Can the Government Stop Massive Insurance Rate Hikes?

Insurance companies will have to report premium increases above 10 percent.

Dec. 21, 2010— -- Health insurance companies that want to increase the cost of their premiums by 10 percent or higher will now have to justify those proposed rate hikes, the Obama administration announced today.

Rate increases became a sore political point since earlier this year, when the White House seized on an astounding 39 percent hike by Anthem Blue Cross of California to justify the health care bill.

Premium increases have been most prominent in the individual and small business market, Health and Human Services Secretary Kathleen Sebelius said today, and the new rules will create more transparency for consumers.

Giving consumers "options for other possibilities I think is a huge step forward because we're really talking about the small group market and individual market where people don't have sophisticated purchasing teams. They often don't know what their choices are. They're really at the mercy of somebody who is selling them a product," Sebelius said. "Putting the tools back in their hands I think will be enormously helpful."

"Right now most consumers are operating in the dark and this will be a very bright light," she added.

Premium costs for people with private insurance have risen sharply in recent years, with double-digit rate increases each of the first three years of the new millennium, according to the non-partisan Kaiser Family Foundation.

States that already have effective rate review systems will conduct their own reviews. But for states without that capability, HHS will step in -- a move that is likely to spur more anger from states that are already claiming that the health care law impinges on their constitutional rights.

The Obama administration plans to disburse $250 million to states to help them develop and improve their rate oversight processes. As part of that effort, HHS gave $46 million to 45 states and the District of Columbia in August.

Currently, only 26 states and Washington, D.C., require insurers to submit their rate increases and have legal authority to reject premium increases they consider "unreasonable." Reviewing methods vary widely from state to state.

Under the new guidelines, state insurance commissioners will be responsible for reviewing rates, collecting data, conducting analysis and setting a standard. By 2014, states would be required to set a more specific threshold based on their individual analysis, rather than using the 10 percent threshold rule.

Sebelius said the notion that this is a federal overreach is absolutely wrong.

"As we move toward 2014, more and more states are going to have full review authority and it's going to be demanded by a lot of consumers," she said.

Insurance companies panned today's announcement, charging that it doesn't take into account the high costs that they have to incur given the market changes.

"The public policy discussion on health care costs has focused on health insurance premiums, while ignoring the root causes that are driving up the cost of coverage, including soaring medical prices, new benefit mandates and changes to health plans' risk pools," Karen Ignagni, president and chief executive of America's Health Insurance Plans (AHIP) said in a statement today.

"While the proposed 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," she added.

Obama Administration Unveils New Insurance Rate Review Procedures

The health care law faces challenges from all fronts -- more than 20 states have filed a joint lawsuit questioning the law's constitutionality while incoming House members are vowing to repeal and replace parts of the bill. The effectiveness of the rate review process could have a significant impact on consumers' view of the law.

One of the biggest challenges is the way rate reviews vary widely from state to state. A study this month by the Kaiser Family Foundation found that a state's statutory authority says little about how it actually reviews premium increases.

"We found that having approval authority over rates does not necessarily protect consumers from large rate increases, and that the rigor and thoroughness that states bring to rate review can vary widely, depending on motivation, resources, and staff capacity," the report stated.

Additionally, some states' authority only reaches certain insurance companies while exempting commercial carriers, thus creating an imbalance. Others allow insurers to keep their filing a "trade secret" so consumers are not able to access that information.

Even states that have authority to approve rates, they are constrained by tight timelines or do not have enough staff resources, the study found.

The Obama administration says the new health care law is designed to erase such anomalies, but it is likely to be met with resistance from some states who have rejected the new law altogether.

The public has yet to fully digest the new health care law as well even as more provisions are set to roll out in just two weeks.

Kaiser Family Foundation's latest tracking poll shows the public still divided in its views of the health reform law, a sentiment largely unchanged since the law's enactment in March. Forty-two percent of Americans say they have a generally favorable view of the law, while 41 percent say the opposite.

But opposition from seniors seems to be on the decline. The share of those aged 65 and older holding unfavorable views of health reform dropped to 40 percent in December, the lowest since the law was passed.

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