Redmer lays HMO cost rise to Democrats

Rebuffing partisan calls for his resignation, state Insurance Commissioner Alfred W. Redmer Jr. defended yesterday his handling of requests from insurers to pass on a recently approved 2 percent HMO tax to consumers, saying he is following the procedure established by his Democrat-appointed predecessor.

"We do not set public policy, but we implement the policies and the laws sent to us by the General Assembly, and the HMO tax is one of them. The HMO tax is not something that I asked for," said Redmer, a former Republican delegate and appointee of Gov. Robert L. Ehrlich Jr. "Our ultimate process is identical to that that was created by my predecessor."


Redmer's comments came hours after a fresh attack in Annapolis from leading Democratic lawmakers who said the commissioner has done little to protect Maryland residents from rising costs.

Appearing at an unusual joint news conference, the presiding officers of the House and Senate and several committee chairmen said Redmer should conduct a full examination of the finances of the health maintenance organization industry, including company surpluses and executive salaries, before allowing them to bill customers for the premium tax. The levy was approved by the General Assembly last month as part of a solution to a medical malpractice insurance crisis.


Redmer's office notified companies that they could pass the tax through to customers after the Assembly overrode an Ehrlich veto of the medical malpractice legislation. Three companies have sent notices saying they plan to raise rates.

"He just continues to side over and over again with the insurance companies," said Democratic Senate President Thomas V. Mike Miller. "What we need in that position is a watchdog, not a lapdog. Quite frankly, I think he should resign."

Other lawmakers did not go quite so far. House Speaker Michael E. Busch, also a Democrat, said Redmer should fully explain his decisions to legislative committees, and if the explanation is inadequate, leaders should consider establishing an elected office for insurance commissioner.

Redmer gave the insurance companies "carte blanche authority to make millions of dollars," Busch said.

The HMO tax was the most contentious portion of a medical malpractice reform bill adopted by the Assembly during a special session last month. Ehrlich vetoed the bill, saying the tax would be passed on to customers.

Extension of the premium tax to HMOs - it already applies to other types of insurance coverage, such as preferred provider organizations - would raise costs for most family coverage by about $200 yearly.

The Maryland Health Care Commission estimates that 1.2 million Marylanders are covered by HMOs, out of a total of 3.6 million with private health insurance.

Democratic lawmakers have accused Redmer of streamlining the process for HMOs to pass on the charge as part of a concerted political effort to undermine the legislation and stoke consumer anger.


Redmer denied the allegations yesterday, pointing to a 2003 bulletin written by the former insurance commissioner, Steven B. Larsen, an appointee of Gov. Parris N. Glendening, during a time when the tax was also being considered.

After the energetic partisan attack, Republicans sprung to Redmer's defense.

Ehrlich and other Republican leaders said Democrats were trying to divert attention from a tax that they approved, and now must endure consumer anger.

"In the past, there were no consequences to raising taxes. Today in Maryland is a new day," Ehrlich said yesterday. "What they [Democrats] are reacting to is the fact that they own it, and people don't like it."

Republican Assembly leaders said they would introduce legislation to repeal the HMO premium tax. "It's not necessary. It's regressive," said Del. Anthony J. O'Donnell, the House minority whip from Calvert County.

Larsen confirmed yesterday that he had prepared a bulletin in 2003 allowing an automatic pass-through and circulated a draft to insurers, although it never became official because the bill imposing the tax never became law.


"The concept is premised on HMOs having in place an actuarially justified rate without an HMO tax," said Larsen, currently president and CEO of Amerigroup Maryland Inc., a Medicaid HMO.

Larsen said that in reviewing HMO rates, the insurance administration under his leadership only considered claims and other costs reported and projected in the rate filing. "We didn't look at surplus or building or salaries, and there are questions whether those are factors we could have looked at," he said.

Similarly, Don Brandenberg, the insurance administration's chief actuary, said the agency's understanding of the law is that it can only review rates in relation to expected claims and expenses. The law says, "Rates of a health maintenance organization may not be excessive, inadequate, or unfairly discriminatory in relation to the services offered."

Brandenberg said the insurers that have filed and received approval to pass through the tax are Mid Atlantic Medical Services Inc. (which operates Optimum Choice and M.D. IPA HMOs and the UnitedHealthcare HMO in the region), Aetna Inc., and Coventry Health Care Inc., for increases effective March 1 or April 1. Kaiser Permanente has announced it will raise rates April 1, but hasn't officially filed.

CareFirst BlueCross BlueShield, the state's largest insurer, also has not yet filed for an increase but officials have said that it was "inevitable" that the cost would be passed on.

Brandenberg said HMOs could justify, actuarially, an increase of about 2.5 percent to pay for the 2 percent tax.


For example, he said, if an HMO had a premium of $1, and raised it to $1.02, it would have to pay the tax, and commission to brokers, based on $1.02. To get an increase larger than 2 percent, however, the HMO would have to go through a full rate filing and review, which would delay imposition of the increase.

Some lawmakers said HMOs were trying to scare their customers. Sen. Paula C. Hollinger, a Baltimore County Democrat and chairwoman of the Education, Health and Environmental Affairs Committee, said that MAMSI Health Plans sent a letter to all of their customers - not just HMO holders - notifying them of the 2 percent cost increase.

In Baltimore, Mayor Martin O'Malley is fighting the increase for city employees. O'Malley said he wrote to MAMSI that the city would not pay the higher costs because it has a binding contract through 2007.

Redmer's bulletin to insurers said they could only pass through the increase if that was permitted in their contracts with their customers. Most insurance contracts contain a clause that makes such a pass-through legal during the term of the contract. The state Department of Legislative Services said it was studying the state's contracts with its HMOs to see if premiums could be raised during their terms.