For many consumers, the ultimate test for the embattled health-care law is simple: Will it push down insurance premiums -- or at least slow their relentless rise?
It's a pressing question for the Obama administration, which is hoping its signature domestic policy achievement doesn't end up as an election year albatross. Officials have been jawboning carriers to refrain from big rate jumps and, beginning in September, will require insurers to undergo additional scrutiny before raising premiums 10 percent or more.
But keeping a lid on premiums is hardly a slam dunk: The law doesn't give the federal government or the states, the traditional regulators of health care, the nuclear option: the power to reject rate increases outright. And states vary widely on whether they have the tools or political will to review premiums aggressively.
"There's a real affordability crisis that wasn't created by the federal health reform, but it's not clear it was solved by [the law] either," said Micah Weinberg, senior policy adviser with the Bay Area Council, a San Francisco-based nonprofit business organization.
Consider the challenges:
- In California, the insurance industry is fighting legislation that would give the insurance commissioner the authority to veto excessive premium increases. In a strange bedfellows alliance, insurers are being supported by doctors, who are worried that their fees would be squeezed by insurers compelled to hold down premiums.
- Deciding whether rates are justified requires sophisticated analysis, but some states haven't allocated money to hire staff and consultants, sometimes for political reasons. Republican-dominated Florida, which has refused to implement the health law, gave back $1 million in federal money aimed at beefing up premium reviews.
- Even veto authority doesn't stop premium increases. Oregon, for example, has approved double-digit increases for some insurers in recent years after reviewing insurer-provided financial information used to justify the requests.
The law does take some steps to tame premiums. It requires insurers to spend at least 80 percent of premium revenue on medical services and quality improvements - or issue rebates to consumers. It makes $250 million in grants available over five years to help states beef up rate reviews. And it requires insurers to disclose more information to justify increases greater than 10 percent, which will "at least ensure the rates being proposed are valid and the assumptions are fair . . . one component of [making sure that] premiums are not increasing at too fast a rate," said Steve Larsen, the Obama administration's director of the Center for Consumer Information and Insurance Oversight.
The law also provides for federal reviews of rate increases in states that can't do effective ones. Already, federal officials have concluded that 10 states - including Virginia - won't be able to meet the requirements to conduct reviews on at least some policies.
Rate approval authority varies
Still, critics say Congress should have required all states to give regulators the power to reject rates, also known as "prior approval" authority. Without that, "consumers aren't getting protection they need," said Carmen Balber, director of the Washington office of Consumer Watchdog, a nonprofit advocacy group.
Currently the District and 26 states, including Maryland and Virginia, have the authority to veto rates deemed excessive for at least some types of insurance, generally policies sold to individuals and small businesses. Seven states, including California, have the power to review rate increases in advance but not to block them.
How will states wield these weapons, and how will insurers respond? It's a mixed picture. In California, where regulators criticized some proposed premium increases, insurers trimmed them or put them on hold. But Anthem Blue Cross recently went ahead with an average 16 percent increase that was deemed "unreasonable" by regulators.
That's why California regulators need the authority to block rates, said Janice Rocco, the state's deputy insurance commissioner. "In states that have the authority to reject excessive rates, they've been able to bring down the proposed rate increases."
Not so, said the Bay Area Council's Weinberg. He said research he did at the centrist New America Foundation shows that states that have the authority to block premium increases don't necessarily end up with smaller increases than states without it.
And a report by the Kaiser Family Foundation and Georgetown University's Health Policy Institute found that although states with veto authority are "better positioned" to negotiate reductions, some states don't exercise it. Conversely, states without such authority sometimes "get carriers to agree to reductions in rates through informal negotiations." (Kaiser Health News is an editorially independent program of the foundation.)
In Kansas, for example, regulators can't reject increases, so they focus on negotiating with insurers to try to hold down premiums, said Sandy Praeger, the insurance commissioner. Last year, Celtic Health insurance was seeking a 25 percent increase on some policies sold to individuals, but agreed to lower it to 18 percent after talks with Praeger and her staff.
By contrast, in New Mexico, which has veto power, officials approved Blue Cross Blue Shield rate increases that averaged 21 percent - then upheld the decision, despite a public outcry - after an extensive review of the insurer's financial filings.
In any case, consumer advocates and some state officials agree that it's crucial to make premium setting more transparent. Oregon state Sen. Chip Shields (D) pushed legislation requiring a public hearing for any increase of more than 7 percent. "This should not happen just behind closed doors with regulators and insurers," he says. But his bill, opposed by insurers, failed to get out of committee.
Limited resources hamper states
Reviewing proposed rate increases effectively depends on adequate staff and expertise. Although some states have big insurance departments, others have skeletal staffs. And in 16 states, regulators don't employ a health-care actuary - an expert who analyzes insurers' estimates of future costs and their rate requests. Nationwide, insurance department funding is expected to fall next year, according to the National Association of Insurance Commissioners.
Some insurance departments, including those in Virginia and the District, are using million-dollar federal grants - the first round of the $250 million being made available to states under the health law - to hire additional staff.
When states have the resources to dig into insurers' filings, they have sometimes derailed proposed increases. California officials found math errors last year when they scrutinized a proposal by Anthem Blue Cross to raise rates by as much as 39 percent. The insurer withdrew the request. Last year, District regulators rescinded a previously approved 35 percent increase for CareFirst BlueCross BlueShield for one type of policy after regulators, conducting an intensive review, found mistakes in the insurer's request. A much smaller increase went into effect.
Ultimately, insurers say, pressuring them on premium increases won't solve the fundamental problem of rising costs, which is driven by demand from the public as well as big price increases by hospitals, doctors and drug companies.
Underlying costs rising
The main reasons premiums have historically risen is that health-care costs have risen," said Chet Burrell, chief executive officer at CareFirst BlueCross Blue Shield, which serves Maryland, the District and parts of Virginia.
At least once a year, insurers review the policies they sell, look at the claims and make their best guess about the future use of medical services, the price of drugs and even the demographics of expected enrollees. That information then goes into their estimate for a rate increase, Burrell said.
"Rate setting is as much an art of estimation of what the future will look like as anything else," Burrell says.
After requests for double-digit increases for 2010, CareFirst's enrollees used hospitals less than expected, driving costs down. As a result, Burrell said, the insurer has sought only small increases and even some premium reductions this year.
Tired of complaints that underlying costs are the problem, but hearing no consensus from the health-care industry on how to solve it, Massachusetts Gov. Deval L. Patrick (D) introduced a broad proposal to overhaul the way health care is paid for. Part of the proposal would allow regulators to reject premium increases if insurers pay hospitals, doctors and others more than a limit set by the state.
"This is a way to hold industry accountable for moving in direction they all say we should be moving," said Jay Gonzalez, secretary of the Executive Office for Administration and Finance.
Burrell, whose company does not operate in Massachusetts, is skeptical of the governor's plan.
"We could say we wish health-care costs would only go up 3 percent, but that doesn't mean they will," Burrell said. "It's a little like saying I will pass a law saying it will only rain on Friday nights because I don't want to mess up my Saturday picnics. You can't wish it away."