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

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

At the hearing, Connecticut Senator Richard Blumenthal asked Center for Consumer Information and Insurance Oversight Director Steve Larsen if he considered prior approval to be an important feature of effective state rate review. Larsen answered that, although the federal health reform law did not require it, "prior approval provides the maximum level of protection for consumers."

California Senator Dianne Feinstein spoke in support of prior approval authority, citing a recent case in which a California regulator found that a 14 percent rate increase by Anthem Blue Cross was unreasonable, but could do no more than 'express disappointment' that the insurance company implemented the increase because state regulators do not have the authority to reject rates. Feinstein is sponsoring legislation that would create a federal fallback requiring HHS to regulate rates in states that do not require prior approval.

"We have learned the hard way that disclosure and review isn't enough to make insurance companies do the right thing. States cannot prevent insurers from overcharging consumers for excessive profits or outrageous executive salaries without the power to reject unreasonable rate hikes before they take effect," said Carmen Balber, Washington director for Consumer Watchdog.

Oregon Insurance Administrator Teresa Miller testified on her state's system of effective prior approval rate regulation. In July Miller used that authority, including the ability to examine the level of an insurer's surplus, to reduce a proposed 22.1 percent increase by Regence BlueCross BlueShield to 12.8 percent, saving consumers $12.5 million. Oregon has used a federal grant under the health reform law to fund consumer participation in the rate review process, allowing consumers to hire the same kind of actuarial and other experts the insurance industry uses to analyze rate increases. Funded consumer participation is critical to effective prior approval regulation, said Consumer Watchdog.

The Government Accountability Office issued a report at the hearing examining rate review in the states. GAO found that although most states have some form of rate review fewer have prior approval authority and the thoroughness and outcomes of rate review varies greatly. For example, 20 states reported that although they review rates, they do not independently verify any information submitted to them by insurance carriers. Just 14 states reported providing some process for consumer participation in rate review.

Consumer Watchdog released a report in May that found strong regulation is necessary to prevent excessive rate hikes and hold down costs under federal health reform. Key findings include:

The Massachusetts "mandate" that individuals purchase insurance, which was the model for federal health reform, did not control premiums. Only when Massachusetts started regulating rates did premium increases start falling.

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

California's auto insurance regulation law, which has saved drivers $62 billion, is the model for successful oversight of what insurers charge. It requires insurance companies to open the books and 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 approved before they charge consumers. If states refuse, Congress and HHS should step in.

Health insurance premiums increased 131 percent in the last decade while medical inflation rose just 31 percent, according to the Kaiser Family Foundation. All five of the nation's largest health insurance companies continued their trend of profit increases throughout the recession, with 1st quarter 2011 financial results showing profits up from the 1st quarter of 2010 by an average 16 percent.

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HHS to Senate: Rejecting insurance rate hikes protects consumers

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