In a recent U.S. Senate Health committee hearing examining therapid pace of health insurance premium increases, a federalregulator told senators that the rate review provisions of thefederal health care law are a powerful consumer protection tool,but that the authority to reject unjustified rates providesconsumers "maximum" protection.

Prior approval rate regulation requires insurance companies toopen their books and justify the reasons behind a rate increasebefore it takes effect. State regulators have the power to rejector modify any rate increase that is excessive or unjustified.

At the hearing, Connecticut Senator Richard Blumenthal askedCenter for Consumer Information and Insurance Oversight DirectorSteve Larsen if he considered prior approval to be an importantfeature of effective state rate review. Larsen answered that,although the federal health reform law did not require it, "priorapproval provides the maximum level of protection forconsumers."

California Senator Dianne Feinstein spoke in support of priorapproval authority, citing a recent case in which a Californiaregulator found that a 14 percent rate increase by Anthem BlueCross was unreasonable, but could do no more than 'expressdisappointment' that the insurance company implemented the increasebecause state regulators do not have the authority to reject rates.Feinstein is sponsoring legislation that would create a federalfallback requiring HHS to regulate rates in states that do notrequire prior approval.

"We have learned the hard way that disclosure and review isn'tenough to make insurance companies do the right thing. Statescannot prevent insurers from overcharging consumers for excessiveprofits or outrageous executive salaries without the power toreject unreasonable rate hikes before they take effect," saidCarmen Balber, Washington director for Consumer Watchdog.

Oregon Insurance Administrator Teresa Miller testified on herstate's system of effective prior approval rate regulation. In JulyMiller used that authority, including the ability to examine thelevel of an insurer's surplus, to reduce a proposed 22.1 percentincrease by Regence BlueCross BlueShield to 12.8 percent, savingconsumers $12.5 million. Oregon has used a federal grant under thehealth reform law to fund consumer participation in the rate reviewprocess, allowing consumers to hire the same kind of actuarial andother experts the insurance industry uses to analyze rateincreases. Funded consumer participation is critical to effectiveprior approval regulation, said Consumer Watchdog.

The Government Accountability Office issued a report at thehearing examining rate review in the states. GAO found thatalthough most states have some form of rate review fewer have priorapproval authority and the thoroughness and outcomes of rate reviewvaries greatly. For example, 20 states reported that although theyreview rates, they do not independently verify any informationsubmitted to them by insurance carriers. Just 14 states reportedproviding some process for consumer participation in ratereview.

ConsumerWatchdog released a report in May that found strong regulationis necessary to prevent excessive rate hikes and hold down costsunder federal health reform. Key findings include:

• The Massachusetts "mandate" that individuals purchaseinsurance, which was the model for federal health reform, did notcontrol premiums. Only when Massachusetts started regulating ratesdid premium increases start falling.

• Other states that have added or strengthened regulation,including New York, Oregon and Maine, have successfully broughtdown costs.

• California's auto insurance regulation law, which has saveddrivers $62 billion, is the model for successful oversight of whatinsurers charge. It requires insurance companies to open the booksand prove rate increases are necessary, get regulators' approval,and funds public challenges of excessive premium increases.

• Since federal health reform didn't require rate regulation,states must pass laws requiring insurers to get rates approvedbefore they charge consumers. If states refuse, Congress and HHSshould step in.

Health insurance premiums increased 131 percent in the lastdecade while medical inflation rose just 31 percent, according tothe Kaiser Family Foundation. All five of the nation's largesthealth insurance companies continued their trend of profitincreases throughout the recession, with 1st quarter 2011 financialresults showing profits up from the 1st quarter of 2010 by anaverage 16 percent.