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States get grants to help regulate increases in health insurance rates

By N.C. Aizenman
Washington Post Staff Writer
Monday, August 16, 2010; 4:01 PM

The Obama administration has awarded 45 states $1 million each to help them improve their oversight of health insurance premium increases.

The grants announced Monday are the first round of a $250 million, five-year program included in the new health care overhaul law intended to build states' capacity to rein in premium increases that have reached as high as 30 percent per year in some cases, and doubled on average over the past 10 years.

During a news conference Monday, Secretary of Health and Human Services Kathleen Sebelius described the current state of insurance rate regulation across the country as "a mixed bag."

"Some states have full and rigorous rate review and [the right of] prior approval, so before a company raises a rate it goes through intense actuarial analysis. . . . In others the company doesn't even have to file [with state authorities]," she said.

The nature of the grants reflect that diversity. For instance, Maryland, which already has one of the most robust regulatory systems in the nation, will be using the extra funding to hire consultants to investigate what further data should be requested from insurers. By contrast, 15 states and the District of Columbia will be pursuing additional legislative authority to expand their purview, in some cases as far as requiring pre-approval of proposed rate increases. (Details of how each state plans to use its grant are available at www.healthcare.gov/news/factsheets/rateschart.html.)

Starting next year, the new health-care law also will charge the Department of Health and Human Services with reviewing and publicizing rate increases it deems "unreasonable" according to rules being written. In addition, most insurers will be required to spend at least 80 percent of the premium dollars they collect on medical care services as opposed to administrative costs or profits.

However, the federal government's power to truly control rate increases will remain limited.

Similarly, beginning in 2014, states will be granted the power to punish insurers that unreasonably raise rates by excluding them from subsidized state-run insurance markets known as "exchanges." But, it is up to states whether to exercise that option, just as the degree to which they review rate increases is left to their discretion. Indeed, five states -- Alaska, Georgia, Iowa, Minnesota and Wyoming -- chose not to for the first round of rate review grants.

Meanwhile, insurance companies have repeatedly argued that rates are largely being driven up by factors beyond their control such as rising medical costs.

Still, Sebelius pointed to California's success in heading off an effort by Wellpoint to raise rates there by as much as 39 percent earlier this year as proof that even when officials lack the right to reject rate hikes, their power through the bully pulpit can be formidable.

"Just having transparency . . . in itself is going to change the dynamics of what is happening in terms of the massive rate increases in this country," Sebelius said.

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