Rate Review – Protecting Consumers from Unjustified Premium Increases: Part Two

December 4, 2012

In this second installment of our two part 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.

Transparency is an important element of the Affordable Care Act (ACA). The rate review provision of the ACA provides an “unprecedented level of scrutiny and transparency to health insurance rate increases” to protect consumers from unjustified premium increases. Consumers in all 50 states will have access to the proposed rate increases, an explanation from the insurer as to why it believes an increase is necessary, and, for the first time, be able to comment on the proposed rate increase. After analysis and public comment the final determination, and the reasoning behind it, are made public.

Rate review information is available on HealthCare.gov at: http://companyprofiles.healthcare.gov/. You can look up proposed rate increases by insurance company or overall by state.

The transparency that the rate review program provides not only protects consumers from unjustified rate increases, it promotes competition and encourages insurers to keep costs down. It builds on other provisions (such as the Medical Loss Ratio 80/20 rule) and aligns with the ACA’s goal to make health care more affordable.

Every state must have an “effective” rate review program. If it doesn’t, HHS will review rates for the state. The Center for Consumer Information & Insurance Oversight defines “An effective rate review system” as follows:

  • Must receive sufficient data and documentation concerning rate increases to conduct an examination of the reasonableness of the proposed increases.
  • Must consider the factors below as they apply to the review:
    • Medical cost trend changes by major service categories
    • Changes in utilization of services (i.e., hospital care, pharmaceuticals, doctors’ office visits) by major service categories
    • Cost-sharing changes by major service categories
    • Changes in benefits
    • Changes in enrollee risk profile
    • Impact of over- or under-estimate of medical trend in previous years on the current rate
    • Reserve needs
    • Administrative costs related to programs that improve health care quality
    • Other administrative costs
    • Applicable taxes and licensing or regulatory fees
    • Medical loss ratio
    • The issuer’s capital and surplus
    • Must make a determination of the reasonableness of the rate increase under a standard set forth in State statute or regulation.
    • Must post either rate filings under review or preliminary justifications on their websites or post a link to the preliminary justifications that appear on the CMS website.
    • Must provide a mechanism for receiving public comments on proposed rate increases.
    • Must report results of rate reviews to CMS for rate increases subject to review.

Source: CCIIO http://cciio.cms.gov/resources/factsheets/rate_review_fact_sheet.html

Forty-four states and the District of Columbia have rate review programs that the HHS has deemed “effective.”  Some states have the power to deny or modify the proposed rate increase if it is deemed unreasonable. Other states can determine the rate is unreasonable, but don’t have the authority to stop the insurer from implementing the increase. HHS will review proposed rate increases for states that do not have an “effective” review program, but it lacks the authority to deny rate increases.

The $250 million Rate Review Grants Program is designed to provide states with funding to improve their rate review programs. These funds have made it possible for states to build and improve the quality and efficiency of their rate review programs and provide consumers with greater transparency and protection from unjustified rate hikes. HHS anticipates awarding additional funds in 2012 and 2013 to help states further improve their ability to protect consumers.

According to the 2012 Annual Rate Review Report: Rate Review Saves Estimated $1 Billion for consumers, the rate review grants program has helped 21 states expanded the scope of their rate review efforts, 41 states have improved the quality and efficiency of their rate review process, and 42 states have increased consumer transparency. In addition, it has helped states empower consumers with information that was previously not available.

Before the ACA most consumers were left in the dark regarding premium rate increases. Many experts believe this lead to insurance company abuses and unnecessarily high premiums. The Rate Review Program and the Rate Review Grants Program have helped states provide consumer protection by analyzing and disclosing proposed double digit rate increases to consumers.

Read: Rate Review – Protecting Consumers from Unjustified Premium Increases: Part One

Resources:

2012 Annual Rate Review Report: Rate Review Saves Estimated $1 Billion for Consumers

http://www.healthcare.gov/law/resources/reports/rate-review09112012a.html

Quantifying the Effects of Health Insurance Rate Review

http://www.kff.org/healthreform/8376.cfm

http://www.kff.org/healthreform/upload/8376.pdf

CCIIO http://cciio.cms.gov/resources/factsheets/rate_review_fact_sheet.html

Visit Extend Health to use the ExtendExchange™ platform – the nation’s largest private Medicare insurance exchange.

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