April 2, 2010— -- There is a showdown taking place between insurance companies trying to raise premiums on hard-hit policy holders and some state officials determined to stop them.
Mila Kofman, the insurance regulator in Maine, one of 29 states with the power to control the price of health insurance, is leading the fight there against excess profits.
Very few of the state regulators who have authority like Kofman's actually use their power.
"Historically, half of them came out of the insurance industry and half will go there when they are done," said Robert Hunter, a former insurance regulator in Texas and director of insurance for the Consumer Federation of America. "They don't want to be too tough on an industry they'll soon be joining."
But Kofman is different. She has no past or present ties to the insurance industry and prior to her appointment as superintendent of insurance for Maine, she was a Georgetown professor specializing in consumer protection.
"We are the super cops on the street," Kofman said. "We have to make sure that private health insurance companies keep their promises. That means staying solvent, but also making sure that the rates are supportable, adequate and that they're not excessive."
As the White House today took the first steps under the new health care reform law to help people with pre-existing conditions get coverage, Kofman was staring down insurance companies on the front lines.
Her biggest battle is with Anthem Blue Cross and Blue Shield, a part of WellPoint, which made a $33 million profit in Maine last year, but lost $2.3 million covering individuals who bought their coverage privately.
In light of this, the company asked to raise the premiums on those individuals by more than 18 percent. More than a third of the families affected by the rate increase have a $30,000 deductable. So anything short of catastrophe comes out of their pockets.
"Historically, Anthem's individual rates -- as approved by the Maine superintendent -- have reflected medical cost trends and a pre-tax operating margin of 3 percent to cover unanticipated risks," Christopher Dugan, the director of public relations for Anthem Blue Cross and Blue Shield, told ABC News. "Over the last five years, that slim margin has been insufficient to cover even the costs of paying medical claims and providing coverage for our members."
After running their numbers, Kofman denied the company's request, limiting the increase to just under 11 percent. That's enough for Anthem to cover last year's rising costs, but not enough to make a profit. Anthem responded to the denial by launching a lawsuit.
"Capping premiums while allowing medical costs to soar is financially irresponsible and will put at risk the health care coverage on which families and employers rely," said Karen Ignagni, the president and CEO of America's Health Insurance Plans, a national industry association.
The highly-anticipated verdict will be brought by the judge next week.
While President Obama's new law requires insurance companies to publically defend their price hikes, it depends on state regulators to keep them honest every day.
"A lot of states simply don't have the horses to stay on top of the industry, which fought hard to keep regulation at the state level," Hunter said.
Massachusetts is another rare exception like Maine. After reviewing 274 separate rate increases, the state rejected 235 of them on Thursday.
"We have a for-profit industry that has to have an opportunity to offer a valuable product and make a profit. There is nothing wrong with that," Kofman said. "But also we have private health insurance that must work for consumers, for patients. For some, it's their lifeline to getting medical care."
Meanwhile, people in Maine are lashing out at Anthem's latest plan to hike premiums. This year, the company wants to raise them by almost 23 percent. But once again, they'll have to get it past Kofman, who took the oath today on a new five-year term.