From September insurers will need to justify annual premium increases of 10% plus

By Dr. Ananya Mandal, MDMay 22 2011

According to the new Obama administration rule taking effect in September, state regulators cannot reject rate increases deemed unreasonable, but it requires insurers to explain the reasons for such hikes to the public.

From September on health insurers will need to justify annual premium increases of 10% or more to state regulators under a new rule issued by the Obama administration. The federal officials, pointing out that the average cost of health insurance has more than doubled over the last decade, said the effort would help states curb unreasonable rate proposals for millions of individual insurance buyers and small businesses.

They add that this new rule will allow regulators to review rate hikes but does not give them authority to reject those found to be unreasonable. It also requires insurers to explain the reasons for increases of 10% or more to the public and to post the justifications on the Internet.

Kathleen Sebelius, Health and Human Services Secretary estimates that public pressure from the review process will keep insurance costs in line. Sebelius said in a conference call Thursday with reporters, “We know that increased scrutiny works… Each time a state acts to reduce unreasonable or unjustified premium increases, consumers benefit.”

Many consumer groups are happy with the new rule. But the insurance industry's trade association, which had opposed it, called the 10% directive an “arbitrary threshold.” America's Health Insurance Plans for example said any review of rates must take into consideration the effect of government mandates and the exodus of healthy younger people from insurance markets. This they added leaves behind older, sicker and costlier policyholders. Karen Ignagni, the group's president, said in a statement, “Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make health care coverage more affordable for families and employers.”

The new rule was expected to have limited effects in California, where regulators already have the power to review rates. The Department of Insurance, that acts as regulator has urged several of the state's largest health insurers, including Anthem Blue Cross and Blue Shield of California, to lower or cancel rate increases after scrutinizing their filings and increasing public pressure. However a second regulator, the Department of Managed Health Care, last month said that it could do nothing to stop a 16% Anthem rate increase even though it had declared the hike “unreasonable.”

One consumer group cited that episode in calling the new federal law inadequate. Consumer Watchdog said the federal rule leaves it up to states to decide how much information insurers must release about their filings, potentially putting the public in the dark.

“The health reform law relies on public disclosure of unreasonable rates to shame insurance companies into charging consumers fairer prices, but that's an empty threat if insurers don't have to explain every assumption in the full light of day,” said Carmen Balber, the group's Washington director. “This rule doesn't go far enough to protect consumers from unreasonable rate increases.”