By Jane Norman, CQ HealthBeat Associate Editor
December 21, 2010 -- The responsibility for scrutinizing "unreasonable" health insurance premium increases will rest largely with state insurance regulators as long as those states have adequate systems in place to analyze the requests, under proposed regulations announced Tuesday by the Obama administration.
Health insurers who want to hike their premiums by 10 percent or more on average in 2011 in the individual and small-group market will have to justify why they've done so, under the 136-page proposed rule issued Tuesday by the Department of Health and Human Services (HHS). Such increases are not automatically assumed unreasonable—they will undergo further analysis to determine if they are.
Also, that 10 percent standard is a temporary one. After 2011, standards specific to every state will be set, using data and trends that reflect the situation in each state. Most increases in the individual market have exceeded 10 percent during the past three years, the regulation notes.
The proposed rule would apply to rate increases filed on or before July 1, 2011.
Advocates of the health care law (PL 111-148, PL 111-152) praised the announcement of the proposed rule, though some said they may have further comments after they have finished reviewing it. State regulators who did not want to lose control of their authority were relieved. The insurance industry reaction was mixed.
"So this year we had to start someplace, and moving into the double digits seems like an appropriate place to at least start the enhanced review," said HHS Secretary Kathleen Sebelius at a press briefing. "But we'll be more nuanced in the future, based on what's happened within certain states."
The proposed rule outlines how the government will implement somewhat vague language included in the health care law mandating that the agency work with states to set up a process for reviewing and defining "unreasonable" health insurance premium increases (See related story). States vary widely in their current approach to health insurance rate scrutiny, according to a recent study by the Kaiser Family Foundation.
By keeping the responsibility for scrutiny mostly with states, insurance commissioners will continue to bear the brunt of the political heat when an insurance company proposes a large health premium increase that riles consumers and politicians, something that has happened repeatedly in recent months. HHS could also criticize states that do not do enough to curb premiums. Premiums for family coverage have gone up by 131 percent since 1999, HHS says.
In the health care law, Congress did not give HHS the power to deny premium increases, to the dismay of some Democrats and consumer groups. But insurers who request "unreasonable" increases are mandated under the law to provide justification and details. That information will have to be displayed on their Web sites. Advocates hope that the dose of sunshine will prove powerful in averting proposed big increases.
Under the HHS proposed rule, states with "effective" rate review systems will scrutinize average premium increases of 10 percent or more. Officials said that includes a majority of the states. The regulation says 43 of the 50 states have some rate review process in the individual or small-group market or both, though it is unclear if HHS would consider all 43 effective.
State System Effectiveness
Four factors will be used to determine whether a state system is effective. They include whether the state receives documentation from the insurer sufficient to determine whether a rate increase is unreasonable and whether the state has effectively reviewed the documentation submitted. They also include whether the state review examines the "reasonableness" of the assumptions used by the insurance company in developing its rate proposal and the historic data underlying those assumptions. The fourth factor is whether the state follows a standard set forth in law or regulation when making the determination of whether a rate increase is unreasonable.
"This proposed regulation does not establish a standard for unreasonableness that a state must use or apply; nor does it require a numerical standard to be applied under state law to determine whether a rate increase is unreasonable," says the proposed rule. "Rather, a state regulator would apply the applicable standards that exist under state law."
The idea is to let the states exercise their regulatory authority. "The federal government will not be doing reviews of rates where there is a thorough process at the state level," said Sebelius. "We're not going to sit on insurance commissioners' shoulders and question what it is that they're doing.
"On the other hand, it is an attempt to make sure that every consumer in the country has some confidence that their rate has been looked at, has been examined, has been questioned, has been justified before it's implemented," she said.
Says the rule: "When a state with an effective rate review program determines whether a rate increase violates the standards set forth in state law and therefore whether the increase is unreasonable, HHS would adopt that determination and would not conduct an independent review of the state's determination."
Sebelius said that a number of states that do not have sufficient authority to review rate increases are seeking it from state legislatures. Grants totaling $250 million for state insurance departments will boost those efforts.
