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Healthcare overhaul won't stop premium increases
The new law doesn't prevent rate hikes such as Anthem Blue Cross'
double-digit increase last year. 'It is a very big loophole,' says Sen. Dianne
Feinstein, who is pushing regulatory legislation.
By Noam N. Levey
April 13, 2010 - The Los Angeles Times
Reporting from Washington
Public outrage over double-digit rate hikes for health insurance may have
helped push President Obama's healthcare overhaul across the finish line, but
the new law does not give regulators the power to block similar increases in the
future.
And now, with some major companies already moving to boost
premiums and others poised to follow suit, millions of Americans may feel an
unexpected jolt in the pocketbook.
Although Democrats promised greater
consumer protection, the overhaul does not give the federal government broad
regulatory power to prevent increases.
Many state governments -- which
traditionally had responsibility for regulating insurance companies -- also do
not have such authority. And several that do are now being sued by insurance
companies.
"It is a very big loophole in health reform," Sen. Dianne
Feinstein (D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are
pushing legislation to expand federal and state authority to prevent insurance
companies from boosting rates excessively.
At least in the short term,
regulators will be able to do little more than require insurers to publicly
explain why they want to raise rates. Consumer advocates think that will not be
an effective deterrent against premium increases such as the 39% hike that
Anthem Blue Cross sent some California customers last year.
"The irony
here is that it was the Anthem rate increase that breathed new life into the
healthcare bill," said Jerry Flanagan, medical policy director of Consumer
Watchdog, a longtime supporter of tougher premium regulation. "But there is
nothing in this bill to guarantee that it doesn't happen again."
The lack
of muscle is stoking concerns that more rate jumps -- and an angry backlash from
ratepayers -- could undermine support for implementing the healthcare
overhaul.
Insurance industry officials say that talk of more regulation
is misguided and have urged federal officials to focus instead on containing
rising medical costs, which help drive up premiums.
"Politicians are much
more comfortable looking at healthcare premiums," said Karen Ignagni, president
of America's Health Insurance Plans, the industry's Washington-based lobbying
arm.
Ignagni, as well as some independent healthcare experts, said
policymakers should look at ways to control what hospitals and other providers
charge, although few elected officials have shown much appetite for doing
so.
Obama endorsed Feinstein's insurance proposal this year, including it
in the healthcare blueprint he unveiled in February as Democrats were struggling
to revive their proposals. But congressional rules prevented Democratic leaders
from including the rate control provision in the final healthcare
package.
Many consumer advocates think this enhanced regulation -- known
in the industry as "prior approval" authority -- is the only real way to protect
ratepayers from insurers, particularly for-profit companies under pressure to
generate returns that satisfy Wall Street investors.
Prior approval
requires insurers to submit proposed rate increases to regulators, who can then
comb through companies' financial and actuarial data to see if the proposals are
justified.
Insurers cannot raise premiums without explicit permission
from the regulator.
Some states have given prior approval authority to
their insurance commissions and have used it to force down premiums.
In
New York, the state insurance department reduced nearly a quarter of the
proposed premium increases between 1990 and 1995, according to a recent
department analysis.
More recently, state regulators in Kansas
successfully pushed Blue Cross Blue Shield of Kansas to reduce a proposed
premium increase for some of its elderly customers, according to state Insurance
Commissioner Sandy Praeger.
California, which does not have the power to
block health plan increases, has been using similar authority to control
property and auto insurance premiums for more than 20 years, said Dwight M.
Jaffee, a real estate and finance professor at UC Berkeley's Haas School of
Business. "It has been very successful," said Jaffee, who studied the state's
experience.
Health insurance, however, is more complicated than property
and auto coverage. And even the most active state regulators typically cannot
investigate every proposed change in every segment of the insurance market.
In Maine, where an aggressive Bureau of Insurance reviewed 186 rate
filings in 2009, regulators focus on the so-called individual market, where
people buy coverage if it is not available through their jobs.
Maine is
battling Anthem Blue Cross and Blue Shield, which regulators last year blocked
from raising premiums an average of 18.5% on its individual
customers.
Many states do far less, often requiring insurers only to file
their proposed rate increases with the state insurance commissioner before
passing them along to consumers. New York switched to that approach in 1996, a
move that state regulators say resulted in "excessive rate increases."
A
handful of states, such as Missouri, do not even require insurers to publicly
disclose rate hikes.
The new federal healthcare law would step up
oversight of health insurers in states with such limited regulation.
The
bill directs the secretary of Health and Human Services to work with state
regulators to develop a process for reviewing proposed premium increases to
determine if they are unreasonable.
Insurers that propose such hikes
would be required to post justifications on their websites.
For the first
time, all insurance companies would have to dedicate at least 75% of their
premiums to paying medical claims; this would reduce the proportion of
companies' revenue that could go to administrative expenses, such as executive
salaries and stockholder dividends. Some analysts think that requirement could
restrain premium growth.
"These provisions are powerful forces that will
help end sky-high premium hikes," said Nick Papas, a spokesman for Health and
Human Services Secretary Kathleen Sebelius.
On Monday, the department
announced it would accelerate the development of new regulations.
But
more intensive oversight would not begin until 2014, when states set up new
regulated insurance markets, or exchanges, where consumers who do not get
insurance at work would shop for coverage.
The healthcare bill allows
regulators to ban insurers from the exchanges if their rates are deemed
unjustified.
Even some regulators wary of greater Washington control over
state affairs say that more federal protections may be needed before
then.
"Some consistency there is probably warranted," said Praeger, a
Republican and former head of the National Assn. of Insurance Commissioners.
Praeger criticized Obama's original proposal to give the federal government
authority to block rate increases.
But she said last week that the
insurance commissioners association was now talking with the administration
about how the federal government could set a stronger minimum national standard
for regulating medical insurance companies.
That could encourage more
states to require insurers to get state approval before raising
premiums.
On Capitol Hill, Feinstein said she was looking at ways to move
her premium regulation bill forward, perhaps by attaching it to other
legislation with bipartisan support.
Stepping up regulation doesn't
promise to be easy. Insurance companies in Maine and Massachusetts have sued
state regulators who tried to block rate increases.
noam.levey@latimes.com
Copyright © 2010, The Los Angeles Times