Tag Archive: Insurance Rate Public Justification and Accountability Act

3 predictions on California’s Proposition 45

In November, California voters will decide whether to subject individual and small group health insurance premium rates to prior regulatory approval. California requires property/casualty insurance rates to be approved by the state’s elected insurance commissioner under a ballot initiative approved in 1988, Proposition 103. If voters approve the initiative statute, titled the Insurance Rate Public Justification and Accountability Act (Proposition 45), California would join the majority of states that require prior regulatory approval of health insurance rates before they can be used. Although the November General Election seems a long way off in the middle of summer, it will arrive quickly enough. Accordingly, here are some predictions on what’s likely to happen with Proposition 45:

1) Proposition 45 will be approved by at least a 55 percent yes vote margin. Like rising auto insurance rates in the 1980s that provided impetus to Proposition 103, rapidly rising health insurance rates since the early 2000s have set the stage for voter approval. This time around, the voters are in a far crankier and distrustful mindset following the 2008 economic downturn than they were in 1988, which is likely to result in a larger margin of yes votes than for Proposition 103 that squeaked by with a tiny margin of approval. Demographics will also play a role. Members of the boomer generation who rebelled against rising auto insurance rates in the 1980s are now in their 50s and 60s and pay the highest rates for health coverage under Affordable Care Act provisions that permit health plan issuers to base premium rates on age. Many boomers are also what I’ve dubbed “401 percenters” who earn above the 400 percent federal poverty level eligibility cutoff for income tax credits to defray premiums for plans purchased through the state’s health benefit exchange, Covered California. They must bear the full brunt of higher premiums on their own.

2)  Proposition 45 will serve as a de facto 6.9 percent cap on premium increases. Increases of 7 percent or greater would entitle the public to petition the California Department of Insurance to hold a hearing proposed increases to determine if they would result in charges that are excessive, inadequate or unfairly discriminatory. There are a host of consumer groups waiting in the wings that would likely petition for a hearing, particularly since they stand to be compensated if the insurance commissioner determines they have made a substantial contribution to the proceeding including but not limited to Health Access California, the Western Center on Law and Poverty, Consumers Union, the Greenlining Institute and Proposition 45’s proponent, Consumer Watchdog. As long as the underlying health care utilization cost trend stays around 7 percent, health plan issuers will be able to pass along higher costs in premium rates and cost sharing. If the trend exceeds that amount, plan issuers will likely argue that they need higher rates in order to remain solvent and to continue to do business in the state.

3) Because of the uncertainly of intervenor challenges of premium rate increases at or exceeding 7 percent, health plan issuers that want to sell Covered California Qualified Health Plans (QHPs) will negotiate premium increases below that amount. They will do so with two negotiating partners, each with the power to make or break the deal: the exchange as well as the insurance commissioner. Since both Covered California and the elected regulator share an interest in holding down premiums and cost sharing, health plan issuers could find themselves double teamed in a tough negotiating dance. As with now, the dance will begin in early summer once plan issuers have a reasonable amount of data on the prior year’s claim experience and the expected cost trend for the upcoming plan year. The negotiations will culminate in late summer. If they are successful, health plan issuers will make formal 60-day advance filing of rates as required by current California law. If they are not, health plan issuers will have to decide whether they can go without the increase or forgo offering a given plan or plans through the exchange marketplace. That could result in some plan issuers opting to instead offer the proposed plans in the off-exchange market but with the downside of sacrificing access to individuals eligible for advance income tax premium tax credits.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange undertakes review of November ballot measure calling for prior approval of individual and small group health plan premium rates, cost sharing

California’s health benefit exchange marketplace, Covered California, is undertaking an analysis of the potential impact of a November 2014 ballot measure that would institute prior regulatory approval of individual and small group health insurance rates. The initiative statute, titled the Insurance Rate Public Justification and Accountability Act, would subject these rates to an initiative statute ratified by voters in 1988 that placed most types of property/casualty insurance under prior rate approval regulation.

