Obama takes steps to cap health insurance rate increases

Kaiser Health NewsDecember 21, 2010 

WASHINGTON — Health insurers that are seeking a rate increase of 10 percent or more in 2011 must detail publicly why the increase is needed, under proposed rules that the Obama administration released Tuesday.

Under the proposal, the flagged premium increases would be subject to review by the states — or the federal government, in some cases — to determine whether they're unreasonable.

In future years, the Department of Health and Human Services will adjust the percentage threshold for the public accounting for each individual state. Thresholds would vary partly because medical costs vary by state.

The proposed rules, which would affect insurance policies sold to individuals and small businesses but not large employers, result from the new health care law. Administration officials repeatedly criticized insurers for raising rates excessively during and after the long debate that led up to passing the law in March.

Evidence "suggests that the majority of increases in the individual market have exceeded 10 percent each year for the past three years," significantly exceeding some national measures of cost inflation, according to the proposal.

While consumers may see any large increase as unjust, the government proposal says it isn't possible to know whether an increase is unreasonable until its underlying assumptions are analyzed.

Final rules could be issued in about six months, after a public comment period. They would affect rate increases that were filed or effective after July 1, 2011.

America's Health Insurance Plans, the industry lobby, said a variety of factors caused premiums to rise, including rapidly increasing medical costs. The regulation considers some of those costs, the group said, but doesn't adequately factor in new benefit mandates and the recession, which is causing younger and healthier people to drop coverage, leaving fewer premium dollars to cover a pool of relatively older or sicker policyholders.

"For example, data from the state of Oregon show that prices of many medical services have increased at an average annual rate exceeding 10 percent," said Karen Ignagni, the lobby group's CEO. "California data show that prices for a hospital stay increased by more than 150 percent between 2000 and 2009, an average annual growth rate of 11 percent. Trends like these are being seen across the country."

Some consumer advocates say the proposed regulation doesn't go far enough. The proposal, for example, gives states discretion on revealing some of the detailed data that insurers provide. States could reveal simpler summaries of the data.

"The whole point of this regulation, as the HHS secretary has said, is to shine a light on the actuarial assumptions ... in the hope that public scrutiny will shame insurers into doing the right thing," said Carmen Balber, the director of Consumer Watchdog's Washington office. "If full data is not disclosed, in many cases we're left with the status quo."

The health care law requires a review and justification for increases that are deemed unreasonable, but it doesn't give the federal government the authority to reject rate increases.

Federal officials hope that public disclosure will discourage unnecessarily large increases, encourage state regulators to take a closer look and help individuals and businesses make wise choices. State officials also can bar insurers that have a pattern of unreasonable increases from selling their products in new marketplaces called exchanges, which are set to open in 2014.

State regulation of premiums varies widely. Some states review proposed rate changes and can deny increases before they go into effect; others allow insurers to put new rates into effect and examine them only if questions are raised.

The HHS says it will look at several factors in determining whether rates are unreasonable, including whether an insurer meets a requirement that it spend at least 80 percent of its revenue on medical costs and whether it produces substantial evidence for the increase.

Insurers would have to post on their websites proposed increases that are above the thresholds, and if the rates were deemed unreasonable they'd have to post that fact as well, in addition to explaining the reasons for the increases. Insurers would need to detail publicly what they're spending on medical care, the expected future claims costs and administrative spending, including executive compensation.

States would do their own rate reviews unless the HHS determines that they don't have effective systems. Among other things, states must show that they collect sufficient data to determine whether a rate increase is unreasonable and review that data effectively, the proposal says.

Forty-five states and the District of Columbia already have accepted about $1 million each in grants to help them bolster their ability to review rate increases. HHS officials said a substantial majority of states already had effective rate review.

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy-research organization that's not affiliated with Kaiser Permanente.)

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