The Centers for Medicare & Medicaid Services released a report this week showing that 10 states lack sufficient authority under current law to review and reject excessive health insurance rate increases as required under the Affordable Care Act. Beginning Sept. 1 CMS will begin review of all rate hikes in excess of 10 percent for these states.
The Department of Health and Human Services announced the new regulation – which covers only individual and small group policies – in May and set the threshold for review at 10 percent and will be in effect for one year. In 2012 states will be expected to set their own rate increase thresholds as they see fit based on market conditions in each state.
"Effective rate review works – it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace," said HHS Secretary Kathleen Sebelius in May when the regulation was announced. "During the past year we have worked closely with states to strengthen their ability to review, revise or reject unreasonable rate hikes. This final rule helps build on that partnership to protect consumers."
The regulation, which was originally expected last fall was in response to a number of high-profile cases of large rate hikes, notably requests by two California insurers, Anthem Blue Cross and Blue Shield of California. At the time, California had no law giving the state's Insurance Commissioner the power to reject excessive rate increases and these and other cases spurred HHS to step in.
In addition to providing rate review for the 10 states without the authority to reject excessive rate increases, HHS also has as much of $250 million in funding provided by ACA that it can deploy to states looking to take action against insurer seeking "unreasonable rate hikes." To date, the agency has also granted more than $44 million to 43 states and the District of Columbia to help them improve oversight of for rate increases.
America's Health Insurance Plans, the industry trade group of health insurers, has long opposed rate review thresholds as arbitrary, arguing that a one-size-fits-all approach doesn't work since insurance markets vary widely from state to state and, further, that focusing solely on insurance rate increases is only one piece of the overall healthcare cost puzzle.
"Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make healthcare coverage more affordable for families and employers," said Karen Ignagni, president and CEO of AHIP in a statement. "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 healthcare coverage."
But consumer groups including Consumer Watchdog and Consumers Union, publisher of Consumer Reports, have generally praised this form of insurance industry oversight. Consumers Union has even developed a state model rate review law for individual market plans and is working to encourage states to adopt reforms that ensure greater oversight, transparency and insurance company accountability.
"The Affordable Care Act established important new standards so that health insurance rates will be subject to closer scrutiny and stricter public disclosure requirements," said DeAnn Friedholm, the director of Consumers Union's health reform campaign in a press release. But it will be up to the states to protect consumers when rate hikes are deemed unreasonable. We need to make sure that all states have the tools they need to stop insurance companies from gouging consumers with unfair premiums and that they use them."