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Health Insurance Rate Hikes Face Tougher Scrutiny

May 19, 2011

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

States – or in some cases the federal government – will review the flagged premium increases and insurers will have to justify increases deemed unreasonable. The law does not give the federal government power to reject increases, but many state regulators have that authority.

The rules, required by the health care law enacted last year, also require insurers to provide a broad overview of what they plan to 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 with reporters. “The framework of the Affordable Care Act is beginning to change this.”

The rules are nearly identical to the proposal issued by HHS in December and come amid continued concern about rapidly rising insurance costs. Such increases have come even as many insurers have seen their costs slow as economically 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,” said Karen Ignagni, head of America’s Health Insurance Plans, 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, state-specific thresholds will be developed by the states 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.”

Only insurance policies sold to individuals and small businesses – not those offered to large employers -- are affected by the new rules. Administration officials said they will 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 is disappointed that the rules do not include association health plans.

“That’s a huge loophole and an easy way for health plans to avoid scrutiny,” said Jost.

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 allow states to keep private from consumers more in-depth financial details from insurers – information 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, director of Consumer Watchdog’s Washington office.

Under the rules, states with “effective” rate review systems will 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 allow for public comment about the increase.

If a state can’t do an effective review, HHS would do it for them.

The law does not give the federal government the ability to reject increases. That power rests with the states. According to the National Conference of State Legislatures, about two dozen states have laws allowing 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, this month moved ahead with increases of up to 16 percent, even after the increase was deemed unreasonable. Regulators there don’t have authority to reject increases, but are seeking legislative authority to do so.

jappleby@kff.org

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