Washington, D.C. – New federal health reform rules take effect today that require health insurance companies to publicly justify the reasons for any rate increase of 10% or more. The hope is that insurers who must explain their rates publicly will be shamed into ending unreasonable rate increases.
Betting affordable health coverage on a humbled insurance industry is too much wishful thinking, said advocates with the nonprofit, nonpartisan, Consumer Watchdog. Today’s new rules will not prevent unreasonable premium increases because they do not give insurance regulators the authority to reject increases that cannot be justified, said the group.
In California an insurance company was able to increase rates by 14% this spring, despite a finding by state regulators that the increase was unreasonable, because regulators do not have the power to modify or reject excessive health insurance rate increases. In contrast, a California law requiring prior review and approval of automobile and other property insurance rate increases has saved drivers $62 billion since 1998, according to the Consumer Federation of America.
“Disclosure alone will never be enough to prevent health insurers from charging unreasonable insurance premiums. To protect consumers, regulators must have the power to review and reject excessive rates,” said Carmen Balber, Washington director for Consumer Watchdog. “Without at least the threat of enforcement, public complaints about unreasonable increases will continue to fall on deaf ears. It’s up to the states to require approval of health insurance rates and hold down rate hikes where federal health reform has failed.”
Less than half the states require prior approval of all rate increases for both individual and small group health insurance plans, according to the Kaiser Family Foundation.
Under the rule taking effect today, any rate increase of 10% or greater will be reviewed by state or federal regulators. Insurers will complete a form justifying these increases. However, the rules do not require insurers to open their books and disclose the information used by their actuaries to calculate the increase. States may decide how much, or how little, rate filing information insurers must make public. Outside groups need the ability to independently check insurers’ math for public disclosure to have any chance of helping to reduce excessive premiums, said Consumer Watchdog.
Some states, such as Oregon, already require public disclosure of all documentation behind an insurance rate increase. Others, including Nevada, keep that information confidential.
The rate review rules will improve on the status quo in some states, said Consumer Watchdog. They require greater review and disclosure of rate increases in nine states where HHS, not the state, will conduct the review. Consumers in those states – Alabama, Arizona, Idaho, Louisiana, Missouri, Montana, Pennsylvania, Virginia and Wyoming – should see significant improvement.
The rule has also prompted several states to strengthen state disclosure and review requirements, including a law in Washington state that will make rate filings public documents for the first time, and a finding by Iowa’s insurance commissioner requiring all small group rate increases be reviewed and approved before they take effect.
The federal health reform law also sets aside $250 million in grants to states in order to strengthen rate regulation. Several states have used grant money to fund consumer participation in rate reviews, a key element of successful prior approval, said Consumer Watchdog. $27.5 million was reserved for states that have or implement prior approval regulation. The Department of Health and Human Services will announce the second round of grant awards at the end of September.
Consumer Watchdog released a report in May that found strong prior approval regulation is necessary to prevent excessive rate hikes and hold down costs under federal health reform.
Download Consumer Watchdog’s report “Health Reform and Insurance Regulation: Can’t Have One Without the Other”: http://www.consumerwatchdog.org/resources/cwrateregulation.pdf
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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