Health Reform at Work: Anti-Gouging Regulation Mandates Rate Review

The Department of Health and Human Services issued, on May 19, final anti-gouging regulation mandating automatic reviews of health insurance rate increases of more than 10%. If the states won't do it, HHS will step in itself.
The Department of Health and Human Services (HHS) issued a final regulation to ensure that large health insurance premium increases will be thoroughly reviewed, and consumers will have access to clear information about those increases. Combined with other important protections from the Affordable Care Act, these new rules will help lower insurance costs by moderating premium hikes and provide consumers with greater value for their premium dollar. In 2011, this will mean rate increases of 10-percent or more must be reviewed by state or federal officials.
The Kaiser Family Foundation found last year that the average premium increases imposed on individual plans were nearly 20%, with no rhyme or reason explained. Patients were essentially left with three unattractive choices: lose coverage altogether, pay the premium increase, or switch to a plan that covered less.

KFF 2010 chart for premium increase
Courtesy: Kaiser Family Foundation News Release. See above for link.

This is why rate review is so critical. It does two things: first, it scrutinizes and puts the sunshine on premium increases. Second, it makes the insurance companies justify the increases with information and data to back up that letter they send you saying "we regret to inform you..." The affordable health care advocacy group Community Catalyst explains in their rate review fact sheet:
Rate review requires insurers to openly explain how they determine the amount they charge for health insurance premiums. Insurers also must justify proposed increases in these rates by providing documentation showing why an increase is necessary and appropriate.

A strong rate review requires a thorough evaluation of proposed premium increases for individuals and families buying policies in the individual market, and for small businesses and self-employed people buying insurance in the small group market.
This is part of why insurance companies fought so hard against health reform. They do not want you to know how they determine their rates or have to provide documents that will go in the public domain about why they think their increases are necessary. It might just be that if they were forced to do that, you would find out that a whole lot of the increase is to keep padding their own bottom lines rather than to pay for health care. After all, if it were simply the increase in health care costs, just what explains the skyrocketing profits of the health insurance companies? Effective rate review cracks down on price gouging, and gouging is exactly what the insurers want to keep doing to you.

But does it work? You will see a lot of ideologues from the edges coming and saying "Well it doesn't give regulators absolute control over rate increases." But there's that pesky thing about insurers backing off when effective regulators hold them accountable, not the least because their stock prices are affected negatively when gouging is exposed. Healthcare.gov points out recent examples (with sources):
  • Rhode Island’s Insurance Commissioner was able to use its rate review authority to reduce a proposed increase by a major insurer in that State by 6 percent – lowering a proposed increase of 7.9 percent to 1.9 percent.
  • Californians were saved from rate increases totaling as much as 87 percent when a California carrier withdrew its proposed increase after it drew scrutiny from the State Insurance Commissioner.
  • Nearly 30,000 North Dakotans saw a proposed increase of 23.7 percent cut to 14 percent after public outcry drew attention to it.
  • In Connecticut, one insurer requested an increase of 20 percent. The Insurance Department rejected this increase as excessive, and because of the law in Connecticut, it cannot go into effect.
The federal regulations are the baseline of protection here, it's important to remember. States can have much stronger regulations, including by law blocking rate increases, or requiring approval by regulators before it goes into effect. This is another reason why insurance companies and Republican politicians were terrified of the health reform law. Think about this: if people everywhere can see the price gouging, and in one state it is not stopped voluntarily, and in another state the same is because of additional regulatory authority, the people in the first state will hammer their state legislators to adopt stronger authority for their legislators. So the additional public scrutiny and review won't simply shine a light but as a result may very well cause changes in state laws as people get smart about just what's going on and as they start demanding that their state protect them as well or better than the best protected state's consumers. It might set off a democratically inspired strengthening of the hands of the regulators.

In addition, these rate reviews and behaviors of the insurers will determine whether or not they are able to participate in the exchanges when they open in 2014. The only avenue insurers had to keep gouging you without consequence is to do it without any transparency. Now, that's being taken away from them.

Public Input in Rate Review

Very importantly, the new rule gives the people the right to be heard during rate review. HHS is also seeking comments from the public about applying the same anti-gouging rule to association plans and grandfathered plans. From the HHS press release:
The regulation issued today finalizes proposed rules issued in December 2010. The final rule has several additions to the proposed rule, including a requirement that states provide an opportunity for public input in the evaluation of rate increases subject to review. This will strengthen the consumer transparency aspects of the new rule. HHS is also requesting comment from the public on applying the rule to individual and small group coverage sold through associations, which is sometimes exempt from state oversight.
I here at TPV will make it a point to find out when each state's rate review timelines are and posting it here so that you know how to make your voice heard when a rate review does happen in your state. That might not sound like much, but remember what happened when the insurance giants descended on the conference of state insurance commissioners that set the Medical Loss Ratio requirement standards? They wanted to count everything including "fraud prevention" (i.e. paying people to find out if you had inadvertently missed reporting your childhood acne on your insurance application) as "medical care." But then, suddenly health care advocates showed up at the public hearings and the insurance company jig was up as the commissioners approved tough and fair standards for MLR calculations. Transparency and democratic input of the people matters.

Speaking of input, I certainly think that association plans should be held to the same standard and be brought to just as much sunlight. The HHS is still considering issuing regulations making it so. You can make your voice heard on that - tell Sec. Sebelius that you want people covered by association plans protected too - by calling HHS at (202) 690-6343.