HHS Official Says Giving Regulators Power Over Rates Boosts Consumer Protection

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Giving regulators the power to approve health insurance rate increases provides “the maximum level of protection to consumers,” the chief regulator in charge of health insurance policy told the Senate Health, Education, Labor, and Pensions Committee Aug. 2.

Steve Larsen, oversight director of the federal Center for Consumer Information and Insurance Oversight (CCIIO), spoke at a hearing titled, “Health Reform and Health Insurance Premiums: Empowering States to Serve Consumers.” Larsen responded to a question from Sen. Richard Blumenthal (D-Conn.), who spoke in favor of giving regulators the power to approve or reject health insurance rate increases.

Larsen said the administration wants reviews to be conducted by state insurance regulators, who are more familiar with the local market. “It's not our objective to have a large federal involvement in the rate review process,” he said. “It's our objective to have that performed at the state level.” CCIIO is part of the Health and Human Services Department.

Feinstein Pushes for Rate Approval

Sen. Dianne Feinstein (D-Calif.) spoke at the hearing in favor of passing legislation to give HHS authority to block premium increases found to be unreasonable in states that do not have rate approval authority.

Feinstein said the failure of the Patient Protection and Affordable Care Act to grant explicit authority to modify or block “egregious” rate increases is a “loophole.” Seventeen states do not have authority to block rate increases, she said.

Feinstein and Rep. Janice D. Schakowsky (D-Ill.) introduced the Health Insurance Rate Review Act (S. 137) (H.R. 416) in January. It would give HHS authority to block or modify rate increases “that are excessive, unjustified, or unfairly discriminatory in those states where there is not appropriate authority,” Feinstein said.

She said she was unable to get the provision included when PPACA was enacted in 2010. “Since then, what's happening is these big, for-profit companies are raising rates wherever they can, sometimes once a year, sometimes twice a year, sometimes three times a year,” she testified.

PPACA gives HHS authority to review rate increases held to be unreasonable, but not the authority to change them. HHS finalized a regulation May 19 that requires annual rate increases of 10 percent or more for individual and small group plans to be reviewed by state or federal officials beginning Sept. 1 (98 HCDR, 5/20/11).

Insurers Report Record Profits

Larsen said some of the major insurance companies have reported record profits, and their stock is trading at an all-time high at the same time that some Wall Street analysts have reported that medical cost trends have been moderating. “But the premiums haven't lowered at the same rate that the trends [have],” he said.

“Essentially some of the companies are benefiting from the spread between their premiums and moderating medical trends,” Larsen said. Health insurers will have to moderate premium increases to stay more in line with medical inflation because of the medical loss ratio provision of PPACA, which requires them to spend at least 80 percent to 85 percent of premiums on medical claims or quality improvements or else pay rebates to policyholders, he said.

America's Health Insurance Plans, which represents 1,300 insurers covering 200 million people, issued a news release on rate reviews that said, “Premiums track directly with the underlying cost of medical care.” Between 2000 and 2009, the growth in premiums “tracked directly with the growth in benefits,” AHIP said.

“Any review of premiums should be based on objective actuarial standards and should take into account the unique nature of the individual insurance market,” AHIP said. “Rate review is no substitute for cost containment.”

Grants to States Will Help Improve Rate Reviews

Grants to help states improve rate review processes under PPACA will also help reduce rate increases, Larsen said. PPACA provides $250 million in grants to help states and territories improve their health insurance rate review processes, $48 million of which has been awarded to 42 states, the District of Columbia, and territories, he said. In February, $200 million in additional grants were announced to continue those efforts.

“The grants are already having a major impact on the state rate review processes,” he said. As of June, 18 states had proposed legislation to increase their ability to review rates; 25 states had hired additional staff to review rates; 37 states were engaged in rate review contract activity; 33 states were enhancing their information technology capabilities; and 35 states were working to enhance their consumer transparency and provide education to consumers on the rate review process, he said.

A recent HHS evaluation of state review processes found that “almost all states will have an effective rate review process and will be reviewing rate increases beginning on Sept. 1,” Larsen said. Seven states have been found not to have effective rate reviews, which will result in the federal government conducting their reviews, he said.

GAO Report

A Government Accountability Office report released at the hearing, Private Health Insurance: State Oversight of Premium Rates, found that although 48 states reviewed rates in 2010, only five states reported that over half of the rates they reviewed were reduced, GAO Health Care Director John Dicken testified. “In contrast, survey respondents from 19 states reported these outcomes occurred from their rate reviews less than 10 percent of the time,” he said.

Senate HELP Committee Chairman Tom Harkin (D-Iowa) pointed to health insurance industry profits, which he said have grown in tandem with health insurance premiums. Humana and Aetna had almost $1.8 billion in profits in 2010, and UnitedHealth Group's profits were $4.6 billion in 2010, Harkin said. “As the premiums go up, profits go up,” he said.

Harkin questioned whether insurers are “trying to get in … before the exchanges go into effect in 2014, get their prices up as high as possible, or is this just simply market forces saying, ‘Hey, if we can make more profit, make more profit without anybody regulating or guiding it.'”

But Sen. Michael B. Enzi (R-Wyo.), ranking member of the committee, said that rising health insurance premiums is “an unfortunate but entirely predictable response to the passage of the new health care law.”

PPACA “is already driving up health insurance premiums,” Enzi said. “So now the authors of the law are attempting to shift blame. They would much rather point their fingers at the insurance companies and lay all the blame for these increased premiums on them.”

“Insurance premiums are going up because health care costs are going up, and health care costs are going up at least in part because of the new health care law,” Enzi said.

Child-Only Policies

Separately, Enzi released a report Aug. 2, Health Care Reform Law's Impact on Child-Only Health Insurance Policies, finding that PPACA prompted health insurance carriers to stop selling child-only health plans in many states. Seventeen states reported that there are currently no carriers selling child-only health plans to new enrollees as a result of the law's provisions requiring that policies be sold to all children under 19, regardless of health problems, according to the report.

At the hearing, Sen. Lisa Murkowski (R-Alaska) said insurers want a uniform open-enrollment period to guard against people waiting until their children are sick to enroll them in plans. Larsen responded that HHS has been given “a number of tools to manage the risk. They can charge higher rates, they can have their own open enrollment periods. We've given them almost every option to insure both the sick and the healthy kids, and I think it's clear that they ultimately didn't want to insure the sick kids.”

Answering questions to reporters after the hearing, Larsen confirmed that Joel Ario, head of CCIIO's health insurance exchange office, is leaving HHS. CCIIO Deputy Director Tim Hill will take over the post, Larsen said in an e-mail to HHS staff.

By Sara Hansard

The GAO report, Private Health Insurance: State Oversight of Premium Rates, is at http://www.gao.gov/products/GAO-11-701 . The Senate HELP Committee's ranking member report, Health Care Reform Law's Impact on Child-Only Health Insurance Policies, is at http://help.senate.gov/imo/media/doc/Child-Only%20Health%20Insurance%20Report%20Aug%202,%202011.pdf .