Affordable Care Act Requires Insurance Companies to Justify High Rate Hikes

Health 

insurance premiums have risen rapidly, straining pocketbooks for American families and businesses. Since 1999, the health insurance premiums for family coverage have risen 131 percent. 

Premium

 increases have forced families to spend more money for less coverage. And insurance companies have been able to raise rates without explaining their actions or justifying the reasons for their high premiums.     

The 

Affordable Care Act

 brings an unprecedented level of scrutiny and transparency to health insurance rate increases. Thanks to the Affordable Care Act’s requirement that insurance companies publicly justify any unreasonable rate increases, consumers who experience large increases will know why they are paying the rates that they are.  On December 21, 2010, the Department of Health and Human Services, working in partnership with States, proposed a new regulation to implement this important consumer protection.

Making the Market More Transparent

The amount of information about rate increases currently available to consumers significantly varies among States. Some States review proposed increases in health insurance rates and disapprove them if they are excessive. Other States lack the legal authority or resources to effectively review rates. 

The proposed regulation will ensure that large rate increases in all States will be thoroughly reviewed.

The proposed regulation will:

• In 2011, require that all insurers seeking rate increases of 10 percent or more in the individual and small group market publicly disclose the proposed increases and the justification for them.  Such increases are not presumed unreasonable, but will be analyzed to determine whether they are unreasonable.
• After 2011, a State-specific threshold will be set for disclosure of rate increases, using data and trends that better reflect cost trends particular to that State.        
• Under the proposed regulation, States with effective rate review systems would conduct the reviews. If a State lacks the resources or authority to do thorough actuarial reviews, HHS would conduct them.  Meanwhile, HHS will continue to make resources available to States to strengthen their rate review processes.   

Whether performed by States or HHS, information about the outcome of all reviews for increases above 10 percent, along with justification provided by insurance companies for those increases determined to be unreasonable, will be posted on the HHS website.  The insurance plan will also have to make its justification for a rate increase available on its own website.

This regulation builds on the Affordable Care Act’s efforts to strengthen State rate review efforts. Importantly, we know rate review works. For example, Connecticut regulators recently rejected a proposed 20 percent rate increase after their review found that such an increase would be excessive. Unfortunately, some States lack the authority or resources to review proposed health insurance rates.

The Affordable Care Act has already begun to help States strengthen or create rate review processes.  On August 16, HHS awarded $46 million to 45 states and the District of Columbia to help them improve their oversight of proposed health insurance rate increases. This is part of $250 million that the health reform law makes available to States to take action against insurers seeking unreasonable rate hikes. This funding will help assure consumers in every State that any premium increases requested by their insurance company, regardless of the size, is justified.

Relief for Consumers

The proposed regulation will help safeguard consumers from unreasonably high rate increases by providing consumers with detailed information on proposed increases.  Disclosing proposed increases, along with the insurer’s justification, would shed light on industry pricing practices that some experts believe have led to unnecessarily high prices.  This unprecedented new transparency in the health insurance market will promote competition, encourage insurers to do more to control health care costs and discourage insurers from charging rates which are unjustified. 

Comprehensive Package of Consumer Protections

This new proposed rate review regulation will also work in conjunction with the medical loss ratio regulation released on November 22, 2010 to make the health insurance marketplace more transparent and increase the value consumers receive for their health care premium dollars. This proposed rate review regulation allows consumers to see what increases are being proposed and why.  The medical loss ratio regulation ensures that premiums are being spent on health care and quality-related costs, not administrative costs and executive salaries. These two provisions of the Affordable Care Act work together to assure consumers that any increase in their premium is reasonable and that their premium dollars are being spent on their medical care. 

Read the news release on the proposed rule atwww.HealthCare.gov/news/newsreleases/index.html.  Find links to the regulation and other information about rate review at www.hhs.gov/ociio/initiative/index.html.

Shedding Light on Insurance Industry Practices

By 

Jay Angoff, Director of the Office of Consumer Information and Insurance Oversight

For years now, health insurance companies have been raising their rates – more than doubling insurance costs in the last 10 years – making it difficult, if not impossible, for many families to afford health insurance so they can get the medical care they need and still make ends meet. This year alone, some insurance companies have proposed double-digit premium increases, sometimes without reason or justification.

This is not acceptable. And today, we are taking another step forward in holding insurance companies accountable and moderating rate increases. 

New regulations proposed today, as part of the new health care law, would bring an unprecedented level of transparency and scrutiny to proposed health insurance rate increases. These proposed regulations would require insurers to publicly disclose and justify unreasonable rate increases.

Just as American families are playing by the rules, now so must insurance companies.

So how does this work exactly? Under this proposed regulation, States would continue to be the first line of defense against double digit rate increases – through a process called “rate review,” which I wrote about here.  And, beginning in 2011, insurers in every State seeking rate increases of 10 percent or more for new plans in the individual and small group market would have to publicly disclose and justify the proposed increases. 

This unprecedented new transparency in the health insurance market will empower consumers, promote competition, encourage insurers to do more to control health care costs and discourage insurers from charging premiums which are unjustified.

We know rate review works. Recently, in Connecticut, one insurer requested an increase of 20 percent. The Insurance Department rejected this increase as excessive, and because of the law in Connecticut, it cannot go into effect. You can read about the story here. In Massachusetts, one insurance company requested an increase of 26 percent for premiums. After rate review the rate review process, consumers saw a less than 13 percent increase.

Unfortunately, not every State has the authority or the resources to take that kind of action. The new health care law provides States with tools and resources they need to toughen their oversight of insurance premiums.

Our goal is to protect you from unreasonably high rate increases by providing you with detailed information on proposed increases.  Publicly disclosing proposed increases, along with the insurer’s justification, will shed light on industry pricing practices that experts believe have led to unnecessarily high prices.

Along the same lines, insurers are also going to have to give you more value for your health care dollar.  New rules generally referred to as “medical loss ratio” rules require insurance companies to spend 80-85% of your money on actual health care services and quality improvement activities---not on overhead. Any insurer that does not meet this standard will also have to give plan members a rebate.

By making insurance companies accountable to you and transparent to all, we will see them think twice before unreasonably hiking your premiums. One of the main goals of the health care law is to make care more affordable.  These new rules will go a long way towards achieving just that.