In May 2011, federal Department of Health and Human Services (HHS) promulgated a final rule implementing Section 2794 of the Public Health Services Act requiring HHS to establish an annual rate review process to identify “unreasonable” health insurance rate increases. What’s considered reasonable (and not)? According to HHS, here’s how the regulation, found at 45 Code of Federal Regulations (CFR) Part 154 works:
Starting on September 1, 2011, health insurance companies in the small group and individual markets must submit information on all rate increases with an annual impact of 10 percent or greater for their non-grandfathered plans. Insurance companies cannot raise premium rates by 10 percent or more without first justifying the increase to a Rate Review Program. Insurers proposing increases of at or above 10 percent must submit for review clear information indicating the factors contributing to the proposed increases. HHS or Effective Rate Review Programs (see insert below) review insurers’ projections, data, and assumptions to assess whether premium increases are based on sound, up-to-date information on health care costs and use of covered services. Proposed rate increases may be determined to be unreasonable if for example, the proposed increase is based on faulty assumptions or unsubstantiated trends or if the rate increase charges different prices to people who pose similar cost risks to the insurer. Information collected through this program, including explanations of the final determination, is made available to the public on HealthCare.gov.
The regulation is enforced jointly by HHS and state regulators or HHS alone if states opt not to participate. HHS announced today that as a result of the review process used under the rule, one half of 2011 insurer rate increases resulted in consumers receiving either a lower rate increase than requested or no increase at all. In addition, HHS said 12 percent of the rate increases were withdrawn prior to review “in part because some insurers were not willing to have their proposed rate increase labeled as ‘unreasonable.’” According to HHS, states made the call on reasonability in 69 percent of the proposed increases and HHS reviewed the remaining 31 percent. HHS’s 2012 Annual Rate Review Report along with estimated savings for policyholders in the individual and small group markets can be viewed here.
In addition, the Section 1311(e)(2) of Part II the Patient Protection and Affordable Care Act (PPACA) gives state health benefit exchanges a degree of leverage over premium rates for health plans sold on the exchanges. It mandates exchanges to require health plans seeking certification for “listing” on the exchanges as qualified health plans to submit a justification for any premium increase prior to implementation and to prominently post the justification on exchange websites. The Act also allows exchanges to take into account insurer rate reviews under the abovementioned section 2794 of the Public Health Service Act when determining whether to allow the plans to be offered on an exchange as well as “any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the states.”
Meanwhile, in November 2014 California voters will decide whether individual and small group health insurance rates should be regulated under a prior approval scheme like that created by 1988’s Proposition 103 for property/casualty insurance rather than the current retrospective rate review scheme. The initiative statute can be viewed by clicking here.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email