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Rate Review Process Improvements Resulting from Federal Efforts

On September 1, 2011, new insurance regulations on rate review took effect, increasing the transparency of the rate review process. The rules stem from provisions in the Affordable Care Act (ACA) requiring the U.S. Department of Health and Human Services (HHS), in conjunction with the states, to establish a process for annual review of “unreasonable” rate increases for non-grandfathered health plans. This rate review program complements other efforts by the federal government and states to strengthen the rate review process.

The regulations stipulate that health insurers seeking to increase their rates by 10 percent or more must submit their requests to state or federal reviewers to determine whether they are reasonable or not.  Starting mid-September, consumers can go to Healthcare.gov to view insurers’ explanations of rate increases in their state’s health plans. In addition, they will be able to comment on proposed rate increases exceeding 10 percent.

Although HHS does not have the authority to deny unreasonable rate increases, the agency believes that the new rules, coupled with premium rate review grants given to states to strengthen their review processes, will improve how states review proposed rate increases and increase insurers’ accountability with respect to premium increases.  A list of state achievements resulting from the first round of rate review grants is available on www.Healthcare.gov.

On September 20, 2011, HHS announced a second round of rate review awards totaling $109 million. Twenty-eight states and D.C. received these grants which build on the previous grants awarded to states in the first round. An overview of state achievements as a result of the first round, as well as of proposals by the second round grantees on how they will use this funding can be found in HHS’s new Rate Review Works report. HHS’s fact sheet also summarizes some of the findings of the report.

State-Initiated Rate Review Activities

In August, Rhode Island Health Insurance Commissioner Christopher Koller cut a 20.1 percent rate increase proposal for United Healthcare’s large group market to 10 percent, finding the request unjustified.¹ The commissioner also reduced the carrier’s rate increase request for groups of 50 or fewer employees from 18 percent to 10 percent.

Similarly, a 10.5 percent rate increase request by Blue Cross & Blue Shield for both the large group and small group market was cut to 9.6 percent and 8 percent respectively. Commissioner Koller said that the insurer set aside too much money for administrative costs. The only insurer whose rate increase request of 4.8 percent was accepted was Tufts Health Plan.

In July, at the request of the California Department of Insurance, Aetna agreed to lower its proposed rate increase from an annual average of 16.8 percent to 13.7 percent.² The state does not have the authority to deny unjustified rate increases and it is up to the insurer to agree to lower the rate increases. A bill (AB 52) that would have allowed state regulators to reject unjustified rate hikes by health insurance companies was pulled from consideration by the California Senate. A similar bill failed a year ago.

On August 25, a coalition of consumer and health advocacy groups sent a letter to the New York legislature’s Insurance Committee urging an investigation into rate hike requests by some of the health plans. The coalition expressed concern with proposed rate increases ranging from 9.9 percent to 56 percent for the individual and small group market. The letter points out the medical cost trend is around 9 percent and that the carriers have not provided evidence or supporting documentation justifying their requests.

In response, the New York Health Plan Association said that the premiums reflect the general medical inflation as well as the continued impact of state surcharges and assessments on health insurance.³

Association Health Plans Amended Final Rule

On September 1, HHS issued an amended final rule requiring individual and small group health plans sold through associations to comply with new rate review regulations. The regulations give states the authority to review rate increases, but not to reject the rates.  The new requirements go into effect November 1, 2011.

Association plans—coverage that organizations like chambers of commerce or trade groups provide to their members—face less stringent regulations in many states. Exempting association plans from rate review regulations can pose two problems. First, it would continue to provide fewer consumer protections in cases where insurers underwrite sicker members of an association separately by excluding pre-existing conditions or charging them higher premiums than those charged to healthier customer.⁴ Secondly, it would allow for an unlevel playing field between association plans and plans subject to the health reform law. Given that the ACA offers new consumer protections for individual and small group insurance markets, this could lead to adverse selection against plans sold through the exchange.⁵

Exchanges and Rate Review

In preparation for filing comments on HHS’s proposed rule on the standards states must meet to set up insurance exchanges, the National Association of Insurance Commissioners (NAIC) held a call on August 31 with state insurance regulators and consumer representatives. The goal was to discuss whether insurance exchanges should conduct health insurance rate reviews on Qualified Health Plans separate from those conducted by the insurance departments in their states. The comments are due September 28.

There was a great deal of disagreement between the insurance commissioners and consumer representatives. Many insurance commissioners believe that insurance exchanges should not be allowed to review rate increases and that the authority to review rate increases should remain within the purview of insurance departments. On the other hand, consumer representatives believe that reviewing rates is part of the process by which states decide whether Qualified Health Plans should participate in the exchange. Consumer representatives, however, were open to the idea that states could enact rules specifying that any rates approved by the insurance commissioner must be approved by the exchange. Another option would be for the exchange to take information and recommendations from the department of insurance into consideration when deciding on whether a plan should be part of the exchange.⁶ 

¹Wojcik, J. (2011, August 2). Rhode Island reduces requested health insurance rate hikes. Business Insurance. Retrieved September 19, 2011, from http://www.businessinsurance.com/article/20110802/NEWS05/110809978&template=printart.
²Mahoney, L. (2011, July 25). At DOI's Request, Aetna Agrees to Cut Rate Increases for Small Group Policyholders. BNA’s Health Care Policy Report. (Subscription Only).  Retrieved September 20, 2011 from http://news.bna.com/hcln/HCLNWB/split_display.adp?fedfid=21355237&vname=hcpnotallissues&fn=21355237&jd=a0c8k0y0b7&split=0.
³Silverman, G.B. (2011, September 12). Consumer Coalition Urges Legislature To Investigate Rate Increase Requests. BNA’s Health Care Policy Report. (Subscription Only). Retrieved September 20, 2011 from http://news.bna.com/hcln/HCLNWB/split_display.adp?fedfid=22740745&vname=hcpnotallissues&fn=22740745&jd=a0c8y1b5e9&split=0.
⁴Kofman, M. et al. (November-December 2006).  Association Health Plans: What’s All the Fuss About? Health Affairs. 25(6), 1591-1602. Retrieved September 20, 2011, from http://content.healthaffairs.org/content/25/6/1591.full.pdf+html.
⁵Jost, T. (2011, September 1). Implementing Health Reform: Association Health Plans. Retrieved September 20, 2011, from http://healthaffairs.org/blog/2011/09/01/implementing-health-reform-association-health-plans/print/.
⁶Hansard, S. (2011, September 12). State Regulators, Consumer Reps Spar Over Authority to Conduct Rate Reviews. Health Care Policy Report. (Subscription Only). Retrieved September 20, 2011 from

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