The new law doesn’t prevent rate increases such as Anthem Blue
Cross’ double-digit hike last year. ‘It is a very big loophole,’ says
Sen. Dianne Feinstein, who is pushing regulatory legislation.
Washington, D.C. — Public outrage over double-digit rate hikes for health insurance may
have helped push President Obama’s health overhaul across the finish
line, but the new law does not give regulators the power to block
similar increases in the future.
And now, with some major companies already moving to boost premiums and
others poised to follow suit, millions of Americans may feel an
unexpected jolt in the pocketbook.
Although Democrats promised greater consumer protection, the overhaul
does not give the federal government broad regulatory power to prevent
Many state governments — which traditionally had responsibility for
regulating insurance companies — also do not have such authority. And
several that do are now being sued by insurance companies.
"It is a very big loophole in health reform," Sen. Dianne Feinstein
(D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are pushing
legislation to expand federal and state authority to prevent insurance
companies from boosting rates excessively.
At least in the short term, regulators will be able to do little more
than require insurers to publicly explain why they want to raise rates.
Consumer advocates believe that will not be an effective deterrent
against such premium increases as the 39% hike that Anthem Blue Cross
sent some California customers last year.
"The irony here is that it was the Anthem rate increase that breathed
new life into the healthcare bill," said Jerry Flanagan, medical policy
director of Consumer Watchdog, a longtime supporter of tougher premium
regulation. "But there is nothing in this bill to guarantee that it
doesn’t happen again."
The lack of muscle is stoking concerns that more rate jumps — and an
angry backlash from ratepayers — could undermine support for
implementing the whole healthcare overhaul.
Insurance industry officials say that talk of more regulation is
misguided and have urged federal officials to focus instead on
containing rising medical costs, which help drive up premiums.
"Politicians are much more comfortable looking at healthcare premiums,"
said Karen Ignagni, president of America’s Health Insurance Plans, the
industry’s Washington-based lobbying arm.
Ignagni, as well as some independent healthcare experts, says
policymakers should look at ways to control what hospitals and other
providers charge, although few elected officials have shown much
appetite for doing so.
Obama endorsed Feinstein’s insurance proposal earlier this year,
including it in the healthcare blueprint he unveiled in February as
Democrats were struggling to revive their proposals. But congressional
rules prevented Democratic leaders from including the rate control
provision in the final healthcare package.
Many consumer advocates believe this enhanced regulation — known in
the industry as "prior approval" authority — is the only real way to
protect ratepayers from insurers, particularly for-profit companies
under pressure to generate returns that satisfy Wall Street investors.
Prior approval requires insurers to submit proposed rate increases to
regulators, who can then comb through companies’ financial and actuarial
data to see if the proposals are justified. Insurers cannot raise
premiums without explicit permission from the regulator.
Some states have given prior-approval authority to their insurance
commissions and have used it to force down premiums.
In New York, the state insurance department reduced nearly a quarter of
the proposed premium increases between 1990 and 1995, according to a
recent department analysis.
More recently, state regulators in Kansas successfully pushed Blue
Cross Blue Shield of Kansas to reduce a proposed premium increase for
some of its elderly customers, according to state insurance commissioner
California, which does not have power to block health plan hikes, has
been using similar authority to control property and auto insurance
premiums for more than 20 years, said Dwight M. Jaffee, a real estate
and finance professor at UC Berkeley’s Haas School of Business. "It has
been very successful," said Jaffee, who studied the state’s experience.
Health insurance is more complicated than property and auto coverage,
however. And even the most active state regulators typically cannot
investigate every proposed change in every segment of the insurance
In Maine, where an aggressive Bureau of Insurance reviewed 186 rate
filings in 2009, regulators focus on the so-called individual market,
where people buy coverage if it is not available through their jobs.
Maine is now battling Anthem Blue Cross Blue Shield, which regulators
last year blocked from raising premiums an average of 18.5% on its
Many states do far less, often requiring insurers only to file their
proposed rate increases with the state insurance commissioner before
passing them along to consumers. New York switched to that approach in
1996, a move that state regulators say resulted in "excessive rate
A handful of states, such as Missouri, do not even require insurers to
publicly disclose rate hikes.
The new federal healthcare legislation would step up oversight of
health insurers in states with such limited regulation.
The bill directs the secretary of Health and Human Services to work
with state regulators to develop a process for reviewing proposed
premium increases to determine if they are "unreasonable." Insurers that
propose such hikes would be required to post justifications on their
For the first time, all insurance companies would have to dedicate at
least 75% of their premiums to paying medical claims; this would reduce
the proportion of companies’ revenue that could go to administrative
expenses, such as executive salaries and stockholder dividends. Some
analysts believe that requirement could restrain premium growth.
"These provisions are powerful forces that will help end sky-high
premium hikes," said Nick Papas, a spokesman for Secretary of Health and
Human Services Kathleen Sebelius.
Monday, the department announced it will accelerate the development of
But more intensive oversight would not begin until 2014, when states
set up new regulated insurance markets, or exchanges, where consumers
who do not get insurance at work would shop for coverage. The healthcare
bill allows regulators to ban insurers from the exchanges if their
rates are deemed unjustified.
Even some regulators wary of greater Washington control over state
affairs say that more federal protections may be needed before then.
"Some consistency there is probably warranted," said Praeger, a
Republican and former head of the National Assn. of Insurance
Commissioners. Praeger criticized Obama’s original proposal to give the
federal government authority to block rate increases.
But she said last week that the insurance commissioners association is
now talking with the administration about how the federal government
could set a stronger minimum national standard for regulating medical
That could encourage more states to require insurers to get state
approval before raising premiums.
On Capitol Hill, Feinstein said she is looking at ways to move her
premium regulation bill forward, perhaps by attaching it to other
legislation with bipartisan support.
Stepping up regulation doesn’t promise to be easy. Insurance companies
in Maine and Massachusetts have sued state regulators who tried to block
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