Congress: Don’t Let Insurers Write The Rules That Limit Their Own Rate Increases

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Feinstein Bill Would Close ‘Enormous Hole’ In Health Reform But Must Be Amended to Cut Industry Influence, Said Consumer Watchdog

Washington, D.C. — A health reform fix-it bill by Senator Dianne Feinstein that was debated in a Senate committee this morning aims at closing what Feinstein called an "enormous loophole" in the new federal law, allowing insurers to jack up rates on insurance policies that Americans will soon be required to buy. However, as written the bill would give too much power to the insurance industry over defining "unreasonable" rates that could be blocked, said Consumer Watchdog.

The bill would allow the industry-funded National Association of Insurance Commissioners ("NAIC") to write key definitions of what constitutes an "unreasonable" rate increase and to assess the value of current state regulations.  Amendments are needed to assert that HHS has the sole authority to determine the definitions that will make or break the law. The bill must also assure that direct federal regulation is used only as a fallback when states fail to develop adequate regulation and review of health insurance rates.

"Senator Feinstein should be commended for proposing legislation to close a gaping loophole in the federal health reform law. As written, nothing in the health reform law prevents insurers from dramatically increasing rates in advance of the law’s requirement that Americans must buy insurance policies or face tax fines," said Jerry Flanagan of Consumer Watchdog.

"However, the NAIC is a private organization that is not subject to the transparency and public participation rules of a government body, is funded in large part by the insurance industry, and NAIC members enjoy a ‘revolving door’ of job opportunities in the industry thanks to the organization’s close ties to insurance companies. The insurance industry’s dominance of the NAIC will allow it to game the regulatory system through complicit regulators and undefined standards that industry actuaries are expert in manipulating," said Flanagan.

Senate Health, Education, Labor, and Pensions (HELP) Committee Chair Tom Harkin (D-IA) called the lack of state "prior approval" of rate increases a "gaping hole" in health care reform.  Under a "prior approval" system, insurance companies must receive approval from state regulators for rate increases before they go into effect.  California’s landmark prior approval system for auto insurance rates under Proposition 103 has saved drivers $62 billion since 1988.

Click here for more information on Proposition 103.

S-3078 by Senator Feinstein would establish a federal rate authority to review rates and take corrective action, including blocking rates or requiring rebates, only in states that do not have the authority or capability of doing so on their own. Consumer Watchdog advocates for frontline state regulation of health insurance rate increases with strong federal fallback if states fail to act just as envisioned by the legislation.  However, Consumer Watchdog warned that the law must clarify that federal regulators may only override state laws that are inadequate to limit unjustified rate increases.  Without such a clear limitation, future federal regulators, under the influence of health insurance companies, may attempt to override more protective state standards with weak federal rules.

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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at:

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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