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28 states get new HHS grants to review insurance hikes

42 used similar funds to scale back premium increases for individual and small group plans.

By Doug Trapp — Posted Oct. 10, 2011

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Twenty-eight states and the District of Columbia are receiving shares of $109 million in federal grants to bolster their efforts to scrutinize health plans' large premium increase requests.

As of Sept. 1, health insurers seeking rate increases of 10% or more for individual or small group plans in a single year face reviews from local authorities -- or the Dept. of Health and Human Services if no local review program exists. HHS cannot stop a plan from raising its rates even after a review, but the health plans must disclose their justifications for the rate increases on their websites in understandable terms.

Many state legislatures have given their insurance commissioners or other bodies the authority to reject hikes deemed unjustified. As of December 2010, 30 states had approved prior authorization authority over the individual market, 23 over the small group market and 20 over large group plans, according to the National Assn. of Insurance Commissioners.

"States continue to have the primary responsibility for reviewing insurance rates, and these grants give them more resources to hold insurance companies accountable," said HHS Secretary Kathleen Sebelius. As of August, 42 states had effective rate review programs across all insurance markets, according to HHS.

Grant recipients have proposed using the funds to commission rate review legislation, expand existing rate reviews, hire new rate review staff, improve their health information technology, and require additional insurer disclosures and transparency, according to HHS.

The grants are the second round of funds from the $250 million the health reform law set aside to assist states in expanding or improving health plan rate reviews. HHS awarded an initial $48 million to 42 states, D.C. and five territories in August 2010.

America's Health Insurance Plans said controlling premiums will not address the underlying reasons behind higher health care costs. AHIP noted that health plan premium increases matched growth in national health spending between 2000 and 2009, according to national health spending data compiled by the Centers for Medicare & Medicaid Services' Office of the Actuary. HHS also should examine price increases by hospitals, physicians and other health professionals, the association said.

"Capping premium increases without looking at the underlying components is similar to capping the prices automakers can charge consumers, while allowing the steel, rubber and technology manufacturers to charge the automakers whatever they want," AHIP said in a response to the HHS grant announcement.

However, HHS has noted that health insurers are recording record profits while still asking for premium increases. Thirteen of the 14 largest health insurers reported earnings that exceeded estimates by an average of 46% for the first quarter of 2011, according to a Barclays Capital report from May cited by the department.

CMS did a good job enhancing health insurance issuer transparency in its rate review final rule, according to a June 21 letter to CMS from then-AMA Executive Vice President and CEO Michael D. Maves, MD, MBA.

Oregon mandates health plan losses

Several health plans pursued scaled-back rate hikes after undergoing the public review process, according to HHS. The health reform law also requires individual and small group health plans to spend at least 80% of their premium dollars on health care and quality improvement activities, and not on overhead, advertising and executive bonuses.

Regence BlueCross BlueShield of Oregon proposed a 22.1% rate hike for its individual plans for the 2012 plan year. But the state's Dept. of Consumer and Business Services approved a final increase of only 12.8% on July 19 after conducting a rate review, said Cheryl Martinis, spokeswoman for the Oregon Insurance Division. Regence's original request included a 1.1% profit, but the state decided that Regence's $570 million reserve is large enough to cover an estimated 5.5% loss on these plans in 2012.

"Though some may interpret this as a win for consumers, our experience suggests this will hurt members' health security over the long term," said Jared Short, president of Regence BlueCross BlueShield of Oregon, in a July 19 statement. "Limiting rates to levels below the anticipated medical spending of our members simply isn't sustainable."

Oregon Insurance Division Administrator Teresa Miller agreed that premiums are not the main culprit behind higher health care costs. "The key to stabilizing insurance rates is controlling the underlying costs of medical care." Regence cut its individual plan premiums by 16% in 2006, Martinis noted.

Still, the Regence rate increase will affect nearly 60,000 individual policyholders, the largest such population for any single carrier in the state, Martinis said. The larger Regence request would have led to lower enrollment, making it harder to cover a sicker population, she said. The review panel was greatly concerned about the potential enrollment decreases.

Oregon would not have been able to conduct the Regence review and a related public hearing on June 2 -- possibly its first such hearing in two decades -- without the $1 million HHS provided for rate reviews last year, Martinis said. The state plans to conduct about 20 rate review public hearings a year.

"We have more technical staff. We can really do more in-depth analysis of rate requests," Martinis said. The state hired an additional actuary with the first grant and plans to hire another with the second, doubling the number of actuaries on staff.

The state also was able to hire the Oregon State Public Interest Research Group to solicit additional public comments on the Regence rate request and analyze it in detail. More than 1,500 public comments were submitted, including 800 solicited by OSPIRG.

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