States Gain Power to Review Health Premium Increases

To hold insurers accountable when implementing rate increases and help consumers concerned with rising healthcare costs, the Patient Protection and Affordable Care Act (HR 3590) granted states increased authority to review rate increases. In December, the Department of Health and Human Services (DHHS) proposed regulations for 2011 requiring insurers to publicly disclose and justify rate increases ≥10% in individual or small group markets. In 2012 and beyond, the DHHS said it would set state-specific thresholds for disclosure. All of the information will be posted on the DHHS Web site, and insurers will be required to share their justifications on their Web sites. However, as Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable, a recent report from the Kaiser Family Foundation, noted, the healthcare reform bill did not change states’ existing regulatory authority over the health insurance industry. States have various powers to regulate health insurers, but they fall under 3 broad categories: prior approval, file and use, or no authority. In prior approval, insurers must submit proposed premium rate increases and file documents to state regulators justifying the changes. States then have to examine and approve the increases before insurers can implement the new rates. In file and use, insurers are required to file rate changes with state regulators, but they do not have to wait before putting the rates in place. If enough consumers complain and states find the rates to be unreasonable, the insurers can receive warnings. The authors of the Kaiser report surveyed the health insurance review statutes of all 50 states and conducted interviews with regulators in 10 states: Alaska, Connecticut, Colorado, Idaho, Louisiana, Maine, Ohio, Pennsylvania, South Carolina, and Wisconsin. Those states were selected because they utilized a variety of approaches to insurance regulation. According to DHHS, health insurance premiums have doubled on average in the past 10 years, with premiums for families rising 131% since 1999. The authors concluded that states with prior approval authority generally have an easier time negotiating reductions in proposed rates. Still, other factors such as the management and resources in the state insurance departments are often more important in dealing with insurers and implementing a fair, objective review process. “It’s very difficult to draw conclusions about how a state conducts rate review solely by the type of authority they have,” Sabrina Corlette, the study’s lead author and a research professor at Georgetown University’s Health Policy Institute, said in an interview with First Report Managed Care. “A lot of it depends on the resources and capacity given to the department, the leadership of the department, how focused and committed they are on consumer protection.” Ms. Corlette, Janet Lundy of the Kaiser Family Foundation, and other researchers began working on the project in July. They found that 35 states and the District of Columbia had some authority over the individual and small group markets, with 22 states having authority over all of the major products in the individual and small group markets. Yet some states with prior approval status do not have much authority. For instance, Pennsylvania regulators told the report’s authors that their authority in the small group market only includes Blue Cross Blue Shield plans and health maintenance organizations, while commercial carriers are exempt. In addition, Maine has prior approval authority in the small group market, but a regulator in Maine told the authors that small group carriers can choose 2 paths: either file rates, adhere to a 75% minimum loss ratio, and undergo traditional review; or guarantee that they will meet an average 78% minimum loss ratio over 3 years and have their rates automatically approved. Although the higher loss ratio could lower premiums and benefit consumers, the authors noted that insurers could base their rates on mistakes or overly optimistic assumptions because they are not subject to any oversight. Another problem is that the standards in reviewing rates are sometimes subjective, with vague wording such as that rates cannot be “excessive, inadequate, or unfairly discriminatory.” In addition, the authors found that many states do not make the rates public. Even several states that do have public filings do not make them accessible on the Internet, so people must visit the regulators’ office to gain access to the rates. To address these issues, the healthcare reform bill included a provision for Health Insurance Premium Review Grants, which would provide states with $250 million over 5 years to help them monitor insurers’ rate increases. In August, DHHS awarded $1-million grants to 45 states and the District of Columbia. Alaska, Iowa, Georgia, Minnesota, and Wyoming did not apply for or receive the funding. States must apply each year for the grants. The money will help fund numerous initiatives. According to DHHS, 15 states and the District of Columbia will pursue additional legislative authority; 21 states and the District of Columbia will expand their current review policies; all 45 states and the District of Columbia will require insurers to improve their review process; 42 states and the District of Columbia will make the review process more transparent; and all 45 states and the District of Columbia will develop and upgrade their technology. Ms. Corlette said an important part of holding insurers accountable is having a staff that includes actuaries who understand the models, methods, and assumptions that insurers use in determining their rates. Many, however, do not have an adequate review system or enough staff members to question insurers’ rates effectively.