The federal government wants state regulators to keep health insurance premium hikes modest for 2016, but consistency and strict enforcement elude states' rate review processes.
If states had a more unified, rigorous rate review approach, premiums would likely increase tepidly, or potentially decrease, according to a new study in the journal Health Affairs.
Kevin Counihan, CEO of the federal government's insurance marketplace and the former chief of Connecticut's exchange, sent a letter to state insurance commissioners last month asking them to “carefully consider” some findings before finalizing rates for 2016.
For instance, the latest claims data show consumers who bought health plans in the most recent open-enrollment period were generally healthier than the inaugural crop of people and therefore had lower medical costs. The remaining uninsured population is likely to be even healthier, and they may be spurred to buy health coverage because the Affordable Care Act's individual mandate has stiffer tax penalties next year for those who chose to remain uninsured, Counihan said.
Consumers have pushed for lower premium rates on those grounds. “Some insurers have not factored lower costs for new, healthier enrollees into their rate proposals, which is something that consumers and regulators can check,” Cheryl Fish-Parcham, the private insurance program director at consumer group Families USA, said in a recent blog post.
Healthcare costs, although rising faster than recent historical lows, are also expected to be “moderate” for 2016, Counihan said. Accounting and consulting firm PricewaterhouseCoopers forecasts medical costs will increase by 6.5% next year. After factoring in higher deductibles and narrow provider networks—which shift more spending to consumers and drive members to lower-cost hospitals and doctors—medical costs are estimated to go up 4.5%.
“These data may be relevant when evaluating the reasonableness of trend assumptions for 2016,” Counihan wrote.
The ACA requires all health insurers to publish requested rate hikes of 10% or more, but an insurer can still get its proposed rate increase if it publishes and justifies the higher rate. HHS controls the rate review process for five states—Alabama, Missouri, Oklahoma, Texas and Wyoming—but it concedes ultimate control to the remaining states' hodgepodge requirements.
“The bar is still a little bit lower in the federal rate review regulation,” said Pinar Karaca-Mandic, an associate professor at the University of Minnesota's School of Public Health and a co-author of the Health Affairs study. “It does not really pre-empt states' rate reviews and practices.”
California and New York have some of the toughest state insurance regulations. Covered California, the state's insurance exchange, held premium rate increases to a tight 4% increase for next year. The average premium of an individual policy on New York's exchange for 2016 will jump 7.1%, but regulators lowered rates for many individual carriers. UnitedHealthcare, for example, asked New York regulators for a 22% rate increase but only was approved for a 1.7% boost.
States with more authority over premium rates are associated with lower premiums for consumers, according to the Health Affairs study. Premiums in states with regulatory power declined 2.1% from 2010 to 2013, especially in those state that mandated stringent medical-loss ratios. However, premiums rose 7.6% in the same period in states that had no review authority whatsoever.
But even among states with rate-regulating authority, standardization is scant. For example, many states treat not-for-profit and for-profit health plans differently. Some states have medical-loss ratio requirements, while others rely on projected cost trends. “There is huge variation in how states are implementing their own prior approval authority,” Karaca-Mandic said.
Insurance companies have argued that their rate increases are sound and cover their medical claims, plus standard administrative costs. “Any review of premiums should be based on objective actuarial standards to avoid a politicization of the rate review process that will cause disruption for consumers and financial instability throughout the system,” according to America's Health Insurance Plans, the industry lobbying group.
Indeed, state and federal regulators don't want insurers to go bankrupt. Counihan said in his letter than the CMS “is focused on both consumer affordability and issuer solvency.” But many in the industry are calling for some kind of compromise to deter rubber-stamping.
“The fact is that truly effective rate review only happens when strong laws are enacted and carried out assertively and openly on behalf of consumers,” wrote Dena Mendelsohn, staff attorney of advocacy group Consumers Union, in a December Health Affairs article. “In fact, very few states have strong laws and review processes, and HHS has not stepped in to perform oversight or supersede state authority when necessary.”
Karaca-Mandic said looking at unintended consequences of state insurance rate reviews is worth further research. For example, are carriers instituting higher copayments or deductibles in anticipation of rate reviews? Are they adding more narrow-network products to keep premium rates down?
“The long-term impact is the key,” she said.