Big Health Insurance Rate Hikes Face Scrutiny Under Final Rule

By Stephen Miller, CEBS May 23, 2011

U.S. health insurers seeking rate increases of 10 percent or more for individuals or small businesses will face increased scrutiny by state or federal officials starting in September 2011 under a final rule issued on May 19, 2011, by the Obama administration and published in the May 23, 2011 issue of the Federal Register.

The U.S. Department of Health and Human Services (HHS) said it issued the final rule, "Rate Increase Disclosure and Review," to ensure that large premium increases will be reviewed thoroughly as required under the Patient Protection and Affordable Care Act (PPACA). “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 a released statement. “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.”

Only individual and small group health plans—not those offered to large employers—are affected by the new rule, which requires insurers to provide a broad overview of what they plan to spend the money on, including how much would go to medical services, profits and administrative costs.

While the federal government lacks authority to reject increases, about two dozen states give the state insurance department or commission the legal power of prior approval, or disapproval, of certain types of rate changes, according to the National Conference of State Legislatures.

HHS Will Act If States Don't

States will have the primary responsibility for reviewing rate increases. HHS will serve in a backup role in states that don’t have the resources or authority to review rates or that choose not to do so. HHS has awarded $44 million in PPACA grants to states to help strengthen their oversight capabilities. An additional $200 million will continue to be available to states under the act.

Starting in September 2012, the 10 percent threshold will be replaced by state-specific thresholds that reflect the insurance and health care cost trends in each state. The final rule clarifies that HHS will work with states in developing these thresholds.

The rule requires insurance companies to provide consumers with easy-to-understand information about the reasons for unreasonable rate increases and to post the justification for those increases on their website as well as on the HHS health care reform website,

The regulation finalizes a proposed rule issued by HHS in December 2010. The final rule has several additions to the proposed rule, including a requirement that states provide an opportunity for public input in the evaluation of rate increases subject to review.

HHS is requesting comments from the public on applying the rule to individual and small group coverage provided through association health plans, which are sometimes exempt from state oversight. Comments are being accepted through July 18, 2011.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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