Insurers Must Justify Rate Increases Higher Than 10%, HHS Says

On Thursday, HHS issued a final rule requiring insurers to justify proposed rate increases of more than 10% for individual and small-group plans, the New York Times reports.

HHS proposed the rule in December 2010, and it takes effect in September 2011.

Final Rule Details

The new rule was borne out of a provision in the federal health reform law that required annual reviews of "unreasonable increases in premiums" to ensure that "consumers get value for their dollars."

According to the rule, a rate increase will be considered unreasonable if it is deemed excessive, unjustified or "unfairly discriminatory." It also states that an increase is considered excessive if it is "unreasonably high in relation to the benefits provided" (Pear, New York Times, 5/19).

Although the federal government has no power to block increases it deems unreasonable, many states do.

Even states without the power to refuse increases will benefit from the rule, according to Steve Larsen, director of HHS' Center for Consumer Information and Insurance Oversight. Larsen said that the process could help "publicly raise questions about the assumptions that led to the" proposed increase. He added, "Rate review, in and of itself, is in fact very effective in helping to ferret out reasonable and unreasonable rate increases" (DoBias, National Journal, 5/19).

Under the rule, health insurers will be required to submit additional forms explaining their proposed rate increases. Those forms will be posted on the Internet (Norman, CQ HealthBeat, 5/19).

The rule also requires:

• States to have a "mechanism for receiving public comments" on the proposed increases; and
• The federal government to establish separate rate thresholds for each state in September 2012 to account for trends in insurance and health costs.

Advocates, Insurers React

Many consumer advocates praised the rule. Ethan Rome -- executive director of Health Care for America Now -- said, "The days of insurance companies running roughshod over consumers and jacking up rates whenever they want are over" (New York Times, 5/19).

However, some advocates thought the rule did not go far enough. Consumer Watchdog officials said the forms insurers must post online do not provide enough detail. "By not requiring full transparency of the data insurers use to justify rate hikes, the rule does not allow the kind of public scrutiny necessary to pressure insurance companies into lowering unreasonable rates," the group said (CQ HealthBeat, 5/19).

Meanwhile, health insurers said the rule is misguided. America's Health Insurance Plans President Karen Ignagni said, "If we believe health care costs are crushing the economy, we ought to have a debate about how to bring costs under control," adding, "Focusing on premiums diverts attention from that debate" (New York Times, 5/19).