HHS Must Push to Curb Spiraling Rates, Prevent Gaming of Reform Act’s Limits on Insurer Overhead, Waste and Profit
 
Washington, D.C. — Consumer Watchdog, in comments today on new federal regulations to implement health reform, urged the Department of Health and Human Services (HHS) to serve consumers, not the insurance industry, in writing final regulations on "unreasonable" health insurance rate hikes and requirements for insurers to operate more efficiently.HHS Must Push to Curb Spiraling Rates, Prevent Gaming of Reform Act’s Limits on Insurer Overhead, Waste and Profit
 
Washington, D.C. — Consumer Watchdog, in comments today on new federal regulations to implement health reform, urged the Department of Health and Human Services (HHS) to serve consumers, not the insurance industry, in writing final regulations on "unreasonable" health insurance rate hikes and requirements for insurers to operate more efficiently.
  
HHS is developing rules to curb insurer abuses in advance of broad health insurance reforms that begin in 2014. One set of early regulations that will go into effect on September 23, 2010 will govern federal and state reviews of insurance rate increases that are deemed "unreasonable." The other will govern a new requirement that insurers spend 80 percent to 85 percent of consumers’ premium dollars on medical care rather than overhead and profit. Much will depend on defining what is "unreasonable," and what insurers will be able to classify as improving "health care quality."
  
"The new health care law contains vague language like 'unreasonable' premium increases and health care 'quality,'” said Carmen Balber, Washington director for Consumer Watchdog. "It is up to HHS and the Obama Administration to ensure specific, strict definitions of what those terms mean, and push states to tighten their oversight of health care premiums."
  
Unreasonable Premiums
 
In the comments to HHS, Consumer Watchdog says any increase that is over 150 percent of the annual rate of "medical care" inflation, which has ranged between 3.4 percent and 5 percent over the last decade, or over 10 percent annually, whichever is lower, should automatically be considered unreasonable, and subject to a public review of the insurer's calculations. (In a year like 2009 with a "medical care" inflation of 3.4 percent as calculated by the Bureau of Labor Statistics' Consumer Product Index, any premium increase of more than 5.1% would exceed 150% of the inflationary rate and therefore be deemed unreasonable.)

The group also calls for HHS to use grant money provided in the law to push states for enactment of regulations that would review rate increase before they go into effect, and bar those found to be unreasonable. Consumer Watchdog urges that such laws be modeled on California’s successful regulation of auto and property insurance under the voter-passed Proposition 103.
  
Read Consumer Watchdog's detailed comments on health insurance rate review (Section 2794 of the health reform law) at: http://www.ConsumerWatchdog.org/resources/RateReview.Comments.pdf

Consumer Watchdog wrote in the letter:
 
"Section 2794's grant of authority to federal regulators to review unreasonable health insurance premium increases and requirement that insurers justify those premiums are particularly important in light of other provisions of the new law requiring most Americans to buy health insurance policies from private insurers or face tax fines.  However, without robust state-based regulation barring excessive increases, coupled with subsequent federal legislation providing for federal regulation of premiums if states fail to act appropriately, health reform is likely to fail in its goal of expanding access to quality, affordable health coverage to all Americans."
 
Medical Loss Ratios

The comment letter from Consumer Watchdog on the second set of regulations, which require that 80 percent of premium dollars go to health care in the individual and small group market and 85 percent in the large group market, asks HHS to stop insurers from reclassifying administrative costs as "health care." It also asks HHS to roll back moves by WellPoint and other insurers to preemptively change their definitions of health care before the regulations go into effect.
  
"If insurance companies get the loose definitions that they are demanding, consumers will actually get a negative benefit from the regulation," said Judy Dugan, research director for Consumer Watchdog. "If WellPoint and others are allowed to shove overhead costs into the health care column, they will not have to become more efficient, and in fact will be able to expand overhead and profit, raising health care premiums even more."
 
Read Consumer Watchdog’s detailed comments on the health efficiency regulations (Section 2718 of the health reform law) at: http://www.ConsumerWatchdog.org/resources/MLR.Comments.pdf
 
Consumer Watchdog wrote in the letter:
 
"The overarching goal of this rulemaking must be: Before any insurer reclassifies any function as a 'health quality improvement,' the insurer must provide credible scientific evidence that the function improves the health quality of individual policyholders. This rule must apply not only prospectively, but also to any changes in the so-called ‘medical loss ratio’ made during the year before passage of the Patient Protection Act, given recent wholesale reclassifications by WellPoint. Any program or function added under the new 'health quality' definition must be stringently monitored by the states and the Department of Health and Human Services to protect against future abuses."
 
Consumer Watchdog Urges Caution Over NAIC Proposals
 
Consumer Watchdog also asked HHS Secretary Kathleen Sebelius to be skeptical of regulatory proposals being produced by the National Association of Insurance Commissioners, as required under the health reform law, and to rewrite or demand modified language without hesitation.
 
Consumer Watchdog wrote:
  
"The NAIC … is a private organization. It 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 officers enjoy a 'revolving door' of job opportunities in the industry. It is the NAIC’s board, not its committees or consumer advisors, that have the last word. The NAIC consumer advisory board’s recommendations, and even committee recommendations, are frequently swept aside in final board decisions. The insurance industry’s influence in the NAIC too often allows it to game the regulatory system through complicit regulators and loosely defined standards that industry actuaries are expert in manipulating. HHS must view the final NAIC recommendations through this prism."

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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: http://www.ConsumerWatchdog.org