In May 2011, federal Department of Health and Human Services (HHS) promulgated a final rule implementing Section 2794 of the Public Health Services Act requiring HHS to establish an annual rate review process to identify “unreasonable” health insurance rate increases. What’s considered reasonable (and not)? According to HHS, here’s how the regulation, found at 45 Code of Federal Regulations (CFR) Part 154 works:
Starting on September 1, 2011, health insurance companies in the small group and individual markets must submit information on all rate increases with an annual impact of 10 percent or greater for their non-grandfathered plans. Insurance companies cannot raise premium rates by 10 percent or more without first justifying the increase to a Rate Review Program. Insurers proposing increases of at or above 10 percent must submit for review clear information indicating the factors contributing to the proposed increases. HHS or Effective Rate Review Programs (see insert below) review insurers’ projections, data, and assumptions to assess whether premium increases are based on sound, up-to-date information on health care costs and use of covered services. Proposed rate increases may be determined to be unreasonable if for example, the proposed increase is based on faulty assumptions or unsubstantiated trends or if the rate increase charges different prices to people who pose similar cost risks to the insurer. Information collected through this program, including explanations of the final determination, is made available to the public on HealthCare.gov.
The regulation is enforced jointly by HHS and state regulators or HHS alone if states opt not to participate. HHS announced today that as a result of the review process used under the rule, one half of 2011 insurer rate increases resulted in consumers receiving either a lower rate increase than requested or no increase at all. In addition, HHS said 12 percent of the rate increases were withdrawn prior to review “in part because some insurers were not willing to have their proposed rate increase labeled as ‘unreasonable.’” According to HHS, states made the call on reasonability in 69 percent of the proposed increases and HHS reviewed the remaining 31 percent. HHS’s 2012 Annual Rate Review Report along with estimated savings for policyholders in the individual and small group markets can be viewed here.
In addition, the Section 1311(e)(2) of Part II the Patient Protection and Affordable Care Act (PPACA) gives state health benefit exchanges a degree of leverage over premium rates for health plans sold on the exchanges. It mandates exchanges to require health plans seeking certification for “listing” on the exchanges as qualified health plans to submit a justification for any premium increase prior to implementation and to prominently post the justification on exchange websites. The Act also allows exchanges to take into account insurer rate reviews under the abovementioned section 2794 of the Public Health Service Act when determining whether to allow the plans to be offered on an exchange as well as “any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the states.”
Meanwhile, in November 2014 California voters will decide whether individual and small group health insurance rates should be regulated under a prior approval scheme like that created by 1988’s Proposition 103 for property/casualty insurance rather than the current retrospective rate review scheme. The initiative statute can be viewed by clicking here.
Kaiser Health News (KHN) provides a roundup of federal and state options to regulate health insurance premiums. Reading between the lines, however, the story is really about a larger issue: regulatory action to hold down the cost of medical care that underlies the actuarial basis of premiums. Either indirectly by giving insurance regulators more authority to approve or reject filed premium rates or more directly as KHN reports:
Tired of complaints that underlying costs are the problem, but hearing no consensus from the health-care industry on how to solve it, Massachusetts Gov. Deval L. Patrick (D) introduced a broad proposal to overhaul the way health care is paid for. Part of the proposal would allow regulators to reject premium increases if insurers pay hospitals, doctors and others more than a limit set by the state.
Either way, to providers it smells like price controls. In California, that prospect has doctors so alarmed that they’ve allied with their traditional payer adversaries to oppose pending legislation (Assembly Bill 52) that would give the Golden State insurance and managed care plan regulators prior approval authority over health insurance rate filings and allow them to bar the use of rates deemed excessive, inadequate, or unfairly discriminatory.
Massachusetts Gov. Patrick’s concept bears watching and could have national implications insofar as that state’s health care reform served as a template for the federal Patient Protection and Affordable Care Act (PPACA).
With the advance this week of California legislation that would subject premiums for health insurance and managed care plans to prior rate regulatory approval, the New America Foundation’s Micah Weinberg correctly notes in a Sacramento Bee op-ed article that regulating insurance rates is a piecemeal solution.
From a logical standpoint, regulating premium rates makes sense insofar as only a handful of insurers and managed care plans control about 90 percent of the market in California. That’s not a robust competitive market that will work to hold down premiums.
Even so, Weinberg correctly suggests, these companies are not the ultimate market makers for health care. Insurance and managed care is a risk spreading and pre-payment mechanism, respectively, that doesn’t ultimately price the cost of health care. Instead, insurers and managed care plans act as intermediaries, passing along the increased costs of health care utilization to their policyholders and members. That’s why they strongly opposed the California rate regulation measure — out of well-justified fear of being squeezed by increasing costs for covering their customers at the same time regulators pressure for lower premiums.
Some states including Maryland recognize this and have responded — as some nations have done — by imposing price controls on medical providers. Weinberg notes Massachusetts is considering legislation that would allow regulators to bar rates charged by hospitals to payers as excessive.