Starting Thursday, state and federal regulators will review double-digit rate increase proposals from health insurers to determine whether the premium hike is reasonable.
The rate review program, enacted under the Affordable Care Act, requires health insurers to submit a written request for a rate increase of 10 percent or more to independent reviewers. The Centers for Medicare and Medicaid Services (CMS) will review rates in nine states that lack the authority to adequately review rates. The remaining 41 states will conduct their own reviews.
Experts who examine rates will look for "underlying cost trends in health care to flag instances when insurance companies are unjustly raising costs."
According to the Department of Health and Human Services, insurers that have to go forward with rate increases must post their justifications on their website, and state and federal regulators will post online as well.
“For far too long, families and small employers have been at the mercy of insurance rate increases that often put coverage out of their reach. Rate review will shed a bright light on the industry’s behavior and drive market competition to lower costs,” said Kathleen Sebelius, Secretary of Health and Human Services, in a statement. “We are pleased to team with states to bring this important new protection to consumers and employers.”
The Affordable Care Act provides $250 million over five years to states that need help in order to perform stronger reviews. Over the last year, according to HHS, 42 states, the District of Columbia and the five U.S. territories have used $48 million in grants to help improve their oversight of proposed health insurance rate increases.
While regulators have the power to stamp a rate hike as “unreasonable,” states don't actually have the power to reject or reduce rate increases. In fact, less than half the states require prior approval of all rate increases for both individual and small group health insurance plans, according to the Kaiser Family Foundation.
[See also: Calif. bill to regulate insurance rates pulled]
In July, the Government Accountability Office released its findings of a survey of insurance departments in all 50 states on their premium rate oversight. The survey found 38 states in 2010 reviewed rate filings before the rates took effect, and that some survey respondents also reported conducting comprehensive reviews of rate filings, while others reported reviewing little information or conducting cursory reviews. Only 14 respondents reported providing consumers with opportunities to be involved in premium rate oversight, such as participation in rate review hearings or public comment periods.
But HHS says this new program gives consumers a chance to do something they couldn’t do before: speak out if they don't like a proposed rate increase. Starting later this month, consumers in every state will be able to go to HealthCare.gov to view disclosure information explaining proposed rate hikes. They'll view a summary of key factors driving the increases and an explanation from the insurance company. For the first time, they’ll be able to submit comments.
Healthcare.gov will also allow consumers to view prices and benefits for insurance options within their zip code. In an op-ed for the Huffington Post, Sec. Sebelius says this competitive marketplace will deter insurers from offering expensive premiums. Insurers will become "very reluctant” to be the most expensive option when plans are compared side-by-side, Sebelius says.
The review process comes in the midst of surging premiums for plans around the country. Benefits consulting firm Aon Hewitt reported last December that health maintenance organization plans will have the highest premium increases in five years, as the average 2011 HMO rates increased 9.8 percent.
Consumer Watchdog, a consumer advocacy organization, however, doesn't believe publicity alone will be enough for insurers to end unreasonable rate hikes. The group released a statement Thursday, saying the federal government is relying on public disclosure to shame health insurers into reducing rates.
"Betting affordable health coverage on a humbled insurance industry is too much wishful thinking," advocates with the organization said. "Today's new rules will not prevent unreasonable premium increases because they do not give insurance regulators the authority to reject increases that cannot be justified, said the group."
The group points to a California insurance company that was able to increase rates by 14 percent this spring, despite a finding by state regulators that the increase was unreasonable, because regulators do not have the power to modify or reject excessive health insurance rate increases.
In contrast, a California law requiring prior review and approval of automobile and other property insurance rate increases has saved drivers $62 billion since 1998, according to the Consumer Federation of America.
"Disclosure alone will never be enough to prevent health insurers from charging unreasonable insurance premiums. To protect consumers, regulators must have the power to review and reject excessive rates," said Carmen Balber, Washington director for Consumer Watchdog. "Without at least the threat of enforcement, public complaints about unreasonable increases will continue to fall on deaf ears. It's up to the states to require approval of health insurance rates and hold down rate hikes where federal health reform has failed."
Consumer Watchdog also notes that federal rules don't require insurers to disclose actuarial information used to calculate the increase. States may decide how much, or how little, rate filing information insurers must make public. Outside groups need the ability to independently check insurers' math for public disclosure to have any chance of helping to reduce excessive premiums, the organization said. Some states, such as Oregon, already require public disclosure of all documentation behind an insurance rate increase. Others, including Nevada, keep that information confidential.
In states where HHS, not the state, will conduct the review, Consumer Watchdog says the rate review rules will improve on the status quo. "Consumers in those states – Alabama, Arizona, Idaho, Louisiana, Missouri, Montana, Pennsylvania, Virginia and Wyoming – should see significant improvement."
America's Health Insurance Plans (AHIP), a national trade association representing the health insurance industry, disagrees. In a statement last December, AHIP president and CEO Karen Ignagni said not only is the federal government overlooking the root of rising premiums, but that states, not the Feds, are still best suited to review rates because they have the "experience, infrastructure, and local market knowledge needed to ensure that consumers are protected and health plans are solvent."
What's more, Ignani said, while the review rule gives “consideration to the impact of rising medical costs, it also establishes a threshold for review that is incomplete because it does not adequately factor in all of the components that determine premiums, including the cost of new benefit mandates and the impact of younger and healthier people dropping coverage.
"Premium review must consider the unique circumstances of small employers that are struggling to afford coverage for their employees, and of the individual market in which people move in and out of coverage depending on whether they anticipate needing medical services."
Beginning next year, the 10 percent trigger will be replaced by state-specific marks. According to the Associated Press, by 2014, states will be able to exclude insurers that show a pattern of excessive rate hikes from insurance exchanges that will help people find coverage.