May 19, 2011
HHS Issues New Rules To Help Rein In Health Insurance Rate Hikes
Rate Hikes Will Be Subject To Stricter Scrutiny and Public Disclosure
WASHINGTON, D.C. – The Department of Health and Human Services (HHS) issued a new federal rule today to help define what constitutes an unreasonable health insurance rate increase under the new health reform law. The new rule establishes an important baseline for determining whether rate increases are excessive and a more rigorous process for holding insurers accountable, according to Consumers Union, the nonprofit publisher of Consumer Reports.
Under the news rule, which goes into effect on September 1, insurers seeking rate increases of 10 percent or more over a 12-month period would be subject to closer scrutiny by state and federal regulators as well as stricter public disclosure requirements. The rule will ensure that the public has an opportunity to provide input about rate increases when they are subject to review.
“Consumers are tired of double-digit rate hikes year after year at a time when many health insurers continue to make record profits,” said DeAnn Friedholm, the director of Consumers Union’s health reform campaign. “Too often, health insurers have been able to get away with raising rates without having to justify why premiums are going up. This new rule sets an important new standard for when rate increases are unreasonable and requires insurers to explain why those rate hikes are needed. It will help consumers better understand why their rates are increasing and give them an opportunity to provide input to regulators when rate hikes are under review.”
The new rule applies to health insurance policies sold in the individual and small group markets. Under the new rule, rate increases higher than 10 percent would be reviewed by states with rate review procedures meeting certain standards and by HHS for states that do not have such standards. Insurers would have to submit a “justification” for an increase of 10 percent or more to HHS and state regulators prior to implementing the rate hike. HHS will post such justifications on its website. Insurers would also be required to post a justification on their websites for rate hikes that are determined to be unreasonable. Beginning in September 2012, the 10 percent threshold may change and instead be based on factors specific to each state’s healthcare costs.
While the power to deny or modify each proposed rate increase remains with the states, the authority and ability of states to review and challenge proposed rate increases varies across the country. Some state regulators closely examine proposed rate increases and insurers justifications, but other states have little capability to do so. In most states, consumers do not receive adequate information about rate increases and are not able to participate in the review process through hearings or other public forums. Most states have received federal grant funds to improve their rate review process.
Consumers Union has developed a state model rate review law for individual market plans to ensure greater oversight, transparency and insurer accountability.