A big thing is happening in health policy right about now. Starting this morning, the health-care law requires regulators to review every double-digit premium increase for health insurance plans. They will need to determine if a rate hike is “unreasonable” — whether it’s justified by the various factors causing an insurer’s spending to increase — and then post that determination online. Think of that as a stamping a “Scarlet U” on a health insurance plan.
There is, however, one thing regulators cannot do: reject the “unreasonable” rate increases. They can make all the public fanfare they want around big rate increases but, at the end of the day, they cannot stop premium increases from going through.
Which has many in the health policy word wondering: Is this new rate review regulation actually a big deal at all?
Right now, states’ abilities to reject premium increases varies greatly. Sixteen states have a prior approval process for nearly all rate hikes, where a regulator has to sign off on the premium increase before it goes into effect, 10 states have prior approval for some rate increases and the rest don’t have much review processes in place, according to the National Conference of State Legislatures
Whether health reform’s rate-review regulation succeeds has, I think, less to do with what powers it creates and more on how states want to use them. A recent GAO report found that many of the above states with strong rate review powers don’t seem to be using them. They reject few, if any, of the premium increases they receive.
A counterexample is California, which has absolutely no powers to reject premium rate increases — in fact, a bill to create such powers got tabled in the California General Assembly late last night. What the state does have: an incredibly aggressive insurance commissioner named Dave Jones, who has managed to convince nearly every major carrier in the state to drop its premium increases. He’s done this mostly with publicity blitzes: It doesn’t take a whole lot for a rate increase to rile up the public with a premium increase.
The rate-review regulation rolling out today lays down a lot of foundation for an insurance regulator who wants to be aggressive, requiring the review and publicizing of larger rate increases. States have also received grants to increase capacity to review rate increases. It’s now mostly up to regulators how they want to use these new tools.
Robert Zirkelbach, spokesman for insurance trade group American’s Health Insurance Plans, e-mails to say that this rate review regulation will not contain health-care costs. “Reviewing health insurance premiums and capping health plan administrative costs do nothing to address the underlying factors that drive premium increases, such as skyrocketing prices for medical services, new medical technologies and the impact of younger and healthier people dropping their insurance during a weak economy,” he writes. “Focusing solely on health insurance premiums without looking at the underlying components is similar to focusing on prices automakers charge consumers, while ignoring what steel, rubber and technology manufacturers charge the auto makers.”
This post has been updated since it was first published.