The next health reform debate: What’s an ‘unreasonable’ insurance premium hike?

WASHINGTON-When Anthem Blue Cross tried to raise health insurance premiums in California by 39 percent this year, the move became a rallying point for proponents of health care reform legislation, and the landmark bill won final passage soon after.

So what will the health care reform bill actually do about double-digit premium hikes?

The answer to that question is still being sorted out, as insurance companies, health care providers, and consumer groups engage in a new tug-of-war over how federal regulators implement the law’s provisions on premium increases.

The health care overhaul does not give the federal department of Health and Human Services (HHS) the power to approve or reject insurance increases. That task is still left to state regulators, who now have varying degrees of authority over insurance costs.

But Congress did try to beef up and streamline the way states review proposed price hikes. For example, the health care reform law requires insurance companies that propose “unreasonable” rate increases to file a disclosure form justifying the hike. That new disclosure form can then be analyzed by federal and state officials–and by the public–to determine whether the rate is based on legitimate increases in the cost of medical care or other factors.

The law also sets aside $250 million in grants to the states to bolster their ability to conduct thorough reviews of proposed rate hikes, an option Connecticut officials are pursuing (see related story).

But Congress did not define what constitutes an “unreasonable” rate increase, nor did lawmakers spell out what information insurers have to disclose to make their case for a big jump in premiums. So those two issues are now the subject of an intense tussle in Washington. HHS officials are writing the definition of unreasonable, and the National Association of Insurance Commissioners (NAIC) is crafting the form that insurers will have to fill out, while advocates for a gamut of interest groups are trying to influence both.

“We have a high level of engagement from all interested stakeholders,” said Ken Ross, Michigan’s top insurance regulator and vice chair of the NAIC task force charged with developing the disclosure form.

In the battle over how to define an “unreasonable” premium hike, insurers are arguing that two basic measurements should be used: First, whether a rate increase is justified by actuarial data, and second, whether it helps an insurer meet its solvency requirements, which dictate the amount of reserves a company must keep on hand in order to be able to pay out possible claims. Insurers have warned against including any other “arbitrary” metrics, as the insurance industry’s lobby group, the America’s Health Insurance Plans, puts it.

But what insurers may see as arbitrary, consumers groups see as concrete yardsticks. A coalition of advocacy groups has urged HHS to define as “unreasonable” any premium increase that is greater than 10 percent or that exceeds the rate of medical inflation by 150 percent.

“If health care costs went up 4 percent, but premiums went up 20 percent,” that should trigger further review, said Timothy Jost, an expert on health law at Washington and Lee University and a consumer representative to the NAIC on this issue.

If a rate increase meets the unreasonable standard, Jost notes, that simply means the insurance company has to submit the public disclosure form–essentially a detailed justification–to HHS and the state where it is proposing the rate increase. Officials can then analyze the data on the form and, depending on relevant state laws, may be able to approve or deny the rate hike.

A spokesman for HHS said the agency was working “quickly and carefully” to write the definition, but did not give a timeline.

Sharp battle lines have also been drawn over what needs to be included on the justification form. Insurers say it should be simple and relatively limited. “Rather than put up Excel spread sheets, the goal here is to make sure the information being provided is being done so in a way that’s understandable for consumers,” said Robert Zirkelbach, a spokesman for the insurance trade group, AHIP.

But patient advocates say the argument for simplicity is a ruse for providing skimpy data, and they cried foul when they saw the first draft of the NAIC task force’s disclosure form earlier this summer. That draft included a line item for the cost of clinical care, but it did not require insurers to break that down by category–for example, separating out hospital payments, pharmacy bills, and provider costs–something critics say is vital to understanding and analyzing proposed rate increases.

In addition, the American Medical Association urged NAIC officials to include separate line items on the form listing salaries for CEOs and other high-level executives, brokers’ fees, and advertising and lobbying budgets, among other things.

“Clear, detailed information from health insurers that explains the rationale behind rate increases benefits patients, physicians and the entire health care system as we work to address rising health care costs,” Dr. J. James Rohack, immediate past president of the AMA, said in an email to The Mirror. “The rate review process presents a good opportunity for patients to learn more about how their health insurer is spending their premium dollar.”

The AMA and other groups say that increased transparency will keep insurers like Anthem from trying to push through another eye-popping rate increase as it did in California. The company provoked similar public outcry in Connecticut last year with a proposed 32 percent rate increase for consumers in the individual market.

In Connecticut, the state insurance commissioner eventually approved a rate increase for Anthem policyholders of as much as 20 percent. In California, Anthem is now seeking a lower increase after a state actuary discovered mistakes in the company’s rate application.

“It’s one thing to try to pull something off when nobody’s watching, but it’s another thing when you have to post it on the Web,” said Jost. “Once transparency is introduced, behavior changes dramatically.”

Zirkelbach said that insurance companies have embraced strong disclosure, because it will help consumers understand that the much-maligned industry is not the reason for skyrocketing premiums. “The data is clear that premiums are increasing because medical costs continue to soar,” he said, “and so it’s important that consumers see that’s what it is–and not profits.”

But when it comes to listing executive pay and other details, he said, “I’m not sure how that helps the discussion.”  He noted that such information often is already made public in other corporate filings.

Ross, the Michigan insurance official and NAIC task force member, said regulators are in the process of sorting out these arguments. “We’re balancing the industry’s concerns against consumers’ desires for specific information,” he said. “I cannot tell you today how that’s going to end up.”

The end goal is a disclosure form that helps consumers answer “what is the proposed increase and what’s driving it,” Ross said. He said NAIC wants it to be concise and “not so high level that it undermines the goal of transparency.”

Jost said he’s been encouraged by recent deliberations and a more recent draft, which include “more granular” data, he said.

Ross said the NAIC may not have a finished form to send to HHS for another couple of months, although this issue will likely be discussed at a meeting in Seattle later this month.

No matter how tough the new regulations are, interest groups on both sides of the fight say it’s still unclear how much these measures will do to rein in premium costs.

“It’s important that information is out there, but unless more is done to address the underlying medical costs, [the law] will fail to make coverage more affordable for families and employers,” said Zirkelbach.

Carmen Balber, director of the Washington office for Consumer Watchdog, an insurance industry critic that has been keeping close tabs on the law’s implementation, said that increased public scrutiny has served to pull back some insurance companies. But, she said, that isn’t enough.

“There’s only so much that shaming the industry will do,” she said. What really needs to happen, she said, is for state regulators to get the resources and political power to investigate and crack down on unjustified rate hikes. “That’s why the state grant program is so important,” she said.

The disclosure forms and the definition of an unreasonable premium increase will help set the stage for 2014, when state-based health insurance “exchanges” will be created. The exchanges are envisioned as a new competitive marketplace where individuals and small businesses can shop for insurance.

Although exchange managers will not have the power to control premium prices, they will be able to consider rate increases when deciding whether to certify an insurer for participation in these new markets. Lawmakers and advocates hope that the threat of exclusion from those new exchanges will help keep premiums in check.