State regulators and public oversight can help control health insurance premium increases

Big premium increases are a pretty familiar part of the health insurance landscape, especially for people who buy individual policies. A Kaiser Family Foundation survey recently found over three-quarters of individual subscribers saw their premiums go up last year, by an average of 20 percent.

Starting in September, many of the larger rate increases will get a second look. An Affordable Care Act provision requires review of proposed rate increases over 10 percent in individual and small group markets. Regulators must issue a public determination of whether a rate increase is “reasonable,” meaning whether it’s justified by the additional costs an insurer has or expects to incur.

What regulators don’t get to do under this part of the law: reject rate increases they deem “unreasonable.” States can make all the public fanfare they want out of an unjustified premium hike, but at the end of the day, the Affordable Care Act does not give them the power to say “no.”

Kaiser Health News’ Julie Appleby’s Washington Post story on this yesterday hit on the challenge this poses to actually bringing down premium increases. “There’s a real affordability crisis that wasn’t created by the federal health reform law but it’s not clear it was solved by [the law] either,” Micah Weinberg, a senior adviser with a San-Francisco-based nonprofit business organization, told her.

States, by and large, handle insurance industry regulation. Right now, just about half the states have the authority to reject some insurance rates that are unreasonable. The other half don’t. The health reform law won’t change that. And that’s the issue Weinberg gets at: Without giving regulators the ability to reject big premium increases, how much can the Affordable Care Act do to crack down on premium increases?

A decent amount, actually. First, it’s important to keep in mind that the authority to reject rate increases doesn’t necessarily mean stricter scrutiny. North Carolina, for example, is one of the states that can reject just about any rate hike. But the state doesn’t use that power very much. In fact, a GAO report released last week had them dead last on rate hikes rejected or lowered last year, turning back just 1 percent of proposed increases.

Second, public oversight can be a pretty powerful tool. Compare North Carolina to California, a state that has absolutely no authority to reject rates. This year, California regulators have seized on just about any news report of a big rate increase and successfully pushed most major insurers to lower their premium increases themselves. Anthem Blue Cross recently dropped a rate increase to just below the 10 percent threshold, from 16.4 percent to 9.1, while Blue Shield of California withdrew an increase, for some subscribers as high as 86 percent, altogether.

California is a state that can’t say “no” to big premium increases. But it essentially has, with regulators who have made the review of insurance increases a very public affair.

To be sure, California’s aggressive rate regulation carries a risk. Pushing down rates too low can destabilize the individual insurance market, by driving premiums well below the point where they cover subscribers’ medical costs. Blue Shield of California, one of the companies to withdraw an increase, estimates it lost $27 million in the individual market in 2010, and projects that number will grow this year.

For states that do want to regulate aggressively, they seem to recognize that public oversight can be a powerful tool. Forty-five states received Affordable Care Act grants to strengthen their rate review processes; 41 of those states are using the money to make more information about rate increases available to the public. Only 15, however, are spending money seeking more legislative authority to turn down rate increases.

States could get all the prior approval powers in the world. That would by no means guarantee they’d be used. But the role of public oversight, and its potential regulatory powers, is shaping up to be a pretty powerful tool. How much scrutiny insurance rates get will hinge less on what new powers come from the Affordable Care Act, and more on how regulators use them.

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About James Crist

How do we stop America's decline? The country is in trouble and we can all feel it. Where did we go wrong? How do we fix it? We now have an auction-based government, for sale to the highest bidder. Politicians have become nothing more than corporate whores and pawns for the rich. If we want our representatives to represent us, let them get their campaign money from us, their constituents. We have to amend the constitution to get the big money out of politics.
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