California health insurance provider Aetna has withdrawn a proposed rate increase after an independent review found mistakes in the company's calculations to justify boosting the rates on 65,000 policyholders' plans by an average of 19 percent.
Aetna's shares fell over 2 percent after substantial mathematical errors were discovered by a California regulator. The proposal was incorrectly multiplied when converting the monthly premium into an annual one. The No. 3 U.S. health insurance provider attributed the error to a "simple human error".
According to the California Department of Insurance, Aetna's California health insurance proposal would have increased insurance rates by an average of 19 percent. The mathematical mistakes were a result of inflated rate hikes, however it remains a question as to how far off the rates were because the company withdrew the proposed increase before the review was completed.
The review that prevented Aetna Inc.'s hike was part of a broader regulatory initiative by California Insurance Commissioner Steve Poizner. Earlier this month Poizner ordered reviews of all rate increases for individual health insurance plans at California's four biggest insurers.
The four major insurers dominate 90 percent of the market for California individual health insurance policies regulated by Department of Insurance.
In April, WellPoint's Anthem division withdrew its proposed filing to hike rates by an average of 25 percent in California. Democrats had strongly disapproved the insurer's relentless proposal as they rallied to enact the health reform law.
President Barack Obama targeted Anthem's rate increase as a primary example of a failing health care system. He emphasized to health insurance executives that they should discontinue massive rate hikes. Executives counter claimed that many rises were unavoidable because the new health law requires them to offer more attractive insurance benefits.
"I have decided to take the exceptional step to post future filings on the Department of Insurance's website," California Insurance Commissioner Steve Poizner claimed. "Given that two of the four major health insurers have provided rate filings containing math errors, I believe an additional level of transparency is warranted," Poizner added.
In the state of California, insurers are required to spend 70 cents of every dollar collected in health insurance premiums on medical benefits.
