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CCH® BENEFITS — 12/16/10

States With Active Premium Rate Review Processes Experience Lower Premium Requests Filed By Insurers

from Spencer’s Benefits Reports: Under the Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services is required to work with state insurance departments to conduct an annual review of unreasonable rate increases. The ACA allocates $250 million for states to enhance their process for reviewing proposed rate increases. However, in a recently released study, the Kaiser Family Foundation noted that the ACA does not alter states’ existing regulatory authority over health insurance premium rate increases. This is problematic because such state authority varies dramatically from state to state, ranging from those with no authority at all to those with robust authority to review and approve or disapprove rates before they are implemented.

In the study, Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable, Kaiser surveyed all 50 state’s rate review statutes, and then conducted follow-up interviews in ten states (Alaska, Connecticut, Colorado, Idaho, Louisiana, Maine, Ohio, Pennsylvania, South Carolina, and Wisconsin). Kaiser found that states with an active premium rate review process experienced lower premium requests filed by insurers. In addition, states that have statutory authority to approve or disapprove rates before they are used are able to extract significant reductions in the rates that health insurance issuers file. States that do not have prior approval authority lack the capacity to comprehensively review rates and are less likely to achieve reductions in requested rates.

Kaiser also found the following:

• The authority to review and approve rate increases in advance does not necessarily protect consumers from large rate increases, as rate review can vary widely, depending on each state’s motivation, resources, and staff capacity.
• Many states do not have enough trained actuaries to review all filed rates. In addition, statutory clauses can “deem” rates approved if not acted on within 30 or 60 days, limiting states’ ability to conduct thorough reviews. Kaiser found that state regulators said that because rate review is not a mechanical function, it requires significant expertise and nuanced judgment calls. States that do not have adequate resources or staffing may miss those judgment calls or even mistakes made by a carrier in its filing.
• Some states with statutory authority to disapprove rates can only exercise that authority in certain situations, such as for specific insurers or products (i.e., non-profit Blue Cross Blue Shield plans or HMOs). Others provide alternative regulatory pathways for insurers, such as a minimum loss ratio guarantee, that allow carriers to avoid state review of their rates.
• Most of the states interviewed by Kaiser said that they use subjective standards to guide the review and approval of rates, such as that rates cannot be “excessive, inadequate, or unfairly discriminatory” or that “benefits are reasonable in relation to premiums charged.” These subjective standards give states more flexibility, but can make the process appear arbitrary and unclear to the public.
• Most interviewed states have made little or no effort to make rate filings transparent. In many cases, carriers can designate some portions of the rate filing to be “trade secret” and thus not available to the public. Two of the interviewed states define all rate-filing information as “proprietary.” Only a few states that were interviewed allowed a policyholder to request a public rate hearing.

For more information, visit http://www.kff.org/healthreform/8122.cfm.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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