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HHS Issues Final Regulation on Health Insurance Rate Hikes

 |  By Margaret@example.com  
   May 20, 2011

The final regulation for health insurance rate increases for the individual and small group markets will require insurers to publically disclose and justify any rate increase in excess of 10%. The proposed increases will be subject to state and federal review.

Department of Health and Human Services Secretary Kathleen Sebelius announced the regulation at a Thursday morning conference call. She noted that insurers recently posted record profits while consumers have faced healthcare costs that have often increased at a faster rate than wages.

The goal of the regulation, which is effective Sept. 1, 2011, is to bring transparency and some uniformity to the rate increase review process. While many states review proposed increases to determine if they are reasonable, other states do not have the legal authority or resources to effectively review rates.

Also, while some states have the authority to deny or reduce proposed rate increases, most do not. With the new rule, significant rate increases in all states will be reviewed by independent experts and disclosed to the public. While it's expected that most states will take on this responsibility themselves, HHS will serve as a backup for states that don't have the resources or authority to review rates.

Through the Affordable Care Act more than $44 million in grant money is available to help states strengthen their oversight ability or create a rate review process. Already 43 states and the District of Columbia have received the grants.

Under the final regulation:

  • Beginning Sept. 1, 2011, insurers requesting rate increases in excess of 10% for the individual and small group markets will be required to publicly disclose the proposed increases as well as the justification for them. The increases will be reviewed by either state or federal experts to determine whether they are unreasonable.

  • A consumer-friendly disclosure form explaining the proposed increases will be made available through HHS, state and/or insurer websites.
  •  States with effective rate review systems will conduct the reviews. If a state lacks the resources or authority to conduct actuarial reviews, HHS will conduct them.
  •  On Sept. 1, 2012, the 10% threshold will be replaced with a state-specific threshold, using data that reflect insurance and healthcare cost trends particular to that state. HHS and the states will work together to develop the thresholds.

The regulation does not apply to the large group or the association business. Steve Larsen, director for the center for consumer information and insurance oversight, said on the conference call that purchasers in the large group market "are more sophisticated and don't need assistance" in securing fair rate increases. He added that the inclusion of association business will be revisited after additional comments are collected by the department.  

In a press statement challenging the rate review rule, America's Health Insurance Plans' president and CEO Karen Ignagni said, "Premium review must adequately factor in all of the components that determine premium rates, including geographic variation, the cost of new benefit mandates, and the impact of younger and healthier people dropping coverage. An arbitrary threshold for review will establish a de facto presumption of unreasonableness in what should be an objective, actuarially-based evaluation." 

She agreed that states "are best suited to review premiums because they have the experience, infrastructure, and local market knowledge needed to ensure that consumers are protected and health plans are solvent. The federal government is not in a position to make these assessments."

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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