Insurers Told to Justify Rate Increases Over 10 Percent
Friday, May 20, 2011
Insurers Told to Justify Rate Increases Over 10 Percent
By: Robert Pear, New York Times
WASHINGTON - Alarmed at soaring premiums and profits in the
health insurance industry, the Obama administration demanded on
Thursday that insurers justify proposed rate increases of more than
10 percent, starting in September.
Kathleen Sebelius, the secretary of health and human services,
issued a final rule establishing procedures for federal and state
insurance experts to scrutinize premiums. Insurers, she said, will
have to justify rate increases in an environment in which they are
doing well financially, with profits exceeding the expectations of
many Wall Street analysts.
"Health insurance companies have recently reported some of their
highest profits in years and are holding record reserves," Ms.
Sebelius said. "Insurers are seeing lower medical costs as people
put off care and treatment in a recovering economy, but many
insurance companies continue to raise their rates. Often, these
increases come without any explanation or justification."
Federal health officials proposed the 10 percent threshold in
December. The insurance industry criticized it as an arbitrary test
that could brand a majority of rate increases as presumptively
unreasonable. But the administration rejected the criticism and
insisted on the 10 percent standard in the final rule, issued
Thursday.
Starting in September 2012, the federal government will set a
separate threshold for each state, reflecting trends in insurance
and health care costs.
In some states like New Hampshire, groups of more than 20
workers have experienced premium increases of around 20 percent
this year, while smaller groups have seen increases of 40 percent
or more. At the same time, insurance agents say, coverage is
shrinking as deductibles have increased and insurers limit the
choice of hospitals.
To ensure that "consumers get value for their dollars," the new
health care law required annual reviews of "unreasonable increases
in premiums."
Under the new rule, federal and state officials will review
rates in the individual and small-group insurance markets. In
effect, the administration said, large employers can take care of
themselves, as they are more sophisticated purchasers and have more
leverage in negotiating with insurers.
Federal officials acknowledged that they did not have the
authority to block rates that were found to be unjustified. But
they said many states had such authority, and the federal
government is providing $250 million to states to strengthen their
capacity. A small number of states, opposed to the federal health
care law, have turned down the money.
The new rule says a rate increase is unreasonable if it is
excessive, unjustified or "unfairly discriminatory." An increase is
deemed excessive if it is "unreasonably high in relation to the
benefits provided."
Consumer advocates generally welcomed the rule. "The days of
insurance companies running roughshod over consumers and jacking up
rates whenever they want are over," said Ethan S. Rome, executive
director of Health Care for America Now, a coalition that includes
labor unions and civil rights groups.
Insurers said the rule did nothing to address the underlying
costs of health care, which they described as the main factor
driving up premiums.
"If we believe health care costs are crushing the economy, we
ought to have a debate about how to bring costs under control,"
said Karen M. Ignagni, president of America's Health Insurance
Plans, a trade group. "Focusing on premiums diverts attention from
that debate."
In many cases, Ms. Ignagni said, rate increases of more than 10
percent may be justified by rising health costs and the tendency of
younger, healthier people to drop coverage, forcing up costs for
other policyholders.
States will have the primary responsibility for reviewing rate
increases. "But if a state does not have the authority or the
resources to conduct a review, our department will step in," said
Ms. Sebelius, a former state insurance commissioner in Kansas.
Under the rule, as part of an effective rate review program,
states must have "a mechanism for receiving public comments" on
proposed rate increases.
Elizabeth P. Sammis, the acting insurance commissioner in
Maryland, said this would be a big change. In many cases, she said,
consumers learn of premium increases when they receive notices in
the mail, and then they call the commissioner's office to ask, "Why
are rates going up?"