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Insurer rate hikes to face fresh federal scrutiny

By Tom Murphy
AP Business Writer / December 21, 2010

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Health insurers will have to justify some rate hikes starting next year under a proposed federal rule that raises scrutiny for individual and small group policies that have slapped many consumers with soaring premiums.

The Department of Health and Human Services said Tuesday it will require rate increases of 10 percent or more to be publicly disclosed and reviewed to determine whether the hikes are reasonable.

The federal government will not have the authority to reject rate increases, but it will review them in states that lack the resources or authority for "thorough actuarial reviews," HHS said in a statement. If an increase is deemed unreasonable, the finding will be posted on websites for HHS and the insurer.

The new rule, which is part of the broader health care overhaul, "maximizes consumer protection and transparency without unduly burdening the industry," said Jay Angoff, head of the HHS office of insurance oversight, during a teleconference with reporters.

HHS Secretary Kathleen Sebelius said consumers in individual and small group markets don't have sophisticated purchasing teams like large employers, and they don't fully understand their options.

"Putting some tools back in their hands, I think, can be enormously helpful," she said.

Steep hikes in those markets have been a hot topic since early this year, when reports of Anthem Blue Cross raising rates as much as 39 percent in California helped reignite stalled overhaul legislation. The insurer later withdrew the increase, and state regulators wound up approving an average rate increase of 14 percent for Anthem Blue Cross, a WellPoint Inc. subsidiary.

That initial hike, which averaged 25 percent, drew criticism from an Obama administration that questioned how such increases could be justified while WellPoint reported multibillion-dollar profits. WellPoint and other insurers have pointed to the rising cost of medical care and high unemployment -- not corporate greed -- as the main factors behind their price hikes.

The industry trade group America's Health Insurance Plans said in a statement Tuesday root causes that drive the cost of coverage are being ignored while public policy discussions focus on premiums. It noted, for instance, that prices for many medical services in Oregon have increased more than 10 percent on average annually, and hospital stay prices in California have risen about 11 percent annually for years.

"Trends like these are being seen across the country," the statement said.

Medical costs are a factor in premium increases, said Gary Claxton, a vice president with the Kaiser Family Foundation, which is separate from health insurer Kaiser Permanente. But Claxton, a former Michigan insurance regulator, said many individual markets are not as competitive as they should be, and that plays a role too.

"Insurers sometimes ask for big increases because they think they can get away with it," he said.

Claxton thinks the new rule may impact insurance costs.

"I think what matters here is everything becomes public, and you can start to see what the insurers are doing," he said. "What they're asking for is going to be under more scrutiny, which means the public officials that are reviewing them will look harder."

The health care overhaul, which aims to provide coverage for millions of uninsured people, created a five-year, $250 million grant program to help regulators challenge unreasonable rate hikes.

HHS officials said Tuesday they will consider several factors to decide what constitutes unreasonable. They will examine whether a rate would produce a medical loss ratio, which measures the percentage of premiums spent on medical care, below 80 percent. They also will question whether assumptions that go into the rates are based on substantial evidence.

After 2011, the 10 percent increase threshold that triggers a review will be replaced by percentages that are specific to each state. By 2014, states will be able to exclude insurers that show "a pattern of excessive or unjustified" rate hikes from health insurance exchanges that will become available to consumers, HHS said.

HHS will seek comments on the new regulation over the next few months before it becomes final.