Consumer advocates are questioning the fairness of requiring Americans to buy health coverage under the Affordable Care Act if the government can't control the rates insurance companies charge.
To keep prices in check, the health reform law instituted a procedure known as rate review, by which state insurance departments evaluate carriers' proposed premium hikes of 10% or more to determine whether they are justified. But even when they deem the proposed increases excessive or unreasonable, insurance commissioners can't always stop companies from putting them into effect.
While the reviews spared consumers $1 billion in rate hikes, the Department of Health and Human Services announced Tuesday, insurance commissioners and advocates say they would have saved consumers much more if government authorities in all 50 states could prevent insurers from going ahead with unjustified increases.
"At the end of the day, the companies can tell us to pound sand," says Dave Jones, the insurance commissioner in California, one of 13 states where the rate reviews are not binding. "It's very frustrating. Frankly, our hands are tied behind our back."
Even when HHS does the review itself, it can't always force carriers to lower their rates when the increases are excessive: In March the department identified unreasonable premium hikes in nine states'including increases of up to 24% — but could not prevent them, according to consumer advocates. The HHS could not verify how the companies responded to its decision, but says that if carriers implement increases that fly in the face of the department's or a state's findings, they must publicly disclose their reasoning for raising the rates, which should help consumers make more informed choices when selecting health plans. "By shining a spotlight on unreasonable rate increases, the Affordable Care Act will bring unprecedented transparency to the insurance marketplace," the HHS said in a statement.
When commissioner Jones found Aetna's small-employer rate hikes unreasonable in April, the health insurance company ignored the ruling, raising those plans' annual premiums by an average of 8%, and increasing some as much as 21%. "I have no authority to actually enforce a reasonable rate here," Jones says. "At the end of the day, the health insurers and HMOs have the ability to set the rates wherever they see fit."
This limitation hampers the effectiveness of rate reviews and leaves regulators with little power besides the bully pulpit: If insurance commissioners can't prohibit companies from raising premiums excessively, "there's no teeth to that provision," says Carmen Balber, Washington director for Consumer Watchdog, an organization advocating for patient protection and health insurance reform.
The HHS says that even short of the power to reject insurance companies' increases, rate review has an effect on restraining rates: "Already, we've seen aggressive, effective rate reviews hold down increases in a number of states," the agency said in the statement.
Jones says that in less than half of the cases where he finds insurers' proposed premiums to be excessive, he is able to lean on the companies to achieve "some modest moderation of the rates."
Aetna (AET) , for its part, says that "while rate increases are never easy," the company sets its premiums based on "reasonable projections of future costs" by independent actuaries, and that it spends a greater share of premiums it
collects on medical costs than its competitors. By law, insurance companies have to issue rebates to customers if they spend less than 80% of their premiums on health costs, and the fact that Aetna did not owe rebates to small-group customers in California last year "is further evidence that we are pricing appropriately," a company spokeswoman says.
And not all consumers will benefit from rate review, even if their state does have the authority to approve insurance companies' premium increases before they take effect. The reviews apply only to individual and small-group insurance plans, but not large employers, meaning that the procedure will have the greatest effect on a relative minority of consumers, says Gary Claxton, vice president of the Kaiser Family Foundation. Premiums for employer-sponsored family health plans rose 4% this year, according to a Kaiser survey released Tuesday, a fairly modest increase beyond the scope of rate reviews, Claxton says.
Still, consumer advocates say employees in the larger plans tend to get better rates anyway and therefore don't need as much protection. "Individuals and small groups don't really have any clout with insurance companies," Claxton says.
Reigning in proposed increases in smaller plans could also keep the larger plans' premiums in check, say experts, because the carriers would likely use the same formula for both types of plans, with the bigger group still getting a better rate.
But if regulators use rate review to crack down on insurance companies' increases to the point where those carriers have trouble competing, the process could backfire by forcing some companies to leave the market, and reduced competition could lead to higher rates, says Brent Fulton, a professor of health economics and policy at the University of California at Berkeley. The companies might also attempt to make up the costs in ways that could affect consumers, such as reducing their customer service spending.
State laws are just one example of how the implementation of rate review varies dramatically across the country. Experts say the effectiveness of the procedures can also depend on how state insurance offices choose to use their authority (some states, such as Iowa, hold hearings to receive consumer input), the sympathies of the insurance commissioner, politics and election cycles, as well as the dominance of the big insurance players in certain regions. "Do they mxercise that market power and raise rates above an economic fair profit? It's probably the case in some areas that they do," says Fulton.
While insurance commissioners say no insurance company or type of carrier is more likely to ask for unreasonable increases than another, some states seem to be more lenient about increases than others. Iowa's insurance Commissioner Susan Voss, for example, says she rejects about half of rate proposals, while Massachusetts' commissioner Joseph Murphy approved 80% of proposed rates last quarter, though rejected 90% in 2010.
And even though rate review is a process completed by actuaries, experts say there is a surprising amount of wiggle room involved, with insurance companies able to bargain about how they forecast their future costs to justify increases. California's insurance commissioner Jones says his office has "significant disagreements with companies about their predictions of medical trends," and that it often finds that the insurers are overstating projections of medical inflation and how much patients will use health-care services.
Some insurance commissioners admit to feeling political pressure from legislatures and executive branch officials to keep insurance rates low. The review process can be subjective, says Voss: "It's not fun when you're a regulator to have people very critical that if you approve a rate that it's going to harm people."