Before the Affordable Care Act, insurance companies in many states increased health insurance premiums with little oversight, transparency, or public accountability. Only 26 states and the District of Columbia had the legal authority to reject a proposed increase that was excessive, lacked justification or otherwise exceeded state standards, and many states that had the authority to do this lacked resources to exercise it meaningfully. This lack of authority and resources for states created an uneven playing field for consumers and contributed to unjustified premium increases in some states.
Examples of insurance premium hikes reviewed by states during this time, based on public reports, include:
- In New Mexico, Blue Cross Blue Shield proposed to raise health insurance premiums by an average of 21% on some of its members in the individual market for 2010.
- In Michigan, in 2009, Blue Cross/Blue Shield of Michigan requested approval for premium increases of 56% for plans sold on the individual market.
- In Oregon, Regency Blue Cross Blue Shield requested a 20% premium increase for 2009.
- In Rhode Island, UnitedHealth, Tufts, and Blue Cross requested 13 to 16% rate increases for 2009.
- In Washington, in 2007, health insurance premiums for some individual health plans increased by up to 40% until the state imposed stiffer premium regulation in 2008.
The Affordable Care Act provides states with $250 million in Health Insurance Premium Review Grants over five years to help create a more level playing field by improving how states review proposed health insurance premium increases and holding insurance companies accountable for unjustified premium increases.
In addition, the Health Insurance Premium Review Grants also provide funding to establish Data Centers that enhance health pricing transparency. Data Centers help the public to better understand the comparative price of procedures in a given region or for a specific hospital, insurer, or provider. Businesses and consumers alike can use this data to drive decision-making and reward cost-effective provision of care. In addition, medical claims data can be used to better understand cost drivers, evaluate quality improvement initiatives, and better understand utilization of services.
On August 16, 2010 the Department of Health and Human Services announced the award of $46 million to states in the first round of these grants, known as Cycle I. Rate review grants were subsequently made available to territories on September 1, 2010 and were awarded on March 29, 2011. On September 20, 2011, HHS announced a second round of awards -- referred to as Cycle II -- totaling $109 million to be used by states for up to three years. On September 21, 2012, HHS awarded Phase II of Cycle II totaling $8 million to states and territories to be used for two years On March 15, 2013, HHS awarded Phase III of Cycle II, awarding a total of $2 million to states to be used for two years. On March 15, 2013, HHS awarded Phase III of Cycle II, awarding a total of $2 million to states to be used for two years. On September 23, 2013, HHS awarded $67 million to 20 states and one territory to be used for two years in Cycle III. On September 19, 2014, HHS awarded $25 million to 21 states in Cycle IV. These grant funds are helping states improve their reviews of proposed health insurance premium increases, take action against insurers seeking unreasonable rate hikes, and ensure consumers receive value for their premium dollars.
What This Means for You
All across America, some consumers and employers were confronted with large, double-digit health insurance premium hikes. The proposals from the states overwhelmingly demonstrated the need, and desire, for new resources and tools to hold insurance companies accountable.
Previously, the authority to prevent unreasonable premium increases varied considerably across states and across markets. Before the Affordable Care Act, only 26 states and the District of Columbia had the authority to reject a proposed increase that was excessive, lacked justification or otherwise exceeded state standards. Experience shows that in states with more authority to review rates, proposed health insurance premium increases can be moderated. For example:
- New York approved rates for 2015 that were at least 50% lower on average than plans previously available in the state. Overall, in both the individual and small group markets, New York cut by more than half the average proposed premium rate increases that health insurers requested, resulting in saving policyholders an estimated $1 billion next year.
- Since 2010, Oregon’s strengthened rate review process has saved individuals and small employers $80 million and reduced rate increases by an average of 17%, whereas prior to 2010, rates were reduced an average of only 6%.
In 2013, Maryland approved premiums at levels as much as 33 percent below what had been requested by issuers.These grants are providing states with the resources they need to perform this type of review.An analysis from the Office of the Assistant Secretary for Planning and Evaluation (ASPE) of rate review activities in calendar year (CY) 2012 shows that the rate review process saved consumers approximately $1.2 billion on their premiums when compared to the amount initially requested by insurers. These savings accrued to 6.8 million people. In the individual market, the average rate request increase dropped by 12 percent (from 8.1 percent to 7.1 percent) after rate review, saving consumers an estimated $311 million. Similarly, in the small group market, the average rate increase request declined by 19 percent (from 5.8 percent to 4.7 percent), saving consumers an estimated $866 million after rate review. This is in addition to the $500 million in medical loss ratio rebates for 2012, for a total $1.7 billion in savings in 2012. The full 2013 Rate Review Report is available here.
Helping States Hold Health Insurers Accountable
States are using this funding in a variety of ways.
- Pursue Additional Authorities: States are seeking authority to create a more robust program to review rates or to require advanced approval of proposed health insurance premium increases to ensure that they are justified.
- Expand the Scope of Health Insurance Premium Review: Many states are expanding the scope of their current health insurance review, for example by reviewing and requiring pre-approval of rate increases for additional health insurance products in their state.
- Improve the Health Insurance Premium Review Process: All grantees are requiring insurance companies to report more extensive information through a new, standardized process to better evaluate proposed premium increases and increase transparency across the marketplace.
- Make More Information Publicly Available: States are using funds to increase the transparency of the health insurance premium review process and provide easy to understand, consumer friendly information to the public about changes to their premiums.
- Develop and Upgrade Technology: State grantees are developing and upgrading existing technology to streamline data sharing and put information in the hands of consumers more quickly.
Helping States to Expand Transparency in Health Pricing
States that choose to establish Data Centers or perform other health pricing transparency activities are using grant funds to:
- Develop pricing schedules that reflect market rates: State grantees are developing pricing schedules and other database tools that fairly and accurately reflect market rates for medical services and the geographic differences in those rates. Grant funds help states to use the best available statistical methods and data processing technology when develop pricing schedules and other database tools. In addition, grant funds help states to regularly update pricing schedules to reflect changes in charges for medical services
- Make health pricing information publicly available: Grant funds help states to make health care cost information readily available to the public through websites that allow consumers to understand the amounts that health care providers in their area charge for particular medical services. In addition, grant funds help states to regularly publish information on the statistical methodologies used by the center to analyze medical claims. Grant funds also help Data Centers to make pricing data available to researchers and policy makers, while implementing rigorous data security and privacy protections.
A map summarizing how each state will use the new resources can be found here.
Builds on Other Affordable Care Act Policies to Make Health Care Affordable
These grants build on the Obama Administration's work with states to implement the Affordable Care Act. Beginning September 1, 2011, the health care law implemented federal rate review standards. These rules ensure that, in every state, insurance companies are required to publicly submit for review and justify their actions if they want to raise rates by 10% or more. Other statutory provisions designed to improve affordability include:
- Insurers are generally required to spend at least 80% of premium dollars on medical care services and quality-improvement activities and limit their spending on overhead, marketing, CEO salaries, and profits.
- In 2014, the Affordable Care Act empowers states to exclude health plans that show a pattern of excessive or unjustified premium increases from the Affordable Insurance Exchanges.
The Affordable Care Act includes a wide variety of provisions designed to promote a high-quality, high-value, health care system for all Americans and to make the health insurance market more consumer-friendly and transparent.