Regulation of health insurance premiums varies widely from state to state

On the heels of fights in some states over double-digit rate increases comes a Kaiser Family Foundation study revealing that states vary dramatically in how they review and act on health insurance rate hikes, ranging from no authority to robust ability to review and approve or disapprove rates.

"Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable," found that states conducting more rigorous reviews of all health insurance companies' rate filings and the underlying data and methodology are able to obtain significant reductions in the proposed rates for consumers. In Colorado, for instance, Anthem Blue Cross in September 2010 agreed to pay $20 million in refunds to about 90,000 policyholders after an in-depth review of its rate request by staff. In 2008, that state's Legislature granted insurance regulators the right to block rate hikes.

"States need the capacity and motivation to do robust reviews. Frankly, it will take political leadership," said Sabrina Corlette of the Georgetown University Health Policy Institute, who wrote the study with Janet Lundy of the Kaiser Family Foundation. "States that don't think this is important will be behind states that do" as health care reform rolls out, she added.

She said only 22 states have prior approval rights regarding rate requests in all markets, although some states' insurance departments are able to work with insurers to reduce costs.

The study, which covers only individual and small group plans, comes on the heels of tussles with insurers over proposed rate increases in California, Connecticut, Maine, Massachusetts and other states, and as the federal government pumps millions of dollars into efforts to bolster reviews through Health Insurance Premium Review Grants. California, Connecticut and Massachusetts were able to reduce proposed rate hikes; Maine's reduction is being appealed.

On Aug. 12, President Obama announced that $46 million would be awarded to enhance states' process of reviewing premiums. The Kaiser study found that 42 states and the District of Columbia are using the money to increase transparency of the review process, 21 states and the district are using it to seek additional authority to review rates, and 21 states and the district are using it to expand the number of rate filings reviewed.

"Experience has shown that in states with the resources and tools to scrutinize rates, proposed health insurance premium increases can be moderated," said Jessica Santillo, spokeswoman for the Dept. of Health and Human Services. "The latest evidence of this is Connecticut, where the Connecticut Insurance Dept. [in November 2010] rejected a proposed 20% rate increase by Anthem Blue Cross Blue Shield."

By contrast, Georgia has no review authority, and neither applied for nor received a portion of the federal grant money.

The Medical Assn. of Georgia said it supports legislation that would establish a mechanism to oversee health insurance rates in the state. "We believe this kind of law would help reduce health insurance costs, which would reduce the number of uninsured," the association said in a prepared statement.

John Oxendine, director of the Georgia Dept. of Insurance, said his department has the authority to review only some health policies, which are very limited in number.

"The department has been put in a weakened position on what we can do to protect the consumer without the broader authority," he said.

The study also found:

• Many states do not have enough trained actuaries to conduct their own review of rate proposals.
• Some states' preapproval process is limited to certain situations, such as only for HMOs, or provide alternative regulatory pathways allowing insurance companies to avoid review altogether.
• Most interviewed states have made little or no effort to make rate filings transparent, with two states defining the information as proprietary.
• Most interviewed states use subjective standards to guide the review and approval processes, such as they cannot be "excessive, inadequate or unfairly discriminatory," giving them more flexibility but making the process appear arbitrary.

The big challenge is determining what standards would be used in the review process, said Robert Zirkelbach, spokesman for America's Health Insurance Plans, the trade group representing insurers.

"We believe it should be based on objective, actuarial data," he said. "It is important to avoid subjective, arbitrary and political processes. In many of the states, it has been political."

The study found that a few states are putting rate filings on their websites. Of states interviewed, only Colorado, Maine and Wisconsin allowed a policyholder to request a public hearing on a rate filing.