Federal rule requires reviews of proposed increases in health insurance premiums

Beginning Sept. 1, 2011, many proposed double-digit increases in health insurance rates must be reviewed by state or federal officials, the U.S. Department of Health and Human Services says. The new federal rule drew swift criticism from the country’s major trade association for health insurers.

The new rule — which resulted from the federal health care reform law — affects proposed rate hikes of at least 10 percent for most individual and small group health insurance plans. States will have primary responsibility for reviewing rate increases. The Department of Health and Human Services will serve in a backup role for states that don’t have the resources or authority to review rates.

Karen Ignagni, president and CEO of America’s Health Insurance Plans, says the federal government “is not in a position” to review proposed increases in health insurance premiums.

“Effective rate review works – it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace,” Health and Human Services Secretary Kathleen Sebelius says. “During the past year, we have worked closely with states to strengthen their ability to review, revise or reject unreasonable rate hikes. This final rule helps build on that partnership to protect consumers.”

Starting in September 2012, the 10 percent threshold will be replaced by state-specific thresholds that reflect local insurance and health care costs.

Karen Ignagni, president and CEO of America’s Health Insurance Plans, the major national trade association for health insurers, says the new federal rule is misguided.

“Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make health care coverage more affordable for families and employers,” Ignagni says. “The public policy discussion needs to be enlarged to focus on the soaring cost of medical care that threatens our economic competitiveness, our public safety net and the affordability of health care coverage.”

Ignagni says premium reviews must take into account all of the components that determine premium rates, including geographic variation, the costs of new benefit mandates, and the effect of younger and healthier people dropping insurance coverage.

“We agree that states are best suited to review premiums because they have the experience, infrastructure and local market knowledge needed to ensure that consumers are protected and health plans are solvent,” Ignagni says. “The federal government is not in a position to make these assessments.”

On the flip side, Sara Collins, vice president of the Affordable Health Insurance Program at The Commonwealth Fund, says the federal rule will bring “much-needed transparency in the individual and small group insurance markets, and will help create a new competitive dynamic and incentives to lower costs among carriers.”

–InsuranceQuotes.com staff