'Prior approval' regulation of health insurance rates needed to ensure fair charges by insurers

Consumer Watchdog said Massachusetts' rejection today of excessive and unreasonable health insurance rate increases shows the need for effective "prior approval" rate regulation in every state to ensure that health insurers charge fair prices under national health reform legislation, which is modeled on Massachusetts' mandatory health insurance law. Massachusetts regulators recently adopted emergency prior approval regulations in anticipation of large insurance premium increases.

"Massachusetts has quickly come to realize that when the government requires everyone to purchase a health insurance policy or face tax fines it must also exercise real oversight of what health insurers can charge. Now that Congress has followed in Massachusetts' footsteps we need 'prior approval' regulation of all health insurance rates to make sure the prices insurers charge Americans for coverage are fair. Regulators' close look at the numbers behind proposed rate hikes revealed that, in the case of Massachusetts small businesses, increases could not be justified," said Carmen Balber, Washington Director for Consumer Watchdog.

The Massachusetts Division of Insurance rejected 235 proposed small business rate increases of up to 32%, citing health insurers' failure to adequately explain why the increases were significantly above the rate of medical inflation.

Consumer Watchdog called for an expansion of the modest health insurance rate justification requirements in the federal health reform law to encourage prior approval rate regulation in the states, and provide a federal backstop where states do not act. Effective regulation must:

• Require insurers to justify rate increases and receive approval for those increases before they may be implemented
• Guarantee the public's right to intervene to further reduce rates
• Increase federal grants to states for development of prior approval regulations
• Implement strong federal fallback regulations to take effect in states that do not adopt effective prior approval regulation
• Require consumer premium refunds if rates that have already gone into effect are later found to be excessive

"Prior approval" regulation would help contain health insurance rate increases by requiring insurers to justify proposed increases before raising rates, and allowing thorough scrutiny of insurance company finances. For example, such regulation would require Anthem Blue Cross of California to open its books to scrutiny by the public and independent actuaries and explain why a recent 39% rate increase was necessary. In particular, the company would be required to explain why the increase was necessary in light of the fact that the company transferred $4.8 billion in profit to parent company WellPoint Inc. since the company merged in 2004 with Anthem. Read more about Consumer Watchdog's analysis of Anthem Blue Cross's profit transfers, and a chart of all known transfers since 2003:

California's landmark prior approval rate regulation for auto insurance, Proposition 103, has saved drivers in California $62 billion since 1988, and is a model for health insurance reform. Read more in a 2008 Consumer Federation of America report at: http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/state_auto_insurance_report.pdf

According to the Consumer Federation of America, under Prop 103:

• California drivers have saved $61.8 billion in auto insurance rates, an average of $1670 per Californian
• California is first among all states in holding down insurance premiums, with a 12.9% increase compared to an average national increase of 50%
• California is the fourth most competitive auto insurance market in the nation; Completely unregulated Illinois ranks 44th