An outline of the analysis raises various questions as to how prior approval will jibe with Covered California’s annual schedule to select and finalize qualified health plans (QHPs) to be sold through the exchange and on what terms and conditions within Covered California’s standardized benefit framework. Under the schedule, health plan regulators review QHPs and their coverage terms and conditions in a two month window in the late summer and early fall for QHPs effective January 1 of the following year. But the scope of that review does not give regulators the final word on what plans can charge for premiums and out of pocket costs.

The ballot measure would afford California’s elected insurance commissioner that oversight authority as well as the authority to hold hearings to obtain public testimony. The Act would overlay federal regulations issued under the Patient Protection and Affordable Care Act at 45 Code of Federal Regulations (CFR) 154 authorizing federal and state regulators to jointly review (or the federal Department of Health and Human Services alone if a state opts out) small group and individual rates and require health plan issuers justify rate increases of 10 percent or more per year.

Both Covered California as an active purchaser exchange and regulators negotiate final QHP rates, which also affect plans sold outside the exchange since plans must offer the same plans both inside and outside the exchange marketplace. If approved by voters, the November ballot measure would increase the negotiating leverage of the insurance commissioner, who could opt to hold up rate approval pending a public hearing. That could potentially complicate Covered California’s annual QHP negotiation and approval process (and by extension its marketing and enrollment functions) and result in some plans being withdrawn before they take effect the following January if their premium rates and cost sharing are deemed excessive by the commissioner and disapproved.

In addition, since the underlying cost trend of annual health insurance rate increases has generally exceeded 7 percent in recent years, most if not all proposed plan rates would trigger a provision of the proposed law that allows the public and consumer groups to request the commissioner to hold a public hearing to determine if rate increases at or above 7 percent would result in rates that are unfair, discriminatory or excessive, introducing the prospect of further delay before the rates could be used. Further complications could come under a provision in the ballot initiative creating a transition period where plan issuers could hit the reset button and issue new plans that the commissioner could opt to exempt from prior rate approval provided they use rates in effect on or before January 1, 2014.

Proponents of the measure — including the current insurance commissioner — are likely to downplay the issues raised in the Covered California operational analysis. They will likely argue that premium rates are a matter between the plans and consumers (and not the exchange) and plans are responsible for ensuring they are using only approved rates and refunding any excess rates. However, if premium rates and cost sharing for the next to lowest cost silver actuarial value plan are involved in a lengthy challenge and hearing process, it could seriously affect the exchange marketplace since advance premium tax credits are keyed to that plan.

While a majority of states require prior approval of rates in the individual health insurance market (California is in a minority that employ a “file and use” scheme) according to this Kaiser Family Foundation chart, a half dozen states including California have state-based health benefit exchange marketplaces that actively select QHPs and negotiate with health plan issuers according to this Kaiser Family foundation compilation. Of those six states, all are prior approval states except California. Covered California’s analysis should undoubtedly examine how those state-based exchanges navigated their states’ prior approval regulatory schemes for plan year 2014.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

California ballot measures to cap hospital prices, regulate health insurance rates emerge out of perennial conflict of trial bar and unions versus business groups

Even though they have not yet qualified for California’s general election in November and are still in the signature gathering stage, proposed ballot initiatives to limit hospital profits and subject health insurance and managed care plan premium rates to prior regulatory approval are already generating considerable political heat and smoke.

Both measures are playing not so much as health care reform measures designed to apply brute governmental force to hold down rapidly rising health care costs and premiums.  More accurately, they represent new battlefronts in California’s perennial conflict between plaintiffs attorneys and labor unions on one side and tort reform and business interests on the other.  Health payers and providers are aligning in the latter camp to oppose the measures.

Hospitals argue the proposed Fair Healthcare Pricing Act of 2012 that would cap hospital profit margins at 25 percent is an attempt by unions representing health care workers to gain leverage at the bargaining table.  Meanwhile, health care providers this week announced a coalition to oppose the proposed insurance rate regulation measure, the Insurance Rate Public Justification and Accountability Act.  It would add health insurance to existing law put in place by a 1988 ballot measure, Proposition 103, that subjected most property/casualty insurance rates to prior approval by the state’s elected insurance commissioner and subsidizes costs of those who intervene on behalf of the public to contest proposed rate increases.  A similar proposal stalled in the current legislative session.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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