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November-December 2010 St@teside

States Take New Steps to Enhance Premium Rate Review Process

The Patient Protection and Affordable Care Act (Affordable Care Act or ACA) requires the Department of Health and Human Services (HHS), in conjunction with the states, to establish a process for annual review of “unreasonable” rate increases and provides $250 million in grant funding to states to improve their rate review. However, it is up to the states whether to approve or deny insurance companies’ rate increases. States are required by statute to take into account a company’s solvency—its ability to pay its projected claims—and financial condition when assessing rate requests. 

About two dozen states give the state insurance department or commission the legal power of prior approval, or disapproval, of certain types of rate changes.[i] While some states have taken a more direct approach and have tried to aggressively constrain what they viewed as “unreasonable” rate increases, others have taken a less direct approach, primarily increasing the transparency of the rate review process, in the belief it will benefit consumers and employers. 
The most aggressive approach was taken by Massachusetts,[ii] when Commissioner Joseph Murphy issued emergency regulations in February that capped rates at 150 percent of the medical consumer price index and required carriers to submit rate filings one month prior to their effective date.[iii] In April, the Division of Insurance (DOI) rejected 235 of the 274 rate filings. As a result, the insurance plans appealed the rulings with the DOI and challenged the rejection of the proposed premium increases in court. In June, an appeals panel within the DOI rejected the denial of rate requests that had been filed by one insurer, Harvard Pilgrim Health Care Inc. By the beginning of July, the insurer reached a compromise with the DOI, which allowed it to raise rates by slightly less than it had originally requested. The settlement also removes Harvard Pilgrim from the lawsuit filed in April by all of the state’s other major carriers. 
New York is another state that has recently taken a more active role in controlling the rate increases. In June, the state enacted a law requiring health plans to obtain prior approval from the state insurance department before raising premiums and increasing the minimum medical loss ratio (MLR)—the amount of premiums required to pay for medical costs—from 75 percent to 82 percent for group policies and from 80 percent to 82 percent for individual policies.[iv]  In October, the insurance department reduced rate increase requests by an average of 2.5 percent.[v]  About a week later, however, out of concern that MVP Insurance Company’s solvency could be at stake, the department granted rate increases for that insurer for most of its policies. Two other insurers received approval for rate increases that were lower than what they had requested.[vi]  
In Rhode Island, commercial insurers also must get approval before raising health insurance rates. In July, Insurance Commissioner Christopher Koller approved rate increases that were between 3.6 to 1.4 percentage points less than the amounts originally requested and imposed new conditions on certain provider-contracting practices of the insurers to attempt to address underlying cost factors.[vii]
In August, a bill in California that would have required health insurers to receive approval from the Department of Insurance (DOI) or the Department of Managed Health Care (DMHC) before raising rates, deductibles, or copayments was rejected by the state Senate.[viii] However, another bill that expands California’s regulators’ authority in a more limited way was enacted. The new law requires that health insurance premiums be “actuarially sound.”[ix] In other words, it requires rate filings to include a certification by an independent actuary that any increase is reasonable or unreasonable (as defined by a set standard) and, if unreasonable, that the justification for the increase is based on accurate and sound actuarial assumptions and methodologies.[x] The law also requires insurers that deny coverage or offer coverage at a rate higher than the standard rate to provide consumers with an explanation for their decision.  
Other states have taken less direct approaches, mostly aimed at increasing transparency and conducting examinations into rate increases. In Colorado, a new website launched in October is intended to answer questions about how health insurance rates are set and discuss new state initiatives to strengthen the rate review process and make it more transparent for consumers and employers.  An examination of the numerous complaints received during the July 2009—March 2010 period prompted the Colorado Division of Insurance to initiate such a market conduct examination. Although no fines were levied against Anthem Blue Cross and Blue Shield as a result of the examination, the insurer paid $20 million in premium credits to about 90,000 members.  
Since Illinois law does not give employers and families protection against premium increases that exceed both national averages and rates of medical inflation, the state instead announced new measures[xi] to increase transparency of proposed premium increases, so that consumers can understand why insurers make rate changes. Beginning on December 1, insurers will have to submit rate changes and information justifying any rate increases. 
In other states, however, even increasing transparency has proved to be a harder battle. While, initially, Connecticut Insurance Commissioner Thomas Sullivan rejected requests by both the state’s attorney general Richard Blumenthal[xii] and the director of HHS Office of Consumer Information and Insurance Oversight (OCIIO)[xiii] to hold a public hearing on insurance rate increase requests; he later announced plans to hold a hearing.[xiv] The Insurance Commissioner also initially rejected the request to reconsider the department’s decision to approve a rate hike by Anthem Blue Cross and Blue Shield of 20 percent for individual plans. Connecticut has prior approval authority over all health insurance products in the individual market, but there are no objective constraints on rate increases and no MLR is required. The Insurance Commissioner has discretion over whether to call a public rate hearing.

The new pool of grant funding provided by the ACA to state insurance departments can assist states interested in improving their rate review process. Although states have flexibility as to how to best use the funds, given the ACA’s requirement that everyone buy insurance by 2014, there is a real need to contain rate increases and provide consumers with the opportunity to weigh in on proposed rate hikes.


[xi] Accessed on December 6, 2010. . Accessed on December 5, 2010.