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'Unreasonable' Rate Increase Rule Proposal Scrutinized

 |  By Margaret@example.com  
   April 06, 2011

Expect states and the federal government to begin taking a harder look at healthcare premium rate increases as part of the Accountable Care Act.

The Department of Health and Human Services issued a proposed rule in December, which defines what the agency considers to be "unreasonable" premium increases. If approved, the rule will set in motion the annual process that states and the federal government will follow in their review of premium increase proposals for the individual and small group markets.

Now a Health Affairs policy brief takes a look at how the proposed rule is expected to work.

For now 10%, which is higher than premium cost trends have tracked in recent years, is the "unreasonable" threshold for all rate increases filed or in effect as of July 1, 2011. HHS estimates that more than 50% of the rate filings in the individual market and 20%-40% of filings in the small group market will be deemed unreasonable and subject to review by state and federal officials.

Forty-three states and the District of Columbia permit state regulatory authorities to review health insurance rates. In some states regulators can reject rate increases while in others regulators can only review the proposed increases. Missouri, Montana, and Wyoming have no requirements for rate filing information. Arizona, Alabama, Georgia and Mississippi collect the rates for information purposes only.

HHS announced in February that it would make available nearly $200 million in grants to help states combat "unreasonable premium increases."

The proposed HHS rule sets these parameters:

  • Defines "unreasonable"as an excessive increase (above the 10% threshold), an unjustified increase (unsupported by data or documentation) or a discriminatory increase (premium increases are different for individuals with the same risk characteristics such as age and geographic location).
  • Permits HHS to conduct the rate review if the state doesn't have the resources or lacks the authority to conduct an effective review.
  • Requires insurers to submit a preliminary justification for the rate increase request, including any support data.
  • Denies HHS the authority to reject unreasonable rate increases although some states will have that authority.
  •  Allows insurers to withdraw, reduce or continue with the unreasonable rate increase depending on state laws and regulations.
  • Requires an insurer to disclose on its company website any rate increases identified as unreasonable and to provide HHS with a final justification for proceeding with the unreasonable rate increase.
  • Allows review information to be posted on the HHS website.

Health plan leaders polled for HealthLeaders Media's Industry Survey 2011, cited "government laws and mandates" as a top driver of healthcare costs, second only to overutilization of services.

HHS is expected to respond to public comments and release a final rule later this year. The Health Affairs brief is available here.

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