Will Health Insurance Ever Get Cheaper?

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One of the goals of the federal health care law is to bring down the cost of insurance premiums. So far, it hasn't done that. Some new rules about to take effect could stir up some change. But many are skeptical that they will.

Washington, D.C. — Ask any small business owner whether the new national health law has made a dent in employer insurance bills, and the answer will likely be "No." It's the correct answer. In fact, insurance premiums nationally have gone up more than 16 percent since the law was enacted a little more than a year ago. In some parts of the country, increases have been as much as 30 percent.

This year, states will start cracking down on double-digit rate hikes with the hope of containing premiums by 2014, when nearly everyone will be required to purchase insurance. But some experts question whether the new push will work.

The Affordable Care Act actually gives the federal government little power to guarantee that health insurance is affordable. Instead, the job is left up to states. But for the most part, they aren't doing it. Almost half of them lack legal authority to reject an insurance company's rates, and many that have the authority fail to use it.

In at least 28 states, no prior approval is required for insurance companies to raise rates on small businesses, according to data from the National Association of Insurance Commissioners. When it comes to individual policies, 21 states allow the rate hikes to take effect without approval.

Starting September 1, the U.S. Department of Health and Human Services (HHS) aims to change that. Some 45 states have each received a $1 million federal grant to beef up their insurance rate review capability, and another $200 million total is slated to follow. In exchange, the federal government is asking the states to take a hard look at any rate increases of 10 percent or more.

Alaska, Georgia, Iowa, Minnesota and Montana did not apply for federal grants. In those states and possibly others, the federal government will start reviewing insurance premium increases for individuals and small businesses. Rates for large employers will remain largely unregulated in all states, under the assumption that big companies have enough leverage with insurers to negotiate reasonable rates for themselves.

Website scrutiny

In all states, premium increases considered unreasonable will be posted on a federal website where insurers will have to explain them. HHS says the overall effort will bring "an unprecedented level of scrutiny and transparency to health insurance rate increases."

But consumer advocates are not convinced. "They're basically relying on public embarrassment to get insurance companies to lower their rates," says Carmen Balber, of Consumer Watchdog. "Ultimately, consumers will not be protected from unjustified rate hikes until regulators have full authority to modify, and not just review, unreasonable rates before they take effect," she wrote in comments on the proposed rule.

Others disagree. According to Sara Rosenbaum, director of George Washington University's health policy program, the success of state efforts to keep a lid on insurance premiums has historically relied on two things: political will and adequate regulatory resources. Those have generally been lacking. Now, she believes, the federal money and national spotlight should make a difference in consumers' favor.

Insurance companies generally support state, rather than federal, review of their premiums. According to America's Health Insurance Plans, an insurers' trade group, state commissioners are in the best position to review rate hikes because they already monitor insurance company solvency to make certain the companies have sufficient reserves to cover future medical costs.

Not enough competition?

But state regulation has its risks. "The dirty little secret," says Rosenbaum, "is that it's hard for states to regulate insurance companies, because if the companies don't like it, they can pull out." Rural states where only one or two carriers offer policies are particularly vulnerable.

That's why a few states took the controversial step this year of allowing out-of-state insurance companies to sell policies within their borders. Maine was one of them. Under Republican Governor Paul LePage and a GOP-led legislature, Maine enacted a sweeping new law aimed at making the insurance industry more competitive – and lowering premium prices.

But there were tradeoffs. The law repealed a provision requiring carriers to have networks of doctors and hospitals within 50 miles of every subscriber, a change critics charge will hurt rural Maine residents. It allows a bigger difference between rates for elders and rates for younger people, in an effort to get more young and healthy Mainers to purchase insurance. To stimulate competition, carriers from all New England states except Vermont will be allowed to sell their product in Maine, regardless of the fine print in their policies.

Trish Riley, who was health policy director for former Democratic Governor John Baldacci and architect of the state's 2003 Dirigo health program, calls Maine's new insurance law "a blunt approach." But she says some kind of change was needed. Maine has the second highest insurance rates in the country.

"The notion of competition in the insurance industry is highly overrated," Riley says. The most important part of regulation, she adds, is scrutinizing underlying medical costs. States have to ask insurance companies what they're doing to keep costs down. If they're not pushing back on health care providers, nobody is. Consumers – except for large corporations – have practically no influence over the prices they pay for health care. And states can't regulate provider costs, except under Medicaid and other state programs. It's up to insurance companies. Or at least, Riley insists, that has been the case so far.

Rubber-stamp regulation

When it comes to regulating health care insurers, states' top priority has been to make sure the companies that write policies within their borders remain solvent enough to pay claims. Regulators also specify the level of benefits insurers must offer, review the fine print of policies and monitor companies to make sure they don't unfairly reject claims. In the past, however, states have mostly rubber-stamped rate hikes. When state regulators ask hard questions, insurance companies typically argue that higher rates are justified because of the increased amount they must absorb in health care costs.

But lately, some states have been pushing back. Last year, Rhode Island's insurance commissioner was able to negotiate an 8 percent rate increase down to just 2 percent. North Dakotans got a proposed 24 percent increase reduced to 14 percent after a public outcry drew state government attention.

Massachusetts spent most of last year arguing over proposed increases in small business insurance rates. Even in California, which lacks statutory authority to reject rates, the insurance commissioner persuaded a major insurer to withdraw rate increases of as much as 87 percent, according to HHS.

Although the federal health law does not directly empower the federal government to reject steep insurance rates, it does include a number of provisions aimed at keeping rates down. The most important one is the controversial "individual mandate, " which requires nearly everyone to have health insurance so that young people, generally at little risk for serious illness and therefore cheaper to insure, will be brought into the system. For those unable to pay, there will be federal tax subsidies. The federal law also limits charges for insurance company overhead to no more than 20 percent of premiums for individual and small business policies. Finally, it limits premium disparities between policies for younger people and those for older subscribers to no more than 30 percent.

Still, none of these new requirements necessarily adds up to lower rates. Massachusetts is a case in point. Four years after its ground-breaking health care system was created, nearly every resident has coverage, and insurer overhead costs account for less than 10 percent of premium fees. But Massachusetts' health insurance costs are still the highest in the nation.

– Contact Christine Vestal at [email protected]

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