The Department of Health & Human Services has unveiled a regulation that will require independent review of most health insurance annual premium increases of 10 percent or higher.
The regulation, which applies to health insurance policies sold in the individual and small group markets, goes into effect September 1 and also requires insurers "to provide consumers with easy to understand information about the reasons for unreasonable rate increases and post the justification for those hikes on their website as well as on the HHS Affordable Care Act website," according to an HHS release.
[See also: HHS proposes to work with states on insurance rate reviews; Sebelius battles insurance companies on rate hikes]
The 10 percent threshold set by HHS will be in effect for one year. Starting in 2012, individual states will set their own thresholds that will trigger rate review. This will allow state insurance commissioners, with assistance from HHS, to set the figure either higher or lower, depending on the individual state's medical cost trend.
"Effective rate review works – it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace," said HHS Secretary Kathleen Sebelius. "During the past year we have worked closely with states to strengthen their ability to review, revise or reject unreasonable rate hikes. This final rule helps build on that partnership to protect consumers."
The regulation was originally expected last fall. At that time, insurers in California, Rhode Island and Connecticut, among other states, faced public and regulatory backlash for proposing large premium hikes, some higher than 50 percent.
America's Health Insurance Plans, the national trade group for health insurers, has opposed review thresholds, contending that they are arbitrary and don't take into account other factors that affect health insurance premiums.
"Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make healthcare coverage more affordable for families and employers," said Karen Ignagni, president and CEO of AHIP. "The public policy discussion needs to be enlarged to focus on the soaring cost of medical care that threatens our economic competitiveness, our public safety net, and the affordability of healthcare coverage."
While the insurance industry has fought against such review triggers, many states, including California, still have no authority under law to reject rate health insurance rate increases. It's a power many consumer groups favor.
One of the most vocal consumer groups, Consumer Watchdog, has regularly taken the insurance industry to task for what it sees as excessive rate increases. It applauded the new HHS regulation, but also advocated for more state-level regulatory power.
"We have learned the hard way that embarrassment isn't always enough to make insurance companies do the right thing. Just last month, a California regulator found a 14 percent rate increase was unreasonable, but could do no more than 'express disappointment' that the insurance company implemented the rate," said Carmen Balber, Consumer Watchdog's Washington director. "States must have the power to reject excessive rate increases. Otherwise, rate hike decisions will be made by insurance executives deciding that the extra profits generated by double-digit rate increases are worth a few days of bad publicity."