HHS offers new grants for insurance rate reviews

States can apply for $200 million in healthcare reform grants to develop programs preventing "unreasonable" health insurance rate hikes, the Department of Health and Human Services announced Thursday.

The sweeping healthcare overhaul enacted 11 months ago requires health insurers in the small-group and individual markets to justify rate hikes deemed unreasonable.

About $150 million announced Thursday will help states create and enhance rate review programs. Another $22.5 million will be given to states with higher populations, while $27.5 million will go to states with programs that allow them to block an insurance rate from going into effect — a power that many states currently lack.

“We know that rate review is an extremely effective tool to benefit consumers,” said Steve Larsen, director of HHS’s Center for Consumer Information and Insurance Oversight.

Rate review rules published last December require states in 2011 to review proposed insurance rate hikes of at least 10 percent. In 2012, state-specific thresholds will trigger the reviews.

The reform law encourages states to keep domain over rate reviews, but it empowers HHS to take over a state’s review program if the department determines the state doesn’t have an effective process in place. Larsen said it is too early to predict how many states would turn over their review powers to HHS.

“Of course, our preference and desire is for states to be in a position to be the reviewer of rates,” he said.

The HHS funding announcement marked the second round of rate review grants. In August, HHS awarded $46 million to 45 states and the District of Columbia to strengthen their rate review programs.

The announcement also marked the third major health reform grant offering this week. On Tuesday, HHS announced up to $4.3 billion for two initiatives expanding home and community-based healthcare in state Medicaid programs for the poor. The department Thursday morning also announced $100 million grants to encourage Medicaid beneficiaries to adopt healthier lifestyles.

The influx in grant awards puts governors challenging the reform law in a tough position. Though they are asking the courts to overturn the overhaul, they recognize they can be left behind if they refuse implementation grants.

Florida and Alaska have either rejected or returned implementation grants, but other states involved in a 26-state lawsuit challenging the law’s constitutionality have accepted massive infusions of federal dollars to implement the law. For example, Wisconsin last week accepted almost $40 million to develop heath information technology infrastructure capable of handling new state-run insurance exchanges opening in 2014.

States will have the opportunity to apply for the $150 million rate review in two phases. State applications for a three-year, $3 million award are due by August. Another award round next year will deliver $2 million, two-year grants.

Insurers, commenting on the rate review regulation this week, urged HHS to push back the rule’s effective date until 2012.