New Rules Will Increase Scrutiny of Health Insurance Premium Hikes

BY Lea Winerman  December 21, 2010 at 5:00 PM EDT

Beginning next year, health insurers who want to raise their rates by more than 10 percent will face strict new requirements to explain and make public the price increases, according to a regulation released by the Obama administration Tuesday.

The new rules, part of the health care reform bill, will require insurers who want a double-digit premium hikes to justify the rate increases to state or federal officials, who will review them to decide which are “unreasonable.”

“Such increases are not presumed unreasonable, but will be analyzed to determine whether they are unreasonable,” the administration said in a statement.

The federal government will not have the power to deny the unreasonable rate increases, but Jay Angoff, director of the HHS Office of Consumer Information and Insurance Oversight, said that simply publicizing the fact that the rates don’t stand up to actuarial review will help minimize unjustifiable increases.

“Often there are assumptions put in to rate calculations which frankly are never questioned,” he said. “Just the act of asking those questions [....] will create more balance.”

Right now, regulation of insurance rates varies widely from state to state, ranging from strict to nonexistent. Twenty-six states and the District of Columbia have the authority to oversee and reject rate increases, according to HHS, and the process varies from state to state.

The new regulations specify that states with “effective rate review systems” will conduct their own reviews. The federal government will step in only in states that do not have effective systems. The Obama administration has distributed $46 million of the $250 million in federal funds that will be available between now and 2014 to help states set up and strengthen those systems.

The 10 percent rate hike threshold will only be in effect for one year — after that, states will set their own limits to trigger an analysis of whether a raise is unreasonable.
“In some states having a seven percent might be excessive. We’ll be more nuanced in the future based on what’s happening in [individual] states,” HHS Secretary Kathleen Sebelius said.

Health insurers criticized the new rules, saying that they don’t address the root causes of soaring health care costs.

“The public policy discussion on health care costs has focused on health insurance premiums, while ignoring the root causes that are driving up the cost of coverage, including soaring medical prices, new benefit mandates and changes to health plans’ risk pools,” America’s Health Insurance Plans CEO Karen Ignagni said in a statement.

But health care reform advocates praised the regulation.

“These new rules will help stop health insurance companies from ramming unjustified premium rate increases down our throats and basing double-digit rate hikes on phony calculations,” Ethan Rome, executive director of Health Care for America Now, said in a statement.

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