"You know, the notion somehow that this is federal overreach is absolutely the wrong lens," added Sebelius. "This is really the states take the lead in this and other areas."
Consumer Groups Like Rule
Senate Finance Committee Chairman Max Baucus, D-Mont., applauded the proposed rule and said it will give consumers the tools to learn more about premium increases, "so families and individuals will know the money they spend on insurance premiums will improve their coverage and make them healthier, not just inflate corporate profits."
A more measured reaction came from Sen. Dianne Feinstein, D-Calif., who has advocated giving HHS the power to deny or modify premium increases. "Establishing these regulations is a good first step but I believe the administration and Congress must go further," she said in a statement. She said that she and Sen. John D. Rockefeller IV, D-W.Va., will introduce legislation in the first days of the next Congress that would give states the power to modify or block increases they find unreasonable. In states where the insurance commissioner does not have that power, the secretary of HHS would be given the authority to do so, said Feinstein.
Rockefeller said that West Virgnia has received a $1 million grant to help improve scrutiny of proposed premium increases. "These new proposed regulations build on these efforts, helping state insurance departments protect consumers, discouraging unreasonable rate increases and helping keep health care costs under control," he said.
Consumer advocate groups praised the proposal. Ron Pollack, executive director of Families USA, said that "high premium increases will no longer be a done deal before consumers know what is coming."
State regulators said they were pleased with the proposal and that little will change in states with sufficient review systems—though some may add staff.
A worst-case scenario would have been one in which HHS decided that any premium increase of 10 percent or more would be unacceptable, said Sandy Praeger, the Kansas insurance commissioner and chairwoman of a National Association of Insurance Commissioners committee that worked on recommendations on the proposal. That's because states analyze rate requests using extensive actuarial and technical data and states also understand the insurance market and each insurer's history in the state, NAIC said in materials submitted to HHS.
HHS declined to extend the proposed rule to large-group insurance plans, at least for now, disappointing some consumer advocates. NAIC, though, had pointed out that most states do not approve rates for large employers and that self-insured plans are not subject to state authority under federal law.
HHS will also allow certain information submitted by insurers to justify their rate increases to remain confidential rather than requiring it all be publicly disclosed.
The general sense among those analyzing the 136-page rule was that it recognized the primary role of state insurance regulators.
Timothy Jost, a law professor at Washington and Lee University and health law expert, said he would have preferred to see a threshold below 10 percent. He also expressed some concern about the provision on confidentiality but said he was working on fully reviewing the regulation.
Robert Laszewski, president of Health Policy and Strategy Associates, said he was not surprised that HHS left much responsibility to the states. "I don't think they had much choice," because HHS would not have the funds available for enough staff members to conduct reviews, he said.
"They couldn't do it. You've got 1,500 insurance companies out there," he said.
He also said the rule "could have been worse" for insurers and questioned how precisely the 10 percent on average definition would be formulated.
Karen Ignagni, president of America's Health Insurance Plans, which represents the industry, said in a statement that insurers agree that the federal government is not the body that should be reviewing premium rate increases.
"We agree that states are best suited to review premiums because they have the experience, infrastructure and local market knowledge needed to ensure that consumers are protected and health plans are solvent," said Ignagni. "The federal government is not in a position to make these assessments."
However, Ignagni said that the proposed rule is "incomplete" because it fails to factor in all the reasons costs are rising, including new benefit mandates' cost and fewer younger and healthier people buying insurance.
"Premium review must consider the unique circumstances of small employers that are struggling to afford coverage for their employees and of the individual market in which people move in and out of coverage depending on whether they anticipate needing medical services," she said.
But Sebelius, a former Kansas insurance commissioner, said the proposal acknowledged the differences among insurers by not automatically labeling an average 10 percent increase as unreasonable. "A 10 percent increase for a company who hasn't had a rate increase for five years and is looking at a very narrow profit margin may be very different than a 10 percent increase which is a third increase in a row for a company that's posting record profit margins," she said.
