California Lands HHS Rate Review Grants, but No Bonuses

California received two federal grants this week to help the state review health insurance premium increases. Because California does not have authority to reject increases, the grants were a little smaller than they otherwise might have been.

In its second round of Affordable Care Act grants aimed at beefing up state oversight of health insurers, HHS handed out $109 million to 28 states and the District of Columbia. California, because of its bifurcated insurance oversight, got two grants, each worth $2.16 million — one for the California Department of Insurance and one for the Department of Managed Health Care.

In the Cycle II grants, HHS officials essentially created two tiers — one for states with prior approval authority and one for those without. Of the 29 grants awarded this week, 20 included a bonus for states with the authority to accept or reject premium hikes before they take effect. California is not among those states.

The bonuses, called “performance awards,” for prior approval states were $600,000 — 20% of the baseline grant total of $3 million — per state grant. Although California received two grants, HHS officials said the state would be in line for only one performance award — if California were eligible.  

So far, 34 states and the District of Columbia have prior approval authority, according to HHS officials.

A controversial bill (AB 52), by Assembly members Mike Feuer (D-Los Angeles) and Jared Huffman (D-San Rafael), would give California prior approval authority. It stalled in the Legislature this fall and will be taken up again next year.

Federal Officials Back Belief With Money

While the debate is on hold in California, there is little doubt where federal officials’ sentiment lies. They believe prior approval is a valuable tool for states and they’re backing that belief up with money. Although officials pointed out that states with prior approval authority generally face greater workloads than those without, partially explaining the existence of bonuses, the intent of the extra money is clear.

“We’d like to see all states enact laws that would give them prior approval authority,” said Steve Larsen, director of the CMS Center for Consumer Information and Insurance Oversight.

Larsen and HHS Secretary Kathleen Sebelius spoke Tuesday with media representatives in a conference call about the new round of grants.

“We’re sending a clear message to insurance companies that the days of unjustified double-digit hikes are over,” Sebelius said.

“We’re committed to fighting unreasonable premium increases and we know rate review works,” Sebelius added. “States have the primary responsibility for reviewing insurance rates and these grants give them more resources to hold insurance companies accountable.”

So far, states have used about $50 million of $250 million in grants provided through ACA for states to strengthen their oversight of health insurance premium rates. Sebelius and Larsen highlighted some success stories in which states used Cycle I grants to set up rate review infrastructures, embark on legislation giving states more authority, hired rate reviewers and set up information technology systems to publicly deal with rate increases.

Two new rate review regulations in the health reform law took effect this month.

  • States now have the authority to issue a public review of insurers that raise premiums by more than 10% in a 12-month period. In January, states can establish their own threshold for triggering reviews; and
  • Insurers now have to publicly report plans to increase premiums and justify why the hikes are needed.

Insurers Not So Sure

Insurers — which contend that premium prices are a symptom, not the primary cause, of rising health care costs — oppose federal efforts to get states to strengthen premium oversight. In California, that opposition was a major factor in AB 52’s inability to move forward in the Legislature this fall.

“The fact that the federal government is offering extra money for rate regulation is not new, so I don’t know how much it will affect the debate around AB 52,” said Nicole Kasabian Evans, vice president of communications for the California Association of Health Plans. “That was known when AB 52 stalled.”

“Legislators are going to have to weigh the value of a $600,000 grant versus a $57 million start-up cost, which is what the state Department of Finance said AB 52 would cost. And the annual cost would be $26.5 million,” Kasabian Evans added.

In a blog response to HHS’ grants announcement, the trade group representing insurers – America’s Health Insurance Plans — pointed to the stalled legislative effort in California as an example of why rate regulation won’t work to keep health care costs down.

The AHIP blog in part said:

“As scrutiny of premiums grows, policymakers are beginning to recognize the far-reaching implications that premium review can have. This week, the California legislature rejected a proposal that would have expanded the state’s rate setting authority. The legislature was deluged with an outpouring of opposition from public retirees, doctors, hospitals, and others who recognized that rate review would lead to arbitrary cuts in reimbursements and access, regardless of the quality of care provided and patient outcomes.

“California is illustrative. States are far better suited to review premiums because they have the experience, infrastructure, and local market knowledge needed to ensure consumer protection and health plan solvency. The federal government has no comparable expertise.”

‘Shining Spotlight’ Important, Advocates Say

Anthony Wright, executive director of Health Access California and a supporter of AB 52, said federal support for prior approval laws is encouraging “and the effort will continue in California.”

“The fact that the federal government is putting a spotlight on rates and the importance of keeping them in check is good news. The federal law doesn’t do everything but it can definitely shine a bright light on the issues and we have to take it from there,” Wright added.

Ioannis Kazanis, a spokesperson for California Insurance Commissioner Dave Jones (D), said, “In congressional hearings and again today HHS referred to the authority to reject excessive rates as the system that is most protective of consumers and Commissioner Jones will continue to work for the passage of AB 52 when the state Legislature comes back into session in January.”

In a release issued Tuesday, Jones said, “While the federal grant funding is important, I am disappointed that California continues to lack the authority to reject excessive rate increases once we review the proposed rates.  I’m more determined than ever to see that the California Legislature pass and the Governor sign AB 52, which would give California the authority to reject excessive rate increases.”

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