Rate Review: States Can Help Make Health Insurance More Affordable – Say Ahhh! A Children’s Health Policy Blog

Thirty-nine percent increase in California. Fifty-six
percent increase in Michigan. Forty-seven percent increase in Connecticut.
Twenty-one percent increase in New Mexico. In recent years consumers have faced
unprecedented hikes in their health insurance premiums. In many cases, these
hikes are driven by the increasing costs of medical care. But what happens when
an insurance company increases premiums without justification or based on faulty

Unfortunately, that probably happens more often than
anyone would like. With support from the Kaiser Family Foundation, we at
Georgetown University Health Policy Institute recently completed a study of how
state insurance departments review and regulate insurance company rate
increases. We found wide variations in state authority and practice. In

– A state’s authority to review and approve rate
increases in advance does not necessarily protect consumers from large rate
increases, because the rigor and thoroughness of the review process varies
across states.

– Many states do not have enough trained actuaries to
review all filed rates. In addition, statutory clauses can “deem” rates
approved if not acted on within 30 or 60 days, limiting states’ ability to
conduct thorough reviews.

– Some states with statutory authority to disapprove
rates can only exercise that authority in certain situations, such as for
specific insurers or products (i.e., non-profit Blue Cross Blue Shield plans or
HMOs). Others provide alternative regulatory pathways for insurers allowing
them to avoid state review of their rates.

– Most interviewed states use subjective standards to
guide the review and approval of rates, such as rates cannot be “excessive,
inadequate, or unfairly discriminatory.” Such standards give states more
flexibility, but can make the process appear arbitrary to the public.

– Most interviewed states have made little or no effort
to make rate filings transparent. In many cases, carriers can designate some
portions of the rate filing to be “trade secret” and thus not available to the

Under the Affordable Care Act (ACA), states are given
unprecedented new resources to expand their review of health insurance rate
increases. Many of the state regulators we spoke to plan to use the new money
to hire new actuaries, conduct more thorough reviews and post more information
on their website. The law also requires health plans that propose an
“unreasonable” rate increase to provide a public justification for it. The
Department of Health and Human Services (HHS) is expected to put out a rule
defining an “unreasonable” increase in the coming days.

Based on our research, I think it’s important for
advocates to know the following:

Your state’s “prior approval” authority over rate
increases doesn’t protect consumers from them. Even in states with full “prior
approval” review authority, most rate review is conducted informally, without
consumer input. Your insurance department’s leadership, resources and a culture
of active review are equally if not more important.

Find out whether your state insurance department has – or
intends to hire – an on-staff health actuary. States should not rely on the
health plan’s “actuarial certification” that its rates are justified. Rate
review is not mechanical – it involves nuanced judgment calls. If you’re the
actuary for the health plan, you’ll probably make those judgment calls in favor
of your employer, whereas if you’re an actuary paid by taxpayers, you’re more
likely to make those calls in favor of consumers.

The HHS rule on rate review, as well as state standards,
should provide an unambiguous and clear definition of an “unreasonable”
increase. They should include objective metrics such as rate increases greater
than a certain percentage of the Medical Consumer Price Index, or increases
that are greater than 10 percent of the previous year’s filings would trigger
an “unreasonable” designation. Such objective metrics shouldn’t be the final
word, but should shift the responsibility to the health plan to prove its
proposed increase is reasonable.

Advocates should encourage their states to do more to
make rate filings transparent, including posting the full filing on the
Department website, not just summaries. More than anything else, greater
sunshine on this process can provide both the information and motivation for
meaningful rate reviews that will help lower premiums for consumers.

For more detail on the results of our study, including a
sortable state-by-state table of rate review authority, see the report on the Kaiser Family
Foundation’s website.

This blog entry originally appeared on Community Catalyst’s Health Policy Hub.

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