Report: Insurance Department doesn’t fully use its regulatory authority

The Connecticut Insurance Department has more authority to review proposed health insurance rate hikes than its counterparts in many other states. But legal authority doesn’t always translate into strict regulation or consumer protection, according to a report released Thursday by the Kaiser Family Foundation.

The report cited a lack of staff resources and tight timelines for approving health insurance rate requests as challenges for the Connecticut insurance department, and for many insurance regulators across the country.

“Policymakers interested in assuring that rate increases are reviewed for reasonableness and accuracy need to look not only at the state laws that govern rate filings and approvals, but also at how rates are reviewed by states in practice,” said the report, which was based on research by the Kaiser Family Foundation and the Georgetown University Health Policy Institute. “Giving states the explicit authority to review rates is important, but regulatory resources and a culture of active review may be equally important.”

The report cited Connecticut as an example of the gap between a state’s authority and practice when it comes to reviewing rate increases. It noted Attorney General Richard Blumenthal’s allegations–disputed by the department–that the department failed to provide the necessary scrutiny before approving double-digit rate increases for health insurance plans.

The department rarely formally disapproves rate filings, department staff told the report authors. Instead, staff is more likely to attempt to address issues with insurance companies’ actuaries, with whom they have “good relationships,” according to the report. In most cases, companies change their filings when the department raises objections, it said.

The report said that the department usually seeks “small changes,” such as from an 11 percent increase to a 10 percent increase.

The department only has one full-time actuary on staff assigned to review individual and small-group health insurance filings, and a department official told researcher that the department is short-staffed, especially in the fall, when many rate filings come in, the report said.

Although not referring specifically to Connecticut, the report warned that departments without the staff capacity to perform adequate rate reviews could risk missing errors made by insurance company actuaries, or “judgment calls” insurers made in their own favor.

In a statement released by the department, Acting Insurance Commissioner Barbara C. Spear disputed the report’s characterizations.

“Staffing levels do not have anything to do with the thoroughness of our rate review process,” she said, noting that the statutory framework and actuarial standards the department uses to review rates are the same regardless of how many actuaries are reviewing rate filings.

Under state law, the department must review individual-market rate requests within 30 days, or else they are deemed approved, a challenge mentioned in the report. But Spear said there has never been an instance where an insurer used a rate that the department had not formally approved. The report noted that the 30-day period is often extended.

Spear said the department recently purchased pricing tools, meant to help evaluate insurers’ assumptions about the cost of medical services, using money from a $1 million federal grant intended to improve the rate review process.

She also said the department has required significant reductions in proposed rate increases.

“For example, last year, the Department decreased a rate request from Anthem by between 5-12% (depending on the plan), Aetna by 6.25%, and ConnectiCare by 7.1%. In many cases, companies understand the high level of scrutiny the department places on these filings and knows what our expectation is of them,” Spear said.

The insurance department has come under intense criticism in the past year after approving controversial double-digit increases in health insurance premiums. Critics charged that the department gave the increases little scrutiny.

State legislators considered a bill this year that would have overhauled the process for reviewing health insurance rate increases, including requiring public hearings for rate hikes above 10 percent. It passed the House but was never put to a vote in the Senate.

State Sen. Joseph J. Crisco Jr., D-Woodbridge, co-chairman of the Insurance and Real Estate Committee, said Thursday that he plans to reintroduce the bill next session.

“We just think that public hearings are necessary,” he said.

Crisco noted that the insurance department is funded through an assessment on insurance companies, and questioned why it would have staffing shortages.

The report, which focused on Connecticut and nine other states, primarily addressed individual and small-group plans because state insurance departments typically do not review insurance rates charged to large employers.

Across the country, the level of authority insurance regulators have varies widely. In 35 states, departments can review proposed health insurance rate increases before they take effect, although in some, including Connecticut, the authority does not apply to all types of policies.

Some states cannot reject rate changes before they go into effect, but can take action afterward if the rates are deemed unreasonable. Some states do not require health insurers to file any rate information, and some only require them to file documents stating that their rates comply with state law.

Although states that can approve or reject proposed rates are better able to get significant reductions in rate increases, the report said even strong legal authority does not guarantee scrutiny of insurers’ requests.

“Having ‘prior approval’ authority over rates does not necessarily protect consumers in that market from large rate increases,” the report says. “The rigor and thoroughness that states bring to rate review can vary widely from state to state, depending on motivation, resources, and staff capacity.”

The report also noted that many states have subjective standards governing rate increases. In Connecticut, for example, rates cannot be excessive, inadequate or unfairly discriminatory – but those don’t come with objective guidelines, according to the report.

“Such subjective standards allow states to regulate rates with more flexibility, but can make the process appear arbitrary and opaque to consumers and the public,” it said.