The Next Health Reform Debate: What’s an ‘Unreasonable’ Insurance Premium Hike?

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WASHINGTON-When Anthem Blue Cross tried to raise health insurance
premiums in California by 39 percent this year, the move became a
rallying point for proponents of health care reform legislation, and the
landmark bill won final passage soon after.

So what will the health care reform bill actually do about double-digit premium hikes?

The answer to that question is still being sorted out, as insurance
companies, health care providers, and consumer groups engage in a new
tug-of-war over how federal regulators implement the law’s provisions on
premium increases.

The health care overhaul does not give the federal department of
Health and Human Services (HHS) the power to approve or reject insurance
increases. That task is still left to state regulators, who now have
varying degrees of authority over insurance costs.

But Congress did try to beef up and streamline the way states review
proposed price hikes. For example, the health care reform law requires
insurance companies that propose "unreasonable" rate increases to file a
disclosure form justifying the hike. That new disclosure form can then
be analyzed by federal and state officials–and by the public–to
determine whether the rate is based on legitimate increases in the cost
of medical care or other factors.

The law also sets aside $250 million in grants to the states to
bolster their ability to conduct thorough reviews of proposed rate
hikes, an option Connecticut officials are pursuing (see related story).

But Congress did not define what constitutes an "unreasonable" rate
increase, nor did lawmakers spell out what information insurers have to
disclose to make their case for a big jump in premiums. So those two
issues are now the subject of an intense tussle in Washington. HHS
officials are writing the definition of unreasonable, and the National
Association of Insurance Commissioners (NAIC) is crafting the form that
insurers will have to fill out, while advocates for a gamut of interest
groups are trying to influence both.

"We have a high level of engagement from all interested
stakeholders," said Ken Ross, Michigan’s top insurance regulator and
vice chair of the NAIC task force charged with developing the disclosure

In the battle over how to define an "unreasonable" premium hike,
insurers are arguing that two basic measurements should be used: First,
whether a rate increase is justified by actuarial data, and second,
whether it helps an insurer meet its solvency requirements, which
dictate the amount of reserves a company must keep on hand in order to
be able to pay out possible claims. Insurers have warned against
including any other "arbitrary" metrics, as the insurance industry’s
lobby group, the America’s Health Insurance Plans, puts it.

But what insurers may see as arbitrary, consumers groups see as
concrete yardsticks. A coalition of advocacy groups has urged HHS to
define as "unreasonable" any premium increase that is greater than 10
percent or that exceeds the rate of medical inflation by 150 percent.

"If health care costs went up 4 percent, but premiums went up 20
percent," that should trigger further review, said Timothy Jost, an
expert on health law at Washington and Lee University and a consumer
representative to the NAIC on this issue.

If a rate increase meets the unreasonable standard, Jost notes, that
simply means the insurance company has to submit the public disclosure
form–essentially a detailed justification–to HHS and the state where
it is proposing the rate increase. Officials can then analyze the data
on the form and, depending on relevant state laws, may be able to
approve or deny the rate hike.

A spokesman for HHS said the agency was working "quickly and carefully" to write the definition, but did not give a timeline.

Sharp battle lines have also been drawn over what needs to be
included on the justification form. Insurers say it should be simple and
relatively limited. "Rather than put up Excel spread sheets, the goal
here is to make sure the information being provided is being done so in a
way that’s understandable for consumers," said Robert Zirkelbach, a
spokesman for the insurance trade group, AHIP.

But patient advocates say the argument for simplicity is a ruse for
providing skimpy data, and they cried foul when they saw the first draft
of the NAIC task force’s disclosure form earlier this summer. That
draft included a line item for the cost of clinical care, but it did not
require insurers to break that down by category–for example,
separating out hospital payments, pharmacy bills, and provider
costs–something critics say is vital to understanding and analyzing
proposed rate increases.

In addition, the American Medical Association urged NAIC officials to
include separate line items on the form listing salaries for CEOs and
other high-level executives, brokers’ fees, and advertising and lobbying
budgets, among other things.

"Clear, detailed information from health insurers that explains the
rationale behind rate increases benefits patients, physicians and the
entire health care system as we work to address rising health care
costs," Dr. J. James Rohack, immediate past president of the AMA, said
in an email to The Mirror. "The rate review process presents a good
opportunity for patients to learn more about how their health insurer
is spending their premium dollar."

The AMA and other groups say that increased transparency will keep
insurers like Anthem from trying to push through another eye-popping
rate increase as it did in California. The company provoked similar
public outcry in Connecticut last year with a proposed 32 percent rate
increase for consumers in the individual market.

In Connecticut, the state insurance commissioner eventually approved a
rate increase for Anthem policyholders of as much as 20 percent. In
California, Anthem is now seeking a lower increase after a state actuary
discovered mistakes in the company’s rate application.

"It’s one thing to try to pull something off when nobody’s watching,
but it’s another thing when you have to post it on the Web," said Jost.
"Once transparency is introduced, behavior changes dramatically."

Zirkelbach said that insurance companies have embraced strong
disclosure, because it will help consumers understand that the
much-maligned industry is not the reason for skyrocketing premiums. "The
data is clear that premiums are increasing because medical costs
continue to soar," he said, "and so it’s important that consumers see
that’s what it is–and not profits."

But when it comes to listing executive pay and other details, he
said, "I’m not sure how that helps the discussion."  He noted that such
information often is already made public in other corporate filings.

Ross, the Michigan insurance official and NAIC task force member,
said regulators are in the process of sorting out these arguments.
"We’re balancing the industry’s concerns against consumers’ desires for
specific information," he said. "I cannot tell you today how that’s
going to end up."

The end goal is a disclosure form that helps consumers answer "what
is the proposed increase and what’s driving it," Ross said. He said NAIC
wants it to be concise and "not so high level that it undermines the
goal of transparency."

Jost said he’s been encouraged by recent deliberations and a more recent draft, which include "more granular" data, he said.

Ross said the NAIC may not have a finished form to send to HHS for
another couple of months, although this issue will likely be discussed
at a meeting in Seattle later this month.

No matter how tough the new regulations are, interest groups on both
sides of the fight say it’s still unclear how much these measures will
do to rein in premium costs.

"It’s important that information is out there, but unless more is
done to address the underlying medical costs, [the law] will fail to
make coverage more affordable for families and employers," said

Carmen Balber, director of the Washington office for Consumer
Watchdog, an insurance industry critic that has been keeping close tabs
on the law’s implementation, said that increased public scrutiny has
served to pull back some insurance companies. But, she said, that isn’t

"There’s only so much that shaming the industry will do," she said.
What really needs to happen, she said, is for state regulators to get
the resources and political power to investigate and crack down on
unjustified rate hikes. "That’s why the state grant program is so
important," she said.

The disclosure forms and the definition of an unreasonable premium
increase will help set the stage for 2014, when state-based health
insurance "exchanges" will be created. The exchanges are envisioned as a
new competitive marketplace where individuals and small businesses can
shop for insurance.

Although exchange managers will not have the power to control premium
prices, they will be able to consider rate increases when deciding
whether to certify an insurer for participation in these new markets.
Lawmakers and advocates hope that the threat of exclusion from those new
exchanges will help keep premiums in check.

Consumer Watchdog
Consumer Watchdog
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