Wednesday, December 8, 2010

Premium Rate Review, Or How To Know If The Pudding Is Any Good

Just as the proof of a pudding is in the eating, so the test of a law is in its implementation.  And if past practice in the states is any indication, the implementation of rate reviews of health care premium increases may require many taste tests.

Under the Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services (HHS) is required to work with state insurance departments to conduct an annual review of “unreasonable rate increases.” The ACA allocates $250 million for states to enhance their process for reviewing proposed rate increases. However, in a recently released study, the Kaiser Family Foundation noted that the ACA does not alter states' existing regulatory authority over health insurance premium rate increases. This is problematic because such state authority varies dramatically from state to state, ranging from those with no authority at all to those with robust authority to review and approve or disapprove rates before they are implemented.

The ACA does not define what constitutes an “unreasonable” increase. HHS is expected to define a potentially “unreasonable” rate increase so that carriers know when they will need to submit data to HHS and the states for review.

There is no commonly accepted standard definition of an unreasonable rate increase for HHS to rely on. Some states apply the definition during rate review, while other states deal with problems on a case-by-case basis, often in response to consumer complaints. The new law requires that plans submit justifications for any “unreasonable” rate increases to the states and HHS, and post them on their websites. HHS is also required to make those justifications publicly available. In addition, in order to promote transparency, HHS asked the National Association of Insurance Commissioners (NAIC) to develop a standard rate filing disclosure form that all health plans must use when justifying unreasonable rate increases to HHS and the relevant state. The goal of the form is to ensure that regulators and the public can access the data and justifications in a way that allows for “apples-to-apples” comparisons.

Consequences Of Different Standards

In the study, Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable, Kaiser surveyed all 50 state's rate review statutes, and then conducted follow-up interviews in ten states (Alaska, Connecticut, Colorado, Idaho, Louisiana, Maine, Ohio, Pennsylvania, South Carolina, and Wisconsin). Kaiser found that states with an active premium rate review process experienced lower premium requests filed by insurers. In addition, states that have statutory authority to approve or disapprove rates before they are used are able to extract significant reductions in the rates that health insurance issuers file. States that do not have prior approval authority lack the capacity to comprehensively review rates and are less likely to achieve reductions in requested rates.

Kaiser also found the following:

  • The authority to review and approve rate increases in advance does not necessarily protect consumers from large rate increases, as rate review can vary widely, depending on each state's motivation, resources, and staff capacity.

  • 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. Kaiser found that state regulators said that because rate review is not a mechanical function, it requires significant expertise and nuanced judgment calls. States that do not have adequate resources or staffing may miss those judgment calls or even mistakes made by a carrier in its filing.

  • 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, such as a minimum loss ratio guarantee, that allow carriers to avoid state review of their rates.

  • Most of the states interviewed by Kaiser said that they use subjective standards to guide the review and approval of rates, such as that rates cannot be "excessive, inadequate, or unfairly discriminatory" or that "benefits are reasonable in relation to premiums charged." These subjective standards give states more flexibility, but can make the process appear arbitrary and unclear 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. Two of the interviewed states define all rate-filing information as "proprietary." Only a few states that were interviewed allowed a policyholder to request a public rate hearing.

Possibly the most telling statement in the Kaiser report is this one, which makes clear how important implementation is:

“Policymakers interested in assuring that premium increases are reviewed for reasonableness and accuracy will need to look not only at the laws that govern rate filings and approvals, but also insurance department resources and practices. Prior approval laws do not assure that thorough reviews will occur. At the same time, regulators can sometimes encourage insurers to reduce filed rates even when their authority is relatively weak. Giving regulators the explicit authority to review and approve rates prior to their use appears to provide the most leverage to encourage insurers to reduce filed rates, but regulatory resources and a culture of active review may be equally important.”

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.


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