Later this year, federal regulators will begin reviewing requests by private health insurers who wish to raise premiums by 10% or more, year-over-year. The move represents an expansion of federal regulatory power since until now, the review of such proposals has been carried out exclusively by the states.
The new federal guidelines will take effect on July 1, and were called for by provisions in the Affordable Care Act. The guidelines specify methods by which the feds will determine whether the proposal is reasonable. These will include the percentage of premiums spent on direct medical care and whether the rates include higher premiums for some, but not all enrollees with similar health risks.
The new regulations should help Democrats respond to the lambasting they received last fall by the GOP and consumer advocates after several private insurance companies jacked their premiums by 20% or more. At the time, the companies claimed the increases were driven by soaring medical costs as well as certain provisions in the Affordable Care Act, the health reform law that was enacted last March.
In particular, private insurers pointed to provisions in the law which require them to provide more comprehensive benefits to certain populations. They also claimed that rate increases were justified in response to the increasing trend by young and healthy people to forego health insurance, a trend that obligates insurers to raise rates for everyone else.
Spokespeople for private insurers also accuse the Obama administration of demonizing the health insurance industry for political gain. “Without a doubt, this is a political process, not a technical process,” Karen Ignagni, president of America’s Health Insurance Plans has said.
HHS has estimated that about 5,300 rate increase proposals will be submitted by insurance companies in 2011, and that about 770 of them will meet the 10% threshold, prompting Federal scrutiny.
According to the terms of the new regulations, states that have premium review systems will conduct the reviews, but for states that lack such systems, HHS will carry them out. In any case, the results will be published on HealthCare.gov and the insurance plan’s website.
Importantly, the new guidelines do not empower federal regulators to actually block proposed rate increases. That responsibility still lies with the states. So the bottom line is that the new federal guidelines lack teeth.
HHS Secretary Kathleen Sebelius acknowledged this in a recent statement. “We know that transparency helps,” she said. “Just lining up rates side-by-side, publicizing what’s going on as the underlying cost drivers, and posting it on a website (should help). The Affordable Care Act is bringing unprecedented transparency and oversight to insurance premiums to help reign in the kind of excessive and unreasonable rate increases that have made insurance unaffordable for so many families.”