Consumer advocates are questioning the fairness of requiring Americans to buy
health coverage under the Affordable Care Act if the government canft control
the rates insurance companies charge.
To keep prices in check, the health reform law instituted a procedure known
as rate review, by which state insurance departments evaluate carriersf proposed
premium hikes of 10% or more to determine whether they are justified. But even
when they deem the proposed increases excessive or unreasonable, insurance
commissioners canft always stop companies from putting them into effect.
While the reviews spared consumers $1 billion in rate hikes, the Department
of Health and Human Services announced Tuesday, insurance commissioners and
advocates say they would have saved consumers much more if government
authorities in all 50 states could prevent insurers from going ahead with
unjustified increases.
gAt the end of the day, the companies can tell us to pound sand,h says Dave
Jones, the insurance commissioner in California, one of 13 states where the rate
reviews are not binding. gItfs very frustrating. Frankly, our hands are tied
behind our back.h
Even when HHS does the review itself, it canft always force carriers to lower
their rates when the increases are excessive: In March the department identified
unreasonable premium hikes in nine states—including increases of up to 24% --
but could not prevent them, according to consumer advocates. The HHS could not
verify how the companies responded to its decision, but says that if carriers
implement increases that fly in the face of the departmentfs or a statefs
findings, they must publicly disclose their reasoning for raising the rates,
which should help consumers make more informed choices when selecting health
plans. gBy shining a spotlight on unreasonable rate increases, the Affordable
Care Act will bring unprecedented transparency to the insurance marketplace,h
the HHS said in a statement.
When commissioner Jones found Aetnafs small-employer rate hikes unreasonable
in April, the health insurance company ignored the ruling, raising those plansf
annual premiums by an average of 8%, and increasing some as much as 21%. gI have
no authority to actually enforce a reasonable rate here,h Jones says. gAt the
end of the day, the health insurers and HMOs have the ability to set the rates
wherever they see fit.h
This limitation hampers the effectiveness of rate reviews and leaves
regulators with little power besides the bully pulpit: If insurance
commissioners canft prohibit companies from raising premiums excessively,
gtherefs no teeth to that provision,h says Carmen Balber, Washington director
for Consumer Watchdog, an organization advocating for patient protection and
health insurance reform.
The HHS says that even short of the power to reject insurance companiesf
increases, rate review has an effect on restraining rates: gAlready, wefve seen
aggressive, effective rate reviews hold down increases in a number of states,h
the agency said in the statement.
Jones says that in less than half of the cases where he finds insurersf
proposed premiums to be excessive, he is able to lean on the companies to
achieve gsome modest moderation of the rates.h
Aetna (US:AET) ,
for its part, says that gwhile rate increases are never easy,h the company sets
its premiums based on greasonable projections of future costsh by independent
actuaries, and that it spends a greater share of premiums it collects on medical
costs than its competitors. By law, insurance companies have to issue rebates to
customers if they spend less than 80% of their premiums on health costs, and the
fact that Aetna did not owe rebates to small-group customers in California last
year gis further evidence that we are pricing appropriately,h a company
spokeswoman says.
And not all consumers will benefit from rate review, even if their state does
have the authority to approve insurance companiesf premium increases before they
take effect. The reviews apply only to individual and small-group insurance
plans, but not large employers, meaning that the procedure will have the
greatest effect on a relative minority of consumers, says Gary Claxton, vice
president of the Kaiser Family Foundation. Premiums for employer-sponsored
family health plans rose 4% this year, according to a Kaiser survey released
Tuesday, a fairly modest increase beyond the scope of rate reviews, Claxton
says.
Still, consumer advocates say employees in the larger plans tend to get
better rates anyway and therefore donft need as much protection. gIndividuals
and small groups donft really have any clout with insurance companies,h Claxton
says.
Reigning in proposed increases in smaller plans could also keep the larger
plansf premiums in check, say experts, because the carriers would likely use the
same formula for both types of plans, with the bigger group still getting a
better rate.
But if regulators use rate review to crack down on insurance companiesf
increases to the point where those carriers have trouble competing, the process
could backfire by forcing some companies to leave the market, and reduced
competition could lead to higher rates, says Brent Fulton, a professor of health
economics and policy at the University of California at Berkeley. The companies
might also attempt to make up the costs in ways that could affect consumers,
such as reducing their customer service spending.
State laws are just one example of how the implementation of rate review
varies dramatically across the country. Experts say the effectiveness of the
procedures can also depend on how state insurance offices choose to use their
authority (some states, such as Iowa, hold hearings to receive consumer input),
the sympathies of the insurance commissioner, politics and election cycles, as
well as the dominance of the big insurance players in certain regions. gDo they
exercise that market power and raise rates above an economic fair profit? Itfs
probably the case in some areas that they do,h says Fulton.
While insurance commissioners say no insurance company or type of carrier is
more likely to ask for unreasonable increases than another, some states seem to
be more lenient about increases than others. Iowafs insurance Commissioner Susan
Voss, for example, says she rejects about half of rate proposals, while
Massachusettsf commissioner Joseph Murphy approved 80% of proposed rates last
quarter, though rejected 90% in 2010.
And even though rate review is a process completed by actuaries, experts say
there is a surprising amount of wiggle room involved, with insurance companies
able to bargain about how they forecast their future costs to justify increases.
Californiafs insurance commissioner Jones says his office has gsignificant
disagreements with companies about their predictions of medical trends,h and
that it often finds that the insurers are overstating projections of medical
inflation and how much patients will use health-care services.
Some insurance commissioners admit to feeling political pressure from
legislatures and executive branch officials to keep insurance rates low. The
review process can be subjective, says Voss: gItfs not fun when youfre a
regulator to have people very critical that if you approve a rate that itfs
going to harm people.h