WASHINGTON – The U. S. Department of Health and Human Services announced Thursday that an independent review of proposed health insurance rate increases by Trustmark Life Insurance Company affecting members in five states are “unreasonable.”

According to HHS, the rate increases proposed would affect nearly 10,000 members residing in Alabama, Arizona, Pennsylvania, Virginia and Wyoming. In these states, Trustmark has raised rates by 13 percent. For small businesses in Alabama and Arizona, the increases have been especially steep. When combined with other rate increases over the past twelve months rates in Arizona have climbed 27.2 percent and in Arizona they have increased 18.1 percent.

"Before the Affordable Care Act, consumers were in the dark about their health insurance premiums because there was no nationwide transparency or accountability," said HHS Secretary Kathleen Sebelius, in a press release. "Now, insurance companies are required to disclose rate increases over 10 percent and justify these increases. It’s time for Trustmark to immediately rescind the rates, issue refunds to consumers or publicly explain their refusal to do so."

See also:HHS calls out Pennsylvania insurer for 'unreasonable' rate increases.]

In making its finding, HHS cited its finding that Trustmark would be spending a low percentage of the premium on medical care and quality improvements. It also reported that the justifications for the increases “were based on unreasonable assumption.”

But Trustmark contends that because it is a small insurer its medical loss ration can experience significant swings from one year to the next and that it must take this volatility into account when setting its rates.

“Our premiums are driven by the rising cost and increased utilization of medical services…Trustmark has been and will continue to be in compliance with all aspects of the Affordable Care Act, including requirements related to the Federal Medical Loss Ratio Rule,” the company noted in a release to the press in response to the HHS findings.  “If there are instances where we do not reach the required loss ratio as calculated under the federal regulations, we will, promptly and in accordance with the Affordable Care Act, rebate the difference to those customers.”

[See also:New HHS regulation seeks to combat unreasonable premium increases.]

This is the second such finding by HHS based on its expanded insurance rate review policy that allows it to independently review any rate request that exceeds an increase of more than 10 percent. In late November Everence Insurance in Pennsylvania was called out for a proposed increase of more than 12 percent affecting 5,000 people.

HHS rolled out the new policy in September as a means to help states that don’t have the manpower to conduct thorough rate increase reviews and to make the rate setting activities of insurers more transparent. Even if the agency finds an increase unreasonable, it does not have the power to lower or reject the rate increases. It does, however, require insurers who move ahead with the increase despite the HHS’ finding to post their justification on the company website.

Currently only 37 states have laws on the books that allow them to reject rate increases. Consumer advocates contend that every state should have this authority.

"Disclosure alone will never be enough to prevent health insurers from charging unreasonable insurance premiums,” said Carmen Balber, Washington director for Consumer Watchdog when HHS announced its rate review policy in September. "To protect consumers, regulators must have the power to review and reject excessive rates.”

The insurance industry has been critical of the HHS policy. American’s Health Insurance Plans (AHIP) says that insurance increases between 2003 and 2010 have only very slightly outpaced the increases of the costs of healthcare. Over that time, total increases in medical costs to health plans totaled 74 percent.

It’s a mantra the industry has been promoting for some time and one that HHS seemed ready to take on with the finding on Trustmark’s proposed rates. In the press release announcing the finding, HHS noted that yearly analysis on healthcare spending by the Centers for Medicare & Medicaid Services shows that “U.S. healthcare spending experienced historically low rates of growth in 2009 and 2010. “