Rate review: how states can help make health insurance more affordable
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 methodology?
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 particular:
— 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 public.
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.
— Sabrina Corlette, guest blogger Georgetown University Health Policy Institute