Insurers Target Health Reform
Last week, the Wall Street Journal reported that several insurers had filed requests to raise health insurance premiums above the rate of medical inflation and were blaming the newly-enacted health care law for at least part of that increase. "Aetna Inc., some BlueCross BlueShield plans and other smaller carriers have asked for premium increases of between 1 and 9 percent to pay for extra benefits required under the law, according to filings with state regulators," the paper noted. "These and other insurers say Congress's landmark refashioning of U.S. health coverage, which passed in March after a brutal fight, is causing them to pass on more costs to consumers than Democrats predicted." "Health care premiums follow underlying costs," top insurance lobbyist Karen Ignagni insisted during an interview with Fox News. "Costs are going up because providers are charging more, number one...two, people buying coverage individually in a bad economy have decided for their economic reasons they sometimes can no longer afford it, that means the cost to people in the pool goes up because it's the people who have the highest cost who stay in. And then third, we're adding new benefits, starting September 23rd, under the legislation, and new benefits follow cost." The White House immediately disputed these claims and predicted that state regulators could block the increases. "I would have real deep concerns that the kinds of rate increases that you're quoting...are justified," said Nancy-Ann DeParle, the White House's top health official. She said that for insurers, raising rates was "already their modus operandi before the bill" passed. "We believe consumers will see through this," she said. COSTS OF NEW BENEFITS IS MINIMAL: While health care costs do follow medical inflation, insurers are overstating the degree to which the health law is contributing to premium increases. Actuaries working for the Department of Health and Human Services (HHS) had estimated that the cost of the early reforms -- policies that eliminate lifetime and limit annual limits, allow older children to stay on as dependents and prohibit insurers from denying coverage to children -- would only slightly raise premiums by 1 to 2 percentage points. As the Urban Institute's Linda Blumberg concludes, "For plans with lifetime maximums of $2 million or higher, removing the limits entirely will tend to increase premiums by less than 1 percent." Similarly, "[t]he prohibitions against pre-existing condition exclusion periods for children, including denials of coverage due to such conditions, should have little to no impact in the small group market, which already is required to guarantee issue policies" and the effect of extending coverage for young adults on parents' policies would only increase premiums "from 0.5 to 1.2 percent of premiums, depending upon the participation assumptions made" in the small group market. Generally, the health care law should not contribute more than 3 percent to premium growth, Blumberg said in a phone interview with the Progress Report. HOLDING INSURERS ACCOUNTABLE: All premium increases that are significantly above the rate of medical inflation should trigger regulatory review. And while the authority and ability of state insurance commissioners to review and deny unreasonable premium increases varies from state to state, the Affordable Healthcare Act has already distributed millions of dollars to bolster the review process. Last month, HHS sent out $46 million in grant funds to 45 states and the District of Columbia "to help improve the review of proposed health insurance premium increases, take action against insurers seeking unreasonable rate hikes, and ensure consumers receive value for their premium dollars." The $46 million are part of $250 million in rate review grant dollars authorized by the new health care law. As a result of the program, "15 States and the District of Columbia" are now pursuing additional legislative authority to "create a more robust program for reviewing or requiring advanced approval of proposed health insurance premium increases to ensure that they are reasonable" and "21 States and the District of Columbia" are also expanding "the scope of their current health insurance review." Later this year, HHS will issue regulations "that will require state or federal review of all potentially unreasonable rate increases filed by health insurers, with the justification for increases posted publicly for consumers and employers" and will "keep track of insurers with a record of unjustified rate increases." Plans with poor records may be excluded from the exchanges in 2014.ENCOURAGING STATES TO DO MORE: Independent review of rate hikes is essential because insurers often overstate their premium increases. For instance, just four months ago, independent analysts in California discovered that WellPoint "overstated future medical costs" to justify its 39 percent premium increases in the individual health market and committed numerous other methodological errors. As HHS Secretary Kathleen Sebelius wrote in a letter to Ignagni last Thursday, "the Administration, in partnership with states, will not tolerate unjustified rate hikes in the name of consumer protections." "We will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections," she said. Indeed, while the administration's actions should help states review unreasonable increases, there is very little the federal government can actually do to reign in unreasonable rates; that burden falls to the states. And, given the influence of insurers on some state commissioners and the weak state regulatory structure -- 23 states do not review and approve premium changes in the individual market and 5 of those 23 have no rate regulations at all -- it's clear that the federal government needs to find new ways to entice the states to strengthen their rate review processes. Absent a federal rate review process (through the enactment of Sen. Dianne Feinstein's (D-CA) rate review legislation), HHS can attach thicker and longer strings to the next round of rate review grants. For instance, the federal government could target the next round of rate review grants "to states that appear the most promising in terms of greater rate review, oversight, and enforcement," Edwin Park, co-director of health policy at the Center on Budget and Policy Priorities told the Progress Report. "This would include not only states with an existing robust process but those states needing the most help but also the most willing to institute strong rate reviews." Park says that the federal government can also make it easier to conduct reviews by purchasing systems, establishing common procedures, and help states find actuaries to review insurance rates. Finally, the federal government can work very closely with the states to ensure that insurers with unreasonable increases between now and 2014 are actually excluded from the exchanges and states can of course keep inefficient and costly issuers out of the exchanges.
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