By Sara R. Collins
Today the U.S. Department of Health and Human Services (HHS) released its final regulations on an important Affordable Care Act provision aimed at stemming the tide of health insurance premium increases. The provision calls on the HHS secretary to establish a process for the annual review of "unreasonable" increases in premium rates by insurance carriers across the country.
The need for such a measure has been well documented. A Commonwealth Fund report found that employer premiums had increased an average of 41 percent across states between 2003 and 2009. And HHS itself has found that the majority of premium increases in the individual market over the last three years exceeded 10 percent.
The new regulations lay out a process for the states and the federal government to review rate increases by insurers, as well as to publicly disclose those increases. The regulations define the threshold for a premium increase that would cause it to become subject to review, and outline a process for evaluating whether the increase is "unreasonable."
While HHS does not have the authority to deny the premium increases, the process will vastly increase transparency in insurance markets and should contribute to reducing the overall rate of health insurance premium cost growth. In addition, many states have laws that allow them to deny unreasonable increases in some insurance markets.
Premium rate increase threshold. For 2011, the regulations specify that any premium rate increase of 10 percent or more in the individual or small employer group insurance markets, effective on or after September 1, 2011, will be subject to review by states and HHS. This rate review does not apply to grandfathered plans (i.e., those in existence when the Affordable Care Act was signed into law) or the large employer group market. However, HHS is considering applying the regulations to health plans that small employers and individuals purchase through associations and is inviting comment on this proposed change. The 10 percent threshold is based on nationwide cost trends and exceeds both the average rate of growth in the medical component of the consumer price index (3.7%–4.4%) and the average annual rate of growth in national health care expenditures over the last five years (4.4%–6.9%).
To bring the threshold in line with state cost trends, beginning September 1, 2012, HHS will work with states to establish state-specific rate increase thresholds for each calendar year. The thresholds will be based on data collected from carriers in prior reviews and from cost data collected by states and will be made available by June 1 each year.
Determining whether states have an effective rate review process. Currently 43 of 50 states have some premium rate review process in place, but the manner in which reviews are conducted varies significantly. States that HHS determines already have an "effective" review process will be able to conduct their own reviews. HHS will conduct reviews in states that do not have the resources or the authority to conduct adequate review processes. HHS will determine which states have adequate review processes in place by July 1.
HHS will determine whether a state has an effective rate review process based on whether states: 1) have the legal authority to receive sufficient data and documentation from insurance carriers to determine whether a rate increase is unreasonable; 2) are able to effectively review those data and documentation; 3) examine the reasonableness of the assumptions used by the carrier in developing its rate proposal and the historic data underlying those assumptions; 4) apply a standard in state law or regulations in determining that an increase is unreasonable; and 5) post insurer justifications for proposed rate increases that meet or exceed the review threshold on a state Web site and have a mechanism to allow the public to comment on the proposed increases.
HHS believes that a majority of states will meet these standards, and several other states, in applications for new federal premium review grants available this year, have indicated that they will seek legislative authority to enhance their review processes. The law provides $250 million to support states' efforts to enhance their premium rate review process. So far, 43 states and the District of Columbia have received $44 million in grants.
Determining whether a premium increase that exceeds the threshold is unreasonable. The regulations allow states that have an effective premium review process in place to use the standards established under current state law to determine whether an increase that exceeds the threshold is unreasonable.
In states that do not yet have an effective review process in place, HHS will determine whether a rate increase is unreasonable based on whether it is "excessive," or unreasonably high in relation to the benefits provided; "unjustified" or lacking adequate data to determine whether it is reasonable; or "unfairly discriminatory," or resulting in premium differences for enrollees that are not permissible under state law or unjustified based on expected cost differences.
Public disclosure. HHS will require carriers reporting premium increases above the 10 percent threshold to submit justifications, which will then be posted on the HHS Web site, www.HealthCare.gov. Insurers will use standard forms created by HHS that will allow consumers to understand factors driving the rate increase and the justification for the increase by carriers. Insurers will also post this information on their Web sites. If HHS determines the rate increase to be unreasonable, it will notify the carrier. If the insurance carrier decides not to implement the increase, or implements a lower increase, the carrier will issue a final notification of the change. If the carrier's revised increase is still above the threshold, it will be subject to another round of review by HHS. If the carrier decides to proceed with the unreasonable increase, it will provide a final justification to HHS, which HHS will post on its Web site along with its determination that the increase is unreasonable. The insurance carrier will be required to post the same on its Web site.
States conducting their own review process will provide notice to insurance carriers and HHS as to whether they consider the increase to be unreasonable, and why. HHS will then adopt the determination made by the state and post it on the HHS Web site. If the insurance carrier in question chooses to implement the increase anyway, HHS will post the amount of the increase, the carrier's justification, and the state's determination of why the increase is unreasonable on its Web site.
In 2014, states can recommend that health plans be excluded from participation in the insurance exchanges if they have demonstrated a pattern of excessive or unjustified premium increases.
Stemming the tide. This regulation, along with the regulations limiting what percent of premiums insurance carriers can spend on non-medical services, will provide consumers with information about the increases they experience in their premiums each year and how their premium dollars are spent. Such transparency is much-needed in the individual and small group insurance markets and will help create a new competitive dynamic and incentives to lower costs among carriers. These and several other provisions in the law aimed at reducing the overall rate of health care cost growth will improve the affordability of health insurance for consumers in the years to come.