Health insurance hikes greater than 10 percent will be scrutinized by the states and the federal government under a proposed regulation released Tuesday morning.
The highly anticipated regulation defines what are “unreasonable” health insurance premiums under the healthcare reform law, which gives the federal government greater oversight of health insurance premium increases. The provision does not give the federal government the power to block an unreasonable increase.
Under the proposal, states with review systems already in place would be required to review any rate increases above 10 percent in the individual or small-group market beginning in 2011. After 2011, state-specific thresholds based on cost trends will be used to determine which rate increases must be reviewed. The rate review proposal does not include the large-group market.
"We made the determination that this year, as a start year and a year to collect more data, we would start somewhere, and 10 percent was chosen not as the definition of unreasonable, but the definition of the enhanced scrutiny that should be applied," said Health and Human Services (HHS) Secretary Kathleen Sebelius.
Insurance departments in states including Massachusetts, California and
Connecticut have already drawn attention to unreasonable rate hikes by
rejecting a number of proposed increase requests over the past year.
President Obama frequently cited a proposed 39 percent hike from Anthem
Blue Cross in California to build support for the reform bill earlier
HHS officials stressed that the proposed regulations leaves states' rate review process in place and minimizes burden on the insurance industry. According to the agency, 43 states have some form of rate review process already in place.
"The federal government won't be doing review of rates where there is a thorough process at state level," Sebelius said. "We won't sit on insurance commissioners' shoulders and question what they're doing."
However, HHS can intervene and institute its own review if the department determines a state doesn't have an effective program in place. According to the rule, a state's review process will be evaluated on four factors:
• whether the state receives from health insurance issuers’ data and documentation sufficient to determine whether a rate increase is unreasonable;
• whether the state effectively reviews the data and documentation submitted by health insurance issuers in support of a rate increase;
• whether the state's review examines the reasonableness of the assumptions used by the issuer in developing its rate proposal and the historic data underlying those assumptions; and
• whether the state applies a standard set forth in statute or regulation when making the determination of whether a rate increase is unreasonable.
The reform law also gives states the power to exclude healthcare plans from new state-run insurance exchanges starting in 2014 if an insurer shows a pattern of excessive or unjustified premium increases. Sebelius said she expects states to develop more comprehensive rate review processes by the time the insurance exchanges become operational.
"We know states are looking to increase authority, so more and more states are going to have full review authority," Sebelius said. "I think it's going to be demanded by a lot of consumers in those states."
In August, HHS announced $46 million in grants to 45 states and the District of Columbia to strengthen their rate review processes. The awards were the first part of a five-year, $250 million provision to help states improve oversight of insurance rates, make rate information more public, purchase new technology and hire additional staff to review the rates.
The liberal Health Care for America Now praised the proposed rule in a statement.
"For the first time there are rules to hold the insurance companies accountable for huge rate hikes by shining light on the financial data they claim justifies double-digit rate increases year after year," HCAN Executive Director Ethan Rome said.