Increases in your health-insurance premiums will soon be reviewed by state or federal government agencies, the Obama administration announced late last week. Starting in September, increases of 10 percent or more in either individual or small business plans will trigger an automatic review to gauge the reasonableness of the increase.
Premium rate review, as its known, is a major piece of health-care reform and the Affordable Care Act. In many states, premium increases for individuals and small businesses have risen by double digits every year. As a result, health insurance has become increasingly unaffordable even as the recession has taken a toll on peoples ability to pay the tab.
DeAnn Friedholm, the director of Consumers Union’s health reform campaign, says
The Affordable Care Act established important new standards so that health insurance rates will be subject to closer scrutiny and stricter public disclosure requirements. But it will be up to the states to protect consumers when rate hikes are deemed unreasonable. We need to make sure that all states have the tools they need to stop insurance companies from gouging consumers with unfair premiums and that they use them.
The new rules require insurers to submit a justification for any increase of 10 percent or more to state and federal regulators prior to implementing the rate hike. The federal government will post the justifications on a website. Insurers also will be required to post a justification on their websites for rates deemed unreasonable. States can change the 10 percent thresholdto make it higher or lowerstarting in September 2012.
The rate review rules are paired with other parts of the health reform law to help keep premium increases reasonable. For example, the law also requires insurers to spend at least 80 percent of their premium dollars on direct medical care or to improve the quality of care instead of on overhead, advertising, and executive pay. If an insurer fails to meet that test, they must pay a rebate to their enrollees.
The federal government will review both individual and small business increases in seven states: Alabama, Arizona, Idaho, Louisiana, Missouri, Montana, and Wyoming. In three statesIowa, Pennsylvania, and Virginiathe feds will review the small business plans while the state government will review individual plans. The 40 other states, plus the District of Columbia, will review both individual and small-business premiums on their own.
Consumers Union, publisher of this Web site, has developed a state model rate review law for individual market plans and is working to encourage states to adopt reforms that ensure greater oversight, transparency and insurance company accountability.