New Rules to Increase Scrutiny of US Insurance Rates
By Marius | Published May 20, 2011
Starting in September, U.S. health insurance companies that want to increase premiums by 10 percent or more are going to face tougher government scrutiny from state or national regulators, according to new federal regulation issued Thursday from the Obama administration.
The average cost of health insurance in the United States has more than doubled over the past decade. Federal officials hope that better oversight tools will enable state governments to curb substantial rate proposals and generate savings for millions of individual insurance customers and small businesses.
Right now, regulation over insurance prices varies considerably from state to state, ranging from stringent to nonexistent market oversight. More than 30 states and the District of Columbia now have some authority to oversee and block rate increases if they find them unjustified, but many in the federal government remain concerned as both the premiums and profits in the health insurance industry continue to soar.
Kathleen Sebelius, the secretary of health and human services, told reporters that insurance companies should have to justify rate increases in an environment in which they have continued to do well financially “Health insurance companies have recently reported some of their highest profits in years and are holding record reserves,” Ms. Sebelius said, adding: “Insurers are seeing lower medical costs as people put off care and treatment in a recovering economy, but many insurance companies continue to raise their rates. Often, these increases come without any explanation or justification.”
Discussion regarding an expansion in government oversight on insurance rates was partly prompted by events last year when a California subsidiary of Wellpoint, the nation’s largest health insurer, wanted to raise premium levels on its policyholders by as much as 39 percent. California’s insurance commissioner, a state where regulators already had the power to review rates, examined WellPoint’s underlying calculations for justifying a rate increase and found them to be incorrect. WellPoint was then forced to cut the proposed increase in half, according to the Department of Health and Human Services. This victory for consumer advocates would not have been possible or even encouraged in many parts of the country.
The new rules, part of the Obama Administration’s 2010 Health Care Reform Bill, will require insurers who want double-digit premium hikes to explain and justify their rate increases to state or federal officials, who will then examine their proposal and decide whether or not they are unreasonable.
At the onset of the proposed requirements in December last year, the administration clarified: “Such increases are not presumed unreasonable, but will be analyzed to determine whether they are unreasonable.” The new rules dictate that a rate increase is termed unreasonable if it proves to be excessive, unjustified or “unfairly discriminatory.” An excessive premium increase is defined as “unreasonably high in relation to the benefits provided.”
Congressional Democrats originally wanted the federal government to have power to block carriers from issuing what it considered unjustified premium increases. But the final regulation as passed has left the directive up to state governments, who will now review rate hikes that hit or exceed 10 percent in their jurisdiction. The federal government has pledged an additional US$250 million to states to strengthen their rate review capacity. Several states who are opposed to the federal health care law have thus far turned down the money.
The 10 percent rate hike threshold will only be in effect for one year. By September 2012, states will set their own limits that more closely reflect trends in insurance and health care costs in their individual markets. States that do not conduct their own “effective rate review systems” will have the federal government step in and do it for them.
Insurance companies nationwide will now be required to post information online that justifies rate increases and to provide state regulators with sufficient underwriting data to explain the reasoning for increasing premiums. States that carry out rate reviews must also hold public forums to address concerns on proposed increases.
These oversight regulations will apply to insurance policies dealing with individuals and small businesses. Federal regulators have stipulated that large group coverage policies offered by large employers won’t require similar scrutiny as the buyers who design these products are more sophisticated and have more leverage in negotiating with insurers. Health insurance plans obtained before the health law passed on March 23, 2010 will also be excluded.
The US insurance industry has been critical of these new disclosure requirements, citing the 10 percent threshold as an arbitrary standard that could tar a majority of premium increases as supposedly unreasonable. Any review of rates will be flawed if it fails take into consideration the effect of government mandates and the impact felt when healthy younger people leave insurance markets and leave behind older, sicker and more costly policyholders. The regulations furthermore, do little to address the principal factor causing double-digit premium increases, the country’s spiraling healthcare costs.
Karen Ignagni, chief executive officer of America’s Health Insurance Plan, the industry’s main Washington lobbying group, argued that US health policy should instead be focused on reducing underlying medical costs such as hospitals, doctors, technology, and pharmaceutical prices.
“Health plans are doing their part to restrain health-care cost growth by partnering with providers across the country to change payment models to promote and reward safe, high-quality, cost-effective care…“Focusing on premiums diverts attention from that debate.” Mrs. Ignagni said in a statement.
Consumer advocate groups, meanwhile, have largely welcomed the move. Ethan S. Rome, executive director of Health Care for America Now, commented “The days of insurance companies running roughshod over consumers and jacking up rates whenever they want are over.” With more information revealed, consumers will be able to make informed decisions affecting the health insurance coverage of those most near and dear to them.