tallied up as administrative expenses. The rules were developed by the National Association of Insurance Commissioners, and the NAIC passed a final set of recommendations at its meeting in Florida last week.

Sullivan was among those pushing at the Florida meeting for looser regulations, voting in favor of several industry-backed amendments that would have given insurers more leeway in achieving the new 80 to 85 percent thresholds. Those amendments failed to pass.

"I'm very fearful of a shrinking or contracting marketplace around some of the provisions we adopted," Sullivan said, of the action taken by his fellow insurance commissioners last week.

Sullivan has already come under fire for approving double-digit premium hikes requested by insurers for some plans in the individual market–increases he said were justified because of new mandates included in the health reform law. Despite igniting a firestorm of criticism for giving those rate increases the green light, Sullivan has not backed down.

And in his remarks on Monday, Sullivan said the newly approved NAIC rules could make things even worse.

The new premium regulations, set to go into effect for 2011 insurance policies, are now pending before Secretary of Health and Human Services Kathleen Sebelius, who praised them as "reasonable, achievable" guidelines to ensure premium payments are spent mostly on health care.

The NAIC rules will, among other things, allow insurers to categorize expenses related to reducing medical errors and decreasing hospital re-admissions as patient care. But money spent on anti-fraud programs will have to be counted as an administrative cost.

Sebelius said she will act quickly on the recommended rules, which also garnered wide praise from consumer groups that said they would help lower premiums.

Sullivan, for the most part, had a much different take. For example, he and others argued in favor of an amendment that would have allowed self-insured companies to calculate the percentage of premium dollars spent on medical care at the parent company level. Instead, the NAIC rules would require each subsidiary to calculate and report that percentage separately.

Consumer groups said this was vital to ensuring that consumers in one state aren't overcharged for their health insurance to subsidize cheaper rates somewhere else. But Sullivan said it could hurt regional companies in Connecticut and elsewhere that need to spread their insurance risk out over a larger group of employees than they have in any single state.

He also said the measure could deter insurance companies from entering new markets. If an insurer has no business in a state, "they only way they can go in and compete is by being aggressive with their rates, so they need to spread risk across the border," Sullivan said.

Sullivan declined to disclose the current medical loss ratios of specific Connecticut insurers. But generally speaking, he said, it's a wide range, from individual and small group plans that devote as little as 60 percent of their premium revenue on medical care to large-group insurers that spend as much as 90 percent on health benefits.

Sullivan said the new rules will render those figures meaningless, because, if the NAIC recommendations are adopted, insurers and regulators will be considering many new factors when making those calculations.

"You're going to move everybody into a new environment, where it's more prescriptive," he said.

He said it's hard to predict exactly how these new regulations will play out in Connecticut. But he rejects the argument of consumer groups that it will usher in a new era of lower premiums, without hurting competition.

"The more you regulate and constrain the market," he said, "the less capacity you have deployed and the less competition you have."

Still, Sullivan said there was at least one bright spot in the new framework. Insurance companies that fail to meet the new medical loss ratios will have to issue rebate checks to consumers. So for example, if an insurer only spends 70 percent of its premium income on health benefits when it was supposed to spend 80 percent, it will have to refund the 10 percent difference to its customers.

Sullivan said that means if his office made a mistake in allowing, for example, Anthem to increase its rates by as much as 47 percent, then Connecticut residents holding those policies could get some money back at the end of next year.

"If my office … missed the mark and gave them more than what they should have gotten, [the health care law] requires a rebate," he said.

Consumer groups said that's hardly any consolation for patients facing sharp increases in their health insurance bills right now.

"People faced with a 50 percent increase are far more likely to drop their insurance than to stomach that increase for the nebulous prospect of a future refund," said Carmen Balber, director of the Washington office for Consumer Watchdog, an advocacy group that has battled the insurance industry over health reform. And for those who stick it out, she said, "they've spent a year overpaying for their health insurance."