Tag Archive: prior approval rate regulation

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. 

HHS: Half of 2011 health insurance rate increases reduced; 12% withdrawn

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

California prior rate approval scheme dead for this year

As Business Law Daily reports, California legislation that would have subjected health insurers and managed care plans to a prior approval rate regulation scheme has been shelved for this year.  AB 52 could however be revived in 2012, the second year of the two-year legislative session.

A logical argument can be made that health insurers and managed care plans should be subject to prior approval rate regulation.  California’s market for health coverage is an oligopoly in which a handful of big payers control about 90 percent of the market.  Given the lack of robust competition, market forces alone aren’t likely to check premiums.  But it’s also not clear that placing payers under prior rate approval like the state’s far more competitive property/casualty insurance marketplace would do so either.

Payers would still pass along the relentless rise of medical care costs to policyholders and members.  Perhaps not as quickly since regulators would first have to green light premium hikes.  But ultimately higher medical costs would be reflected in increased premiums.

Just as the Baby Boom generation drove up auto insurance premiums in the years after its members got their drivers licenses until middle age and they became safer, more experienced drivers, the Boomer generation’s now aging cohorts are placing enormous cost pressures on health insurers and managed care plans.  Those demographic forces as well as rising chronic conditions and obesity among later generations cannot be corralled by insurance rate regulation.  They can be mitigated by healthier, more balanced lifestyle choices — choices made by individuals and not regulators.

 


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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