Health insurance premiums have grown rapidly over the past decade, and, in most cases, insurance companies were not legally required to justify rate increases to consumers. Now, to comply with the rate review provision of the Affordable Care Act (ACA), insurers must submit proposed double-digit premium increases for review by the state or the U.S. Department of Health and Human Services (HHS).
Rate review helps ensure that premium increases are based on realistic costs. Insurance companies in small group and individual markets that want to raise premiums 10 percent or higher are required to submit justification for the increase for review. The state Department of Insurance (DoI) reviews each proposed rate increases to verify that it is reasonable, and make the information about the review available to the public. If the DoI does not have an “effective” rate review program, HHS will review the proposed increase. This scrutiny and transparency promotes competition, motivates insurers to keep health care costs down, and protects consumers from unjustified rate increases.
Overview of results
Fifty percent of the rate review determinations made so far have resulted in either a lower increase than originally proposed or no increase at all. On average, rate increases implemented were 2.8% lower than the proposed increase. To date, rate review has saved consumers in the individual and small group markets an estimated $1 billion, and resulted in lower premium increases for nearly 800,000 people.
| Market | National average rate increase implemented | Savings to consumers |
| Individual market | 1.4% lower than originally requested | $425 million |
| Small group market | 0.8% lower than originally requested | $600 million |
Source: 2012 Annual Rate Review Report: Rate Review Saves Estimated $1 Billion for Consumers by HHS/Healthcare.gov
In its October 2012 report Quantifying the effects of Health Insurance Rate Review The Kaiser Family Foundation analyzed rate review data from 32 states and the District of Columbia. Kaiser found that 20 percent or the rate filings “resulted in lower premium increase than the insurer initially requested.” The KFF study also found that rates varied by market (individual or small group) and by state.
| Average Rate Change Requested | Average Rate Change Implemented | |
| Individual | 8.9% | 6.3% |
| Small Group | 5.2% | 4.7% |
| States | 6.8% | 5.4% |
Source: Quantifying the effects of Health Insurance Rate Review, by Kaiser Family Foundation.
The rate review program has had a positive impact on keeping insurance rate increases in check, not only by rejecting unjustified increases, but by motivating insurers to withdraw or modify their proposed rate increases due to the scrutiny and public exposure the rate review program provides. Of the rate increases submitted for review:
- 26% were deemed unreasonable or rejected
- 12% were withdrawn prior to determination
- 26% modified the proposed rate
- 36% no reduction to requested increase was made
While review programs were in effect in many states prior to the ACA, rate hikes often faced little or no scrutiny. The rate review program under the ACA provides much greater scrutiny and transparency, and helps to protect consumers from unjustified premium increases.
In part two of this series on rate review we’ll take a closer look at transparency, requirements for an “effective” state program, and how the rate review grants program is helping states improve their review processes.
Resources:
2012 Annual Rate Review Report: Rate Review Saves Estimated $1 Billion for Consumers
Quantifying the Effects of Health Insurance Rate Review (PDF)
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