Perspective

Truth and Consequences — Insurance-Premium Rate Regulation and the ACA

Ann Mills, M.Sc., M.B.A., Carolyn L. Engelhard, M.P.A., and Patricia M. Tereskerz, J.D., Ph.D.

N Engl J Med 2010; 363:899-901September 2, 2010

Article

Over the past decade, the largest health insurance companies have seen a disproportionate increase in profits of 250%, or 10 times the rate of inflation. During the past year alone, there has been a double-digit increase in health insurance premiums.1

In response to such increases, the new health care reform law, the Patient Protection and Affordable Care Act (“Affordable Care Act,” or ACA), requires the secretary of health and human services, along with individual states, to establish a process for the annual review of unreasonable increases in health insurance premiums. As a result of the new statutory language, the Department of Health and Human Services (DHHS) and all relevant states will now review proposed premium increases, and health insurers will be required to justify any increases that these authorities consider unreasonable.

In recognition of the new burden this requirement places on states, the ACA will appropriate $250 million in grant support over the next 5 years to provide states with additional resources to review proposed premium increases. In return for grants of $1 million to $5 million per year, state insurance commissioners will be required to report information back to the secretary of health and human services about trends in premium increases. When an insurance carrier requests excessive or unjustified rate increases, states will also be asked to make recommendations about whether the company should be excluded from participation in the state insurance exchanges enabled under the ACA and slated to begin operation in 2014.2

The DHHS is now soliciting comments from researchers, policy analysts, health insurance issuers, and state officials to help in the development of the review process regarding the monitoring of proposed insurance-premium increases.2 Since many state insurance departments currently have some authority to review and approve proposed rate hikes for insurance, the DHHS wants to know what kind of rate-review process currently exists in states, what criteria states are using in reviewing proposed insurance-premium increases, and what definitions they have developed for identifying unreasonable rate hikes. The National Association of Insurance Commissioners recently responded to the DHHS's invitation for comments and identified 11 options for defining a “potentially unreasonable” premium increase.3 This information, as well as recommendations from states and other experts, will help the federal government promulgate the regulation defining what an “unreasonable” premium increase is under the new federal law.

However, it is unclear whether such a national definition will actually prevent unreasonable insurance rate hikes. Regulating health insurance is primarily a state activity, and the ACA did not change the role of the states in overseeing rate increases. The 28 states that have some authority to identify such increases vary greatly in their powers to exercise that authority, and many other states lack any authority at all to block increases. The upshot of this lack of standardization of state-level insurance regulation is an inconsistent insurance environment that is “untenable,” according to Sara Rosenbaum, a professor of health law and policy at George Washington University. “If insurers don't like the results of regulation in one state,” says Rosenbaum, “they can pull up stakes and go elsewhere. That's why states often bend to the will of the industry.”4

In an acknowledgment of such insurance-industry behavior, the ACA provides new authority to the DHHS to review any proposed rate increases — yet does not grant federal regulators the power to deny increases that are deemed unreasonable. This lack of explicit authority limits the government's ability to mitigate unfair rating practices. At best, the articulation of a national standard defining unreasonable premium increases, along with a federal review process, may provide a template for states that already have rate-review laws on the books, but for the majority of states with weak or no rate-regulatory authority, the rollout of the new standard may make little difference, except insofar as federal regulators ban insurers with excessive premiums from participating in their exchanges.

This lack of regulatory teeth in the ACA is not lost on elected officials and was the impetus for a bill recently introduced by Senator Dianne Feinstein (D-CA), the Health Insurance Rate Authority Act of 2010 (S. 3078), which would establish a national health insurance rate authority to set limits on premiums. Without such federal action, states would most likely continue to use different and often lax criteria for identifying unreasonable premium hikes.

In addition, the rate-regulation section of the ACA may have further implications affecting medical practice and patient care. Insurance premiums are directly related to the cost of medical care, and the increasing cost of care is a major factor in premium hikes. As government entities begin to monitor and limit plans that seek “unreasonable” premium increases, insurance companies will have new incentives to try to eliminate unnecessary costs. This effort, in turn, will create concerns for physicians regarding decreased practice revenues and more administrative hassles in obtaining treatments for their patients. Increased utilization management by insurance companies in the name of cost control may also spark fear of a resurgence of 1990s-style managed care, whose use of rigid capitated fees and burdensome preapproval requirements led to widespread accusations from physicians and patients alike that necessary medical care was being withheld.

This potential for disruption of patient care makes it all the more important that the quality-based improvements in the health care delivery system that are outlined in the ACA be realized. According to the Commonwealth Fund, reforms such as the establishment of team-based approaches to patient care, the wide dissemination and use of electronic medical records, and the creation of the Patient-Centered Outcomes Research Institute have the potential to save the health care system more than $700 billion over 10 years.5 If successful, these reforms could help to reduce the tension among government regulators who are demanding lower increases in insurance premiums, health insurers who are placing limits on medical care to achieve savings, and providers who are pushing back against what they perceive as private-industry regulation of medical practice. Without a comprehensive approach to bending the cost curve of health care while improving the quality and safety of patient care, neither the promise of stabilization of premium rates nor the broader promises of the ACA as a whole will be realized.

Disclosure forms provided by the authors are available with the full text of this article at NEJM.org.

This article (10.1056/NEJMp1006344) was published on July 21, 2010, at NEJM.org.

Source Information

From the Program in Ethics and Policy in Healthcare Systems, Center for Biomedical Ethics and Humanities (A.M., P.M.T.), and the Department of Public Health Sciences (C.L.E.), University of Virginia School of Medicine, Charlottesville.

References

References

1
Insurance companies prosper, families suffer: our broken health insurance system. Washington, DC: Department of Health and Human Services, February 18, 2010. (Accessed July 14, 2010, at http://www.healthreform.gov/reports/insuranceprospers/index.html.)

2
Premium review process: request for comments regarding section 2794 of the Public Health Service Act. Fed Regist 2010;75(71):19335-8. (Also available at http://www.naic.org/documents/index_health_reform_rate_review_hhs_federal_register_questions.pdf.)

3
National Association of Insurance Commissioners. NAIC response to HHS questions on rate review. May 12, 2010. (Accessed July 14, 2010, at http://www.naic.org/documents/committees_e_hrsi_hhs_response_rr_adopted.pdf.)

4
Pear R. State insurance experts see flaw in Obama's plan to curb health premiums. New York Times. March 8, 2010. (Also available at http://www.nytimes.com/2010/03/09/health/policy/09rates.html.)

5
Cutler DM, Davis K, Stremikis K. The impact of health reform on health system spending. Issue brief. New York: Commonwealth Fund, May 2010. (Accessed July 14, 2010, at http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2010/May/1405_Cutler_impact_hlt_reform_on_hlt_sys_spending_ib_v4.pdf.)

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