The U.S. government issued a rule Thursday requiring state or federal review of substantial health insurance rate increases for individual and small-group plans, prompting criticism from the managed-care industry.
The Department of Health and Human Services said the rule, arising from the health overhaul law, will moderate premium increases by bringing more transparency to the rate-setting process.
Starting Sept. 1, independent experts must examine any proposed increase of 10% or more for most individual and small-group plans, with states generally bearing the responsibility for rate reviews and HHS serving as backup for states lacking adequate resources.
In Sept. 2012, the 10% threshold will be replaced by state-specific levels that reflect health insurance cost trends in those areas. HHS said it will work with the states in developing those thresholds.
"Publication of the final rule comes as health insurance companies have reported some of their highest profits in years. One cause for these profits is that actual medical costs are growing more slowly than what insurance companies projected when they set their 2011 rates last year. However, many of the rates consumers and small employers pay today don't reflect these lower costs," HHS said in a release.
While some states already review proposed increases to determine if they are reasonable, others lack the legal authority or resources to do so, according to HHS. And while some states have the authority to deny or reduce proposed rate increases, most do not. The rule "ensures that significant rate increases in all states will be thoroughly analyzed and disclosed to the public," HHS said, noting that public and political pressure has reversed or reduced big increases in some states.
The rule requires insurers to provide consumers with clear information about the reasons for "unreasonable" rate increases and to post the justifications on company and government websites, HHS said. The rule also requires states to allow public comment in evaluating the rate increases subject to review.
"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," said Karen Ignagni, chief executive of industry group America's Health Insurance Plans. Premium review should factor in all of the components that determine premium rates, including geographic variation, the cost of new benefit mandates and the effects of younger and healthier people dropping coverage, she said. An arbitrary threshold for review will establish a presumption of "unreasonableness" in what should be an objective, actuarially-based evaluation, said Ignagni. She agreed states are best suited to review premiums "because they have the experience, infrastructure and local market knowledge needed to ensure that consumers are protected and health plans are solvent. The federal government is not in a position to make these assessments."
Ethan Rome, executive director of consumer advocacy group Health Care for America Now, said the rule "puts health insurance companies on notice that slamming consumers and small businesses with unjustified, double-digit premium rate increases will not be tolerated. These regulations will help states shine a light on the data the insurance companies manipulate to justify unreasonable rate hike year after year."
Consumer Watchdog, however, complained that the rule doesn't make insurers provide enough information explaining increases to allow appropriate public scrutiny, and noted it doesn't require approval of all rates before they take effect. State regulators need the authority to reject excessive rate increases, the group said.