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Industry, Consumers Watching as HHS Attempts to Define 'Unreasonable'

By Jane Norman, CQ HealthBeat Associate Editor

December 10, 2010 -- When Connecticut regulators earlier this month rejected a proposed 20 percent increase in health insurance premiums by Anthem Blue Cross and Blue Shield, the Obama administration applauded and pointed to the decision as an example of the power states can wield over insurers in an effort to keep premiums down. There will be "more good news" like that in months to come, predicted Nancy-Ann DeParle, director of the White House Office of Health Reform.

DeParle was referring to a mechanism in the new health care law designed to give insurance companies pause before proposing such large increases. Under the law, Washington won't be able to block big increases, but it will work with states to conduct annual reviews of increases that are considered "unreasonable." And the federal government gets to define what's unreasonable.

Any day now, Health and Human Services Secretary Kathleen Sebelius is expected to issue regulations spelling out how the department will define the standard and the process by which the HHS will work with states to review the increases.

Under the law, insurers that have levied unreasonable increases will have to provide detailed explanations and financial information to the states, the federal government and consumers, and all this will have to be posted on plan websites.

As part of its regulation, HHS is considering which information to require, and it could include material that has not previously been readily available to the public. Some state insurance regulators, for example, want to require disclosure of the annual compensation of the 10 highest officers or employees.

"It's kind of a transparency, sunshine provision," said Sabrina Corlette, a research professor at the Georgetown Health Policy Institute.

The industry, health care providers and consumer groups are keeping a close eye on HHS because they are worried about how that definition will be shaped.

So are state insurance regulators. But the stakes are different for each state. That's because the degree to which state regulators have authority over premium increases varies widely across the country, ranging from none at all to prior approval of any proposed hikes, according to a recent Kaiser Family Foundation report.

To boost state regulatory efforts, the health care law (PL 111-148, PL 111-152) provided $250 million in grants for state insurance departments. The first awards of $46 million to 45 states went out in August. States will use the money to add staff to review rates, create websites with new consumer information, or to ask state lawmakers for more authority to review increases. DeParle says the grants demonstrate the government's commitment to cracking down on extreme premium increases.

Insurers See Politics at Work

But some members of Congress say federal rate review should have gone much further under the law. Two Democrats, California Sen. Dianne Feinstein and Illinois Rep. Jan Schakowsky proposed legislation (HR 4757, S 3078) that would have given HHS the power to deny or modify rate increases. They plan to push the proposal again in the next Congress, though it's unlikely to get very far with Democrats in the minority in the House.

"Unless you have some method of controlling premiums and have some premium rate review ability by the government, these companies will charge whatever they can," Feinstein said. Schakowsky says national authority is needed when insurers "game the system" to pad profits.

As it is, the law is causing concern among insurers. Karen Ignagni, chief executive of America's Health Insurance Plans, which represents the industry, said HHS should consider the underlying factors driving health care costs, and thus premiums, including increases in hospital and other provider costs. Decisions should be made based on the actuarial data insurers use to calculate premiums, conditions in particular markets that may be driving costs and insurer solvency, she said.

The Connecticut case did none of that, Ignagni said. "There was no data driving the decision," she said, calling the rate review a "political process, not a technical process." To underscore the point that provider charges are driving the increases, AHIP recently released a study showing a 159 percent growth in hospital inpatient revenue per day billed to private insurers in California between 2000 and 2009.

Consumer groups, meanwhile, have urged Sebelius not to set the "unreasonable" threshold too high. They recommend that increases should be deemed unreasonable if they are greater than 10 percent; greater than the annual increase in the medical Consumer Price Index; or if the carrier had to issue consumer rebates under the health law because it spent too much on administrative costs.

HHS officials are not saying when they will issue the regulation. Asked about the timetable, a department official said HHS is "working diligently" to implement the law.

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