UPDATE 3-Obama warns health insurers not to hike rates

Tue Jun 22, 2010 5:24pm EDT

* Administration releases rules for consumer protections

* Industry: focus on other health industries needed

* HHS says new rules to raise rates less than 1 pct

* Insurers' shares down 2.5 percent (Adds Aetna CEO, industry reaction, updates with shares close)

By Lisa Lambert and Susan Heavey

WASHINGTON, June 22 (Reuters) - President Barack Obama warned U.S. insurance firms on Tuesday not to use his healthcare overhaul as an opportunity to push through big rate increases and said the federal government would work with states to monitor them.

"Insurance companies ... shouldn't see it as an opportunity to enact unjustifiable rate increases," Obama said, after meeting with state officials and insurance company executives.

Obama's caution to the multibillion dollar industry comes as Democrats prepare for a difficult battle to retain their majority in Congress ahead of the November mid-term elections. His warning also further put health insurance companies on the defensive and pressured their shares.

The chief executive officers from major insurers such as Aetna Inc (AET.N), Cigna Corp (CI.N) and WellPoint Inc (WLP.N) attended the roughly 90-minute meeting. Afterward, companies stressed that although they will follow the new rules, costs for consumers are likely to continue to rise.

"I think there was a recognition that consumers are going to get more. When you get more, you pay more," Aetna's CEO Ronald Williams told Reuters after the meeting.

Obama acknowledged that there are "genuine cost drivers that are not caused by insurance companies" but said companies must still publicly justify any rate increases on both the federal health website and their own.

He also pointed to states such as Maine, Pennsylvania and New York that are addressing sudden spikes in health insurance rates that he said underscored the need for the landmark healthcare reform legislation passed three months ago.

Pennsylvania is investigating the state's nine largest health insurers over rate increases that Governor Edward Rendell called exorbitant while California officials have investigated WellPoint's proposed increases of as much as 39 percent that the insurer later called a mistake.

Obama's warning followed a Kaiser Family Foundation report that showed health insurers are raising prices by an average of 20 percent for working-age adults who buy their own policies.

His administration also released new regulations on Tuesday detailing consumer protections set to take effect in September. Obama said that "will put an end to some of the worst practices in the health insurance industry and put in place the strongest consumer protections in our history."

The rules will protect children with preexisting conditions from being denied healthcare insurance, stop insurance companies from canceling coverage, except in some cases, and prohibit lifetime limits. Wider changes take effect in 2014.

PATIENTS BILL OF RIGHTS

Obama called the regulations a "Patient's Bill of Rights," but insurers said they may increase the price of healthcare.

"These rules have the potential to add costs to what we're already experiencing today," Blue Cross and Blue Shield Association President and CEO Scott Serota said in a statement.

U.S. Health Secretary Kathleen Sebelius said the administration estimates that premiums will rise by less than 1 percent on average as a result of the new regulations.

Three months ago, Congress passed an overhaul of health insurance intended to ensure that every American has access to healthcare and is expected to expand coverage to more than 30 million uninsured Americans over the next few years.

"While we want solvent insurance companies and we want to make sure that the private market is stable, we also want to make sure consumers are protected against excessive rate increases," Sebelius said. She also urged state insurance commissioners to investigate premium problems and said her department would monitor them as well.

"We wanted to caution insurance companies that rate increases would be watched very closely," she said.

Democrats and various consumer advocacy groups hailed the new rules to back the merits of the health care law, which Republicans have vowed to overturn as they campaign to win back more congressional seats.

Shares of health insurers, which have swung over the last 18 months alongside the volatile healthcare debate, underperformed the overall market after Obama's remarks. Despite the new rules, some advocates and Wall Street analysts have said companies could eventually gain millions of new customers.

The Morgan Stanley Healthcare Payor Index .HMO and the S&P Managed Healthcare Index .GSPHMO closed down 2.5 percent and 2.2 percent respectively on Tuesday while the overall S&P 500 Index .SPX ended down just 1.6 percent. (Reporting by Lisa Lambert and Susan Heavey; additional reporting by Lisa Richwine, Patricia Zengerle and Jon Lentz in Washington, and Lewis Krauskopf in New York. Editing by Chris Wilson and Cynthia Osterman)