Health insurers will have to justify some rate hikes starting next year under a proposed federal rule that raises scrutiny for individual and small group policies that have slapped many consumers with soaring premiums.
The Department of Health and Human Services said Tuesday it will require rate increases of 10 percent or more to be publicly disclosed and reviewed to determine whether the hikes are reasonable.
The federal government will not have the authority to reject rate increases, but it will review them in states that do not already do so. If an increase is deemed unreasonable, the finding will be posted on websites for HHS and the insurer. Insurers then will be asked to submit a final justification.
The new rule, which is part of the broader health care overhaul, "maximizes consumer protection and transparency without unduly burdening the industry," said Jay Angoff, head of the HHS office of insurance oversight, during a teleconference with reporters.
HHS Secretary Kathleen Sebelius said consumers in individual and small group markets don't have sophisticated purchasing teams like large employers, and they don't fully understand what their options are.
"Putting some tools back in their hands, I think, can be enormously helpful," she said.
Steep hikes in those markets have been a hot topic since early this year, when reports of Anthem Blue Cross raising rates as much as 39 percent in California helped reignite stalled overhaul legislation. The insurer later withdrew the increase, and state regulators wound up approving an average rate increase of 14 percent for Anthem Blue Cross, a WellPoint Inc. subsidiary.
That initial hike, which averaged 25 percent, drew criticism from an Obama administration that questioned how such increases could be justified while WellPoint reported multibillion-dollar profits. WellPoint and other insurers have pointed to the rising cost of medical care and high unemployment — not corporate greed — as the main factors behind their price hikes.
More recently, Connecticut regulators rejected a request from another WellPoint subsidiary, Anthem Blue Cross and Blue Shield, for a 20 percent rate increase.
Medical costs are a factor in premium increases, said Gary Claxton, a vice president with the Kaiser Family Foundation, which is separate from health insurer Kaiser Permanente. But Claxton, a former Michigan insurance regulator, said many individual markets are not as competitive as they should be, and that plays a role too.
"Insurers sometimes ask for big increases because they think they can get away with it," he said.
Claxton thinks the new rule may impact insurance costs.
"I think what matters here is everything becomes public, and you can start to see what the insurers are doing," he said. "What they're asking for is going to be under more scrutiny, which means the public officials that are reviewing them will look harder."
A total of 29 states plus Washington, D.C., require insurers to get approval before they use their rates, according to the National Association of Insurance Commissioners. Another 11 states have "file and use" rules in place. That means the insurer can file and use the rates after a waiting period, but regulators can reject the rates during that waiting period or after.