U.S. officials target 10 states with "ineffective" reviews of insurance rates

Beginning in the fall, federal authorities will review proposed insurance rate increases in 10 states that have "ineffective" rate review processes.

In early July, the Center for Consumer Information and Insurance Oversight, a part of the Centers for Medicare & Medicaid Services, released a list of states whose rate review processes it had deemed effective or ineffective.

The government defines effective as complying with a list of requirements, including conducting a review of claims history, actuarial projections, benefit changes, the insurer's administrative costs and necessary level of financial reserves.

In states without effective review, the CCIIO will evaluate rate increases of 10% or more that are proposed to take effect Sept. 1 or later. It will look at rate hikes proposed in both the individual and small group markets in Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming.

CCIIO will review rate hikes only in the small group market in Iowa, Pennsylvania and Virginia, leaving state regulators to review rate increases for the individual market, because the state rate review for that market was deemed effective.

In Alaska, new rate review requirements go into effect Jan. 1, 2012, but the CCIIO will review rate increases until then. The center also will review any rate increases in U.S. territories except the U.S. Virgin Islands.

Federal officials won't be able to deny what they consider unreasonable rate increases, but will call attention to them.

In addition, the 43 states that have received federal grants to bolster their rate review are required to make recommendations about whether particular insurers should be allowed to participate in the state-based insurance exchanges beginning in 2014. The recommendations will be based on whether the insurers in question have a history of implementing unreasonably high rate increases.

Kansas Insurance Commissioner Sandy Praeger, former president of the National Assn. of Insurance Commissioners, said the problem with federal rate regulation is that unlike state-level review, it doesn't include an assessment of financial reserves. That kind of analysis helps ensure a company will remain solvent even if it has a bad year, or if there's a major disease outbreak.

"I think it would be unfortunate for HHS to be the one doing that review, because they don't have that additional information," she said. "I don't know how they would determine what's appropriate, absent the underlying financial information."

The system is set up for states to take over when possible, and Praeger said she thinks HHS wants that to happen, as CCIIO Director Steve Larsen has said.

"Part of the goal here was to raise awareness," Praeger said. "This will do that -- there will be greater transparency in terms of how rates are reviewed."

Louisiana Insurance Commissioner Jim Donelon said he would like his state Legislature to enact a law implementing a rate review program, making federal oversight unnecessary. The state does not review proposed health insurance rate increases.

"The best regulation is always the most local regulation," he said. "State regulation is much preferred to regulation at the federal level."

Some parts of the new system for federal review are temporary. In 2012, the federal government will establish state-specific thresholds for what constitutes a "reasonable" rate increase, rather than relying on a 10% benchmark across the country. The new thresholds will be announced in June 2012 and used for considering rate increases beginning Sept. 1, 2012.