The Affordable Care Act provides new tools and resources to protect consumers and employers from large and unreasonable health insurance premium hikes. On February 24, 2011, the U.S. Department of Health and Human Services (HHS) announced that nearly $200 million in new grant funds are available to help States develop programs that will make health insurance premiums more transparent and to give States the power to stop unreasonable premium increases from taking effect.
These funds build on the $46 million awarded in August of 2010 to help 45 States and the District of Columbia strengthen their rate review programs. They also complement rules proposed in December of 2010 that require insurance companies to publicly justify unreasonable premium rate increases.
Of the new funding, $149 million in baseline grants are available to help States create or enhance their premium rate review programs by ensuring proposed rate hikes are comprehensively reviewed and by bringing greater transparency and openness to the rating process. Approximately $50 million in additional grant funds are available as “performance” incentives for States that have – or enact – the authority to approve or disapprove rate increases and as “workload” grants for States with larger populations and more health insurers.
Builds on State Efforts to Stop Unreasonable Premium Increases
The ability of States to review and prevent unreasonable premium increases varies considerably. In some States, insurance companies only need to file their proposed premium rates in order to begin charging higher premiums. In others, proposed premium rate increases are reviewed before they go into effect. But some States have the authority to reject or reduce a proposed increase that is excessive, lacks justification, or otherwise exceeds State standards.
The Affordable Care Act provides States new resources to develop effective premium rate review programs. In 2010, $46 million was awarded to 45 States and the District of Columbia to help them seek additional legislative authority to review health insurance rate increases, expand the scope of rate review, improve the rate review process, and make information on health insurance rates more publicly available through transparency initiatives and by developing and upgrading technology.
Effective rate review helps to slow premium growth. In Connecticut, for instance, the State Insurance Commissioner rejected a proposed 19.9 percent premium increase by the State’s largest insurer that would have raised costs for 48,000 consumers. Heightened scrutiny of rate increases in California has led to increased review of a proposed 59 percent increase in one company's rates.
Finally, in Massachusetts, insurance authorities over the past year rejected 235 of 274 rate filings that the division found to be "unreasonable or excessive," with some carriers applying for base rate increases of up to 34 percent. Instead, rate increases the Division of Insurance approved for the State’s nine major insurers range from a weighted average increase of1.4 percent to 9.9 percent for the quarter starting April 1, 2011. This will result in savings for more than 250,000 Massachusetts residents when they renew their plans.
New Resources to Support the Review and Posting of Unreasonable Rate Increases
These new funds are designed to help States create or enhance effective premium rate review programs by:
- Ensuring proposed rate hikes are comprehensively reviewed in an open and transparent process and, to the extent allowed by State law, that unreasonable rate hikes are not approved; and
- Developing an infrastructure to collect, analyze, and report critical information about rate review outcomes and trends including, to the extent allowed by State law, whether or not proposed rate increases have been approved.
This new funding opportunity, at a minimum, assists States with meeting the proposed requirements for an “effective rate review program” as set forth in the recently issued proposed rate review regulation. Under the proposed rule, some of the factors HHS would use to determine that a State has an effective rate review program include that the State:
- Collects enough information from insurance companies to determine whether rate increases are unreasonable;
- Dedicates enough resources to effectively review that information in a timely manner;
- Analyzes the reasons insurance companies give for raising rates based on whether they are valid and reasonable; and
- Has a legal definition for a reasonable or unreasonable rate increase.
Rewards for States that Adopt Tough Rate Review Policies
The authority to approve or disapprove unreasonable rate increases gives States the most power to help protect consumers from rising premium costs. A new “performance” pool allocates $27.5 million as incentives for States that have or gain disapproval authority. Specifically, a State can gain from $400,000 to $600,000 for having or gaining the authority to prevent an insurer from offering an unreasonable and unjustified premium increase. States receiving supplemental bonus awards will use the supplemental funds in support of enhancing or developing a stronger rate review program.
Adjusts Grants for State Workload
The funding announcement includes a “workload” pool that allocates a total of $22.5 million to States based on population size and the number of health insurance carriers in the state with 5 percent or more market share (combined individual and small group). This ensures that States with a greater workload receive proportionally greater support.
Builds on Other Affordable Care Act Policies to Make Health Care Affordable
These grants build on a broad effort under the Affordable Care Act to make health insurance more affordable for individuals, families, and businesses. Other steps the law takes to make insurance more affordable include:
- Insurers are generally be required to meet a medical loss ratio standard to spend at least 80 percent of premium dollars on health care and quality-improvement activities as opposed to overhead, marketing, CEO salaries, and profits. Insurers that fail to meet that standard must either reduce premiums or pay rebates to consumers and employers;
- Small businesses are eligible for Federal tax credits of up to 35 percent of the cost of coverage for their workers. That amount rises to 50 percent by 2014; and
- In 2014, the Affordable Care Act empowers States to exclude health plans that show a pattern of excessive or unjustified premium increases from the new health insurance Exchanges.
The Affordable Care Act includes a wide variety of provisions designed to promote accountability, affordability, quality and accessibility in the health care system for all Americans, and to make the health insurance market more consumer-friendly and transparent. Some of the provisions that take effect by the end of next year, or are already in effect, include prohibitions on pre-existing condition exclusions for children; prohibition on lifetime dollar limits in all health plans; extended access to insurance for many young adults; and an unprecedented level of transparency about health insurance through www.HealthCare.gov.
To find this funding announcement, visit Grants.gov and search for CFDA 93.511. Read the new release here.
Posted: February 24, 2011