Review of Health Insurance Rate Increases
The Affordable Care Act brings an unprecedented level of scrutiny and transparency to health insurance rate increases. It ensures that, in every state, proposed increases of ten percent or more will be evaluated by experts to assess whether they are based on reasonable cost assumptions and solid evidence. The review and scrutiny is expected to prevent unjustified premium hikes by insurance companies and to help provide those who buy insurance with greater value for their premium dollar. Additionally, consumers will benefit from greater transparency as they will be able to access online easy-to-understand information about the reasons behind rate increases and why insurers are seeking the increases. These protections allow consumers to know why they are paying the rates that they are.
Helping Small Businesses and Consumers
Rate review will help bring down costs for small businesses and consumers. Rate review assesses whether proposed increases in health insurance premiums are based on reasonable estimates, reflecting medical cost trends and health care utilization instead of unjustified assumptions that serve to increase the price to the consumer. Experts across the country will review insurers’ projections, data, and assumptions to assess whether premium increases are based on sound, up-to-date information on health care costs and use of covered services. Insurers that propose increases at or above the threshold set for review will have to provide clear information that indicates what factors contribute to the proposed increases. And experts will closely examine submitted cost trend information to flag instances when insurance companies are unjustly raising premiums for their customers. This means consumers will no longer have to take the word of their insurance company; they will have an independent expert reviewing their proposed rate increase.
Effective rate review helps to slow premium growth and it results in real savings:
- As a result of grant funds from the Affordable Care Act, Maryland was able to reduce premium increases in 10 of the 22 rate filings approved during the 3rd quarter of 2010.
- In August of 2011, Rhode Island cut a 20% rate increase request in half, to 10%.
- Oregon recently demonstrated their strong rate review program when Regence Blue Cross Blue Shield sought a 22% increase in the individual market and the Department only approved a 12.8 % increase. It is estimated that approximately 60,000 people would have been affected by the Regence BCBS requested increase.
Each time a rate increase is reduced, small businesses and consumers benefit, helping them remain competitive and saving them money. The Affordable Care Act ensures that rates are reviewed in all states, with HHS helping with the review in nine states that do not yet have effective rate review programs.
A New Day for Consumers
Before the Affordable Care Act, many health insurance companies could raise rates with little or no scrutiny. While many states review proposed increases to determine if they are reasonable, other states lack the legal authority or resources to effectively review rates. Further, some states have the authority to deny or reduce proposed rate increases, but many do not. In fact, information about rate increases and the reasons for them could not easily be found by consumers. Without oversight, scrutiny and public information, consumers and small businesses had few tools to protect against rate increases.
Beginning in September 2011, consumers in every state can go to HealthCare.gov to view easy-to-access, consumer-friendly disclosure information explaining many proposed increases in the individual and small group market. Consumers will be able to see a summary of the factors driving rate increases and an explanation provided by insurance companies for the proposed increase. Find rate increase information for your state using HealthCare.gov's Rate Review tool.
For the first time, consumers in every state will also be given the ability to comment on these large proposed rate increases. Prior to the Affordable Care Act, only 14 states reported providing opportunities for consumers to engage in the oversight of health insurance premiums.[i] Public input empowers consumers and is an important component of the rate review process.
States Strengthening Review of Health Insurance Premiums
Over the last year, 42 states, the District of Columbia and the five U.S. territories have used $48 million in grants to help them improve their oversight of proposed health insurance rate increases. States have used this funding to significantly strengthen and improve their rate review processes:
- 9 states passed legislation to further enhance rate review
- 25 states have hired new staff to review rates
- 33 states have enhanced IT capacity to review rates more efficiently
- 31 states have improved rate filing requirements to improve transparency
A second round of funding worth $200 million was announced in February 2011. These funds will build on the work states have already undertaken and complements the health insurance rate review regulation finalized in May 2011. The grants are designed to provide states resources to improve their rate review process and allow any state to establish an effective rate review program if they wish to do so. In response to the rate review regulation, many states have issued regulations to require insurers to file rates with the state, so that their rate review programs could become effective before September 1, 2011.
To learn about other significant state achievements with these rate review grants, please visit: http://www.healthcare.gov/news/factsheets/ratereview09012011b.html
Association Coverage
Today, the Department also issued an amendment to the rate review final rule making clear that coverage sold to individuals or small groups through an association is subject to rate review, on or after November 1, 2011. This approach is consistent with the approach taken under long-standing Department policy and the medical loss ratio regulation.
In many states, a significant portion of individual and small group health insurance is sold through associations. This coverage is sold and delivered in the same manner as the individual and small group coverage not sold through an association. Some insurers sell a large portion of their business through associations established to meet the parameters of state laws (such as “travel clubs”), that in some cases may be used for the purpose of selling insurance outside the authority of state individual and small group rating laws. The only real difference is that the association exists as a quasi-employer group; but in reality, the enrollees do not work for the association. Today’s rule closes this significant loop-hole, levels the playing field between issuers, and assures that all insurers in the individual and small group markets nationwide receive the benefit of rate review.
You can view the regulation at: http://www.regulations.gov/#!documentDetail;D=HHS_FRDOC_0001-0423
Builds on Other Affordable Care Act Policies to Make Health Care Affordable
Rate review builds on other provisions in the Affordable Care Act to help make health insurance more affordable for individuals, families, and businesses. Other steps the law takes to help make insurance more affordable include:
- Insurers are generally required to meet a medical loss ratio standard to spend at least 80 percent of premium dollars on health care and quality-improvement activities as opposed to overhead, marketing, CEO salaries, and profits. Insurers that fail to meet that standard must either reduce premiums or pay rebates to consumers and employers;
- Small businesses are eligible for Federal tax credits of up to 35 percent of the cost of coverage for their workers. That amount rises to 50 percent by 2014; and
- In 2014, the Affordable Insurance Exchanges will use competition and information on excessive or unjustified premium increases to make insurance affordable.
The Affordable Care Act includes a wide variety of provisions designed to promote accountability, affordability, quality and accessibility in the health care system for all Americans, and to make the health insurance market more consumer-friendly and transparent. Some of the provisions are already in effect, including prohibitions on pre-existing condition exclusions for children; prohibitions on lifetime dollar limits in all health plans; extended access to insurance for many young adults; and an unprecedented level of transparency about health insurance through www.HealthCare.gov.
[i] U.S. Government Accountability Office. 2011. Private Health Insurance: State Oversight of Premium Rates Report to Congressional Requesters. No.GAO-11-701.
Posted on: September 1, 2011
Last updated: October 7, 2011