HHS Finalizes Rate Review Regulation for Health Plans

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WASHINGTON, D.C. — Health insurance plans will have to justify double-digit rate increases in a federal or state rate review process beginning Sept. 1, under a final regulation announced by the U.S. Department of Health and Human Services.

Rate review, part of the Affordable Care Act, will moderate premium increases and prod insurers to provide consumers with greater value per premium dollar, HHS Secretary Kathleen Sebelius said. "Effective rate review works — it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace," she said in a statement.

The regulation, which finalizes a proposal announced in December, requires the use of independent experts to review proposed increases of 10% or more for most individual and small group health insurance plans. Reviews will be the job of state regulators. However, as with ACA's provision for insurance exchanges, HHS will have the authority to perform rate reviews in states that lack the resources or otherwise decline to take on the responsibility.

Starting September 2012, the 10% level will be replaced with thresholds that reflect state-specific insurance and health care cost trends in each state. HHS will work with states to determine the thresholds. To date, HHS has awarded $44 million in grants to states to bolster rate oversight systems. An addition $200 million remains available.

The HHS regulation is based on a bad assumption, America's Health Insurance Plans President and Chief Executive Officer Karen Ignagni said in a statement. Rising medical costs are to blame, and need to be considered in any rate review, she said.

"Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make health care coverage more affordable for families and employers. The public policy discussion needs to be enlarged to focus on the soaring cost of medical care that threatens our economic competitiveness, our public safety net and the affordability of health care coverage," Ignagni said. "Health plans are doing their part to restrain health care cost growth by partnering with providers across the country to change payment models to promote and reward safe, high-quality, cost-effective care."

Sebelius noted the final regulation comes after some health insurance companies reported higher profits than in recent years. Actual medical costs are growing more slowly than some companies projected when they set their 2011 rates last year, she said.

"The rate review rule puts health insurance companies on notice that slamming consumers and small businesses with unjustified, double-digit premium rate increases will not be tolerated," said Ethan Rome, executive director of Health Care for America Now. "These regulations will help states shine a light on the data the insurance companies manipulate to justify unreasonable rate hikes year after year."

U.S. Sen. Dianne Feinstein, D-Calif., and U.S. Rep. Jan Schakowsky, D-Ill., introduced legislation to strengthen HHS' hand by authorizing it to reject excessive and unjustified health insurance rates if states fail to regulate them (BestWire, May 12, 2011). The Health Insurance Rate Review Act would ensure that federal rules under the Affordable Care Act do not prevent state insurance regulators from imposing additional rate review requirements.

The new HHS regulation does not go far enough, according to Consumer Watchdog, because in many cases, it leaves up to states to determine how much information from a rate filing must be made public. It also does not require approval of all rates before they go into effect, the group said.

"The health reform law relies on public disclosure of unreasonable rates to shame insurance companies into charging consumers fairer prices, but that's an empty threat if health insurers don't have to explain every assumption in the full light of day," Carmen Balber, Washington director for the consumer advocacy organization, said in a statement.

Contact the author Sean P. Carr, Washington Bureau Manager, at: [email protected]

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