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:
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.
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:
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.
States are using this funding in a variety of ways.
States that choose to establish Data Centers or perform other health pricing transparency activities are using grant funds to:
A map summarizing how each state will use the new resources can be found here.
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:
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.