Health insurers' rate increases to be scrutinized more closely

Kaiser Health NewsMay 19, 2011 

WASHINGTON — Health insurers seeking rate increases of 10 percent or more will face increased scrutiny starting in September under rules the Obama administration finalized Thursday.

States — or in some cases the federal government — will review the premium increases and insurers will have to justify increases deemed unreasonable. The law doesn't give the federal government the power to reject increases, but many state regulators have it.

The rules, required by the health care law enacted last year, also require insurers to provide a broad overview of what they'd spend the money on, including how much would go to medical services, profits and administrative costs.

"Recently, insurers have posted some of their highest profits in years ... and (yet) they continue to raise rates, often without any explanation or justification," Health and Human Services Secretary Kathleen Sebelius said in a conference call. "The framework of the Affordable Care Act is beginning to change this."

The rules are nearly identical to a proposal that HHS issued in December, and they come amid continued concern about rapidly rising insurance costs. Rates have risen even though many insurers have seen their costs slow as financially strapped consumers cut back on medical care.

Insurers criticized the rules.

"Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make health care coverage more affordable for families and employers," Karen Ignagni, the head of America's Health Insurance Plans, said in a written statement.

"Premium review must adequately factor in all of the components that determine premium rates," Ignagni added, "including geographic variation, the cost of new benefit mandates and the impact of younger and healthier people dropping coverage."

Under the final rule, the 10 percent threshold will be in effect for rate hikes starting Sept. 1, two months later than originally proposed. But in subsequent years, the states will develop state-specific thresholds in conjunction with HHS, reflecting local market conditions.

Consumer groups were generally supportive, with Ethan Rome of the left-leaning Health Care for America Now saying it puts insurers on notice that "unjustified, double-digit premium rate increases will not be tolerated."

The new rules affect only insurance policies sold to individuals and small businesses, not those offered to large employers. Administration officials said they'd seek additional comments on whether the rules should be expanded to so-called "association health plans," which are sold to individuals and small businesses, but are pooled together in large groups.

Timothy Jost, a professor at Washington and Lee University School of Law, said he was disappointed that the rules didn't include association health plans.

"That's a huge loophole and an easy way for health plans to avoid scrutiny," Jost said.

Some consumer groups also took issue with the 10 percent standard, saying the rule needed a secondary "trigger," such as increases that go beyond medical cost inflation.

Without such a second option for review, the regulation could "lock in a 9.9 percent increase as the de facto 'reasonable' rate," the advocacy group Consumer Watchdog warned in a letter to HHS.

The group also said the rules allowed states to keep from consumers more in-depth financial details from insurers, information that advocates say people need to make their own judgments about rate increases.

"The actual data backing up insurers' claims will still be private in many states and the public will have no ability to question those assumptions," said Carmen Balber, the director of Consumer Watchdog's Washington office.

Under the rules, states with "effective" rate review systems would do their own reviews of the increases. To be considered effective, states must show they collect data sufficient to determine whether a rate increase is unreasonable and must allow for public comment about the increase.

If a state can't do an effective review, HHS will do it for that state.

Only states can reject rate increases. According to the National Conference of State Legislatures, about two dozen states have laws that allow regulators to approve or disapprove of some types of insurance premium changes, although how the authority is used varies widely.

In recent months, some state regulators have sought reductions. In Rhode Island, the insurance commissioner lowered a requested 7.9 percent increase to 1.9 percent. After North Dakota policyholders complained, a proposed 24 percent increase was lowered to 14 percent in April.

In the past year, some insurers in California withdrew double-digit increases after regulators found mathematical errors in the companies' calculations. But another insurer, Anthem, moved ahead this month with increases of up to 16 percent, even after the increase was deemed unreasonable. Regulators there don't have the authority to reject increases, but they're seeking legislative authority to do so.

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

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