New health care reform rule requires insurers to justify premium hikes

Marcus Pickett

More than a year after the health care reform law was passed, the U.S. Department of Health and Human Services (HHS) is tweaking its provisions. In May 2011, it issued a new one: If a health insurance company decides to raise premiums, it will have to jump through some hoops to do so.

Rate hike reviews

Starting Sept. 1, 2011, health insurers who plan to hike premiums by more than 10 percent were subject to a review process, according to HHS. Starting Sept. 1, 2012, any premium increase that exceeds state-specific thresholds will trigger a review. These thresholds will be established based on health care cost trends in the states.

This review program, according to HHS, will force insurers to make their case to their own customers before raising premiums. It's designed help consumers judge for themselves whether the increase is fair -- and whether they should take their business elsewhere. Still, it is important to note that even if the review deems the premium increase unfair, HHS and state regulators do not have the authority to prevent it. Insurers can still raise premiums -- although the hope is that this increased transparency will hold them accountable and ease rising health insurance costs.

The review, which will be conducted by state or federal insurance experts, according to HHS, will examine the various factors that are contributing to the higher premiums. In addition to undergoing the review, health insurance companies must publicly disclose the rate increases and justify them. This announcement and justification must be published in a way that is easily accessible to the public (on insurance companies' websites, or on a state's insurance department website, for example). After the review is complete, the results will be posted on the HHS website.

Who will conduct these reviews? The states, according to HHS -- if they choose to take on the responsibility. HHS has provided $44 million in grants to help them do so. If a state decides not to undertake the review (or can't afford to), HHS will step in. Even if the states conduct their own reviews, they must follow federal guidelines. A core component of the review process will be an easy-to-understand summary and explanation form designed by HHS, which the state reviewers must use.

Opponents raise concerns

Both liberal and conservative groups have criticized the new regulation.

Nonprofit consumer advocacy group Consumer Watchdog, for example, criticizes the new program for being toothless. The inability to reject unreasonable rate increases -- except in cases where states already have this authority-- means that many insurers will still get away with unfair premium hikes. In a statement on the group's website, Carmen Balber, Washington director for Consumer Watchdog, says: "We have learned the hard way that embarrassment isn't always enough to make insurance companies do the right thing." She sites California as an example. In April 2011, a California regulator deemed an insurance company's 14 percent increase "unreasonable" but could do nothing more than "express disappointment."

Not only will the program prove ineffective, conservative think tank the Heritage Fund argues, but it will cost a lot of money as well. In addition to the initial grants of $44 million, HHS has earmarked another $200 million to help the states keep the reviews going. The program, according to the Heritage Fund, simply duplicates state regulations that already exist without doing anything to actually stop unfair premium increases.

In the hands of the consumers

Even if federal and state regulators don't have the authority to halt unscrupulous rate increases, heightened scrutiny may motivate insurers to change their minds. HHS cites several states that already have review programs:

  • Rhode Island residents dodged a major insurer's 7.9 percent premium hike. After a rate review, the increase ended up being only 1.9 percent.
  • Californians were saved from rate hikes of as much as 87 percent when a California health insurance carrier withdrew its proposed increase after scrutiny from the state's insurance commissioner.
  • Nearly 30,000 North Dakota residents saw what could have been an increase of 23.7 percent cut to 14 percent after negative publicity.