Starting in 2011, health insurers would have to publicly disclose and justify premium rate increases of 10% or higher "to determine if the rate increase is unreasonable," under proposed federal regulations called for in the Affordable Care Act.
The Department of Health and Human Services said Tuesday that "after 2011, state-specific thresholds would be set using data and trends that better reflect cost trends particular to each state. Insurance company's justifications for unreasonable increases will be posted on HealthCare.gov and the insurance plan's website."
In a statement, HHS Secretary Kathleen Sebelius said, "Year after year, insurance company profits soar, while Americans pay more for less health care coverage. The Affordable Care Act is bringing unprecedented transparency and oversight to insurance premiums to help reign in the kind of excessive and unreasonable rate increases that have made insurance unaffordable for so many families."
"The proposed rate review policy will empower consumers, promote competition, encourage insurers to do more to control health care costs and discourage insurers from charging premiums which are unjustified," said Jay Angoff, director of HHS' Office of Consumer Information and Insurance Oversight.
States with rate review systems would conduct the reviews. Earlier this year, HHS awarded $46 million to 45 states and the District of Columbia to improve oversight of insurance rate increases. But if states lack such review systems, HHS would do so, and will continue to provide resources to states to strengthen their review systems.
Association of Health Insurance Plans president and CEO Karen Ignagni criticized the proposed rule saying it is "incomplete" because it "does not adequately factor in all of the components that determine premiums, including the cost of new benefit mandates and the impact of younger and healthier people dropping coverage."
"The federal government is not in a possession to make these assessments."
Ignagni said that a public policy focus on premiums ignores "the root causes that are driving up the cost of coverage, including soaring medical prices, new benefit mandates and changes to health plans' risk pools," and said Americans "deserve to know the facts.
"For example, data from the state of Oregon show that prices of many medical services have increased at an average annual rate exceeding 10 percent. California data show that prices for a hospital stay increased by more than 150 percent between 2000 and 2009—an average annual growth rate of 11 percent. Trends likes these are being seen across the country."
Also, she said, the federal law "already caps health plans' administrative costs and profits."
On the other side of the controversy, the advocacy group Consumer Watchdog had partial praise for the new rules but said they don't go far enough.
The organization wants the rule to include "all health insurance rate increases imposed since the approval of the health reform law," and added that it should be strengthened to require insurance companies to publicly reveal the actuarial assumptions and predictions it used to produce their rate schedules.
As drafted, the rules allow insurers to keep secret many details of rate calculations, the group said. It also does not require approval of the rates before they take effect.
"Consumers have faced double-digit premium increases for the past year as insurance companies raced to jack up prices in advance of reform," said Carmen Balber, director of Consumer Watchdog's Washington D.C. office.
"The new rules rely on public disclosure to shame insurance companies into charging consumers fairer prices, and this symbolic stoning may work to hold down increases in some cases. However, regulators must ultimately have the power to modify and deny premium increases in order to prevent insurers from imposing unreasonable premium increases on consumers," Balber said.
The issue received intense focus when Anthem Wellpoint filed notice that it needed to raise premiums for California enrollees 39% for 2010 plans.
A subsequent examination by a California auditor determined that the company had used erroneous data in its calculations, provoking the company to withdraw its request.
But several other large insurance companies also have filed statements they needed double digit rate increases to meet costs and expanded need for services.
The proposed rule may be viewed here.