Insurers that "unjustifiably" raise premium rates may be deemed ineligible to participate in health insurance exchanges come 2014, says Department of Health and Human Services Secretary Kathleen Sebelius. The insurance industry is an easy target to blame for rising healthcare costs and Sebelius is piling on. Whether she can bend the industry to her will and clamp down on rate hikes remains to be seen.
While the administration is fiddling, the public sees some private health insurers racking up billions in surplus funds, beefing up executive compensation packages, and raising premium rates "unjustifiably" whatever that means, exactly.
In her letter to America's Health Insurance Plans CEO Karen Ignagni last week, Sebelius noted that the Affordable Care Act should result in a minimal impact on premiums for most Americans— about 1% or 2%. Furthermore, she wrote, health costs have stabilized, and employers' premiums for family coverage increased by only 3% in 2010, a figure confirmed by Kaiser Family Foundation 2010 Employer Health Benefits Survey.
The secretary sounded tough: "We will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections." But she sounds more like an advocate for an angry rabble than like a force for real change. If she means business, Sebelius will have to back up her words with actions.
She could start by defining what she means by "unjustifiable" rate hikes.
WellPoint, Inc., for example wanted premium pay hikes of as much as 39% on California policyholders last spring, but Sen. Dianne Feinstein (D) called on the company to back down. Days later Wellpoint withdrew its request for the increase, and in August regulators approved a 14% increase. I don't know on what basis 39% was determined to be the right amount. But I am familiar with the tactic of asking for more than you're willing to settle for in order to leave room for negotiation.
I'd like to see some guidance from HHS on what constitutes a justifiable rate increase.
That would be a good place to start.
As for threatening to exclude payers from participating in health insurance exchanges in 2014, I doubt it will have any effect on insurers' behavior today. Payers are no different from providers in that they are mightily challenged to implement systemic changes resulting from healthcare reform legislation. Who knows how high healthcare costs will be by 2014? The government's estimate that a 1% or 2% premium rate increase should be sufficient could be well off the mark.
If Sebelius is serious about keeping down insurance premiums, she's going to need federal legislation that pegs rate hikes to inflation or cost of living increases, or some other marker (unlikely). Or she'll have to enlist the aid of the 25 or so states that don't have the power to regulate insurance premiums, and let them do the heavy lifting. One way or another, she'll have to pull on some levers to get the changes she wants. Tough talk alone isn't going to cut it.