HHS Finds Proposed Health Insurance Rate Increases “Unreasonable”

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Affordable Care Act requires approval of insurance company rate hikes for individual and small group plans.

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The Department of Health and Human Services (HHS) has announced that the Trustmark Life Insurance Company’s proposed insurance plan rate increases in five states were unreasonably high.  The decision is a recent example of the agency’s “rate review” authority, conferred by an HHS rule that went into effect in September of 2011.

The rule, enacted under the authority of the 2010 Affordable Care Act, requires states to investigate the basis for rate increases at or above 10% in individual and small-group health care plans.  In states without effective or comprehensive rate review programs, HHS itself will administer the review, as it did for Trustmark plans in Alabama, Arizona, Pennsylvania, Virginia, and Wyoming.  HHS considered Trustmark’s increases unreasonable in part because they would result in “medical loss ratios” of less than 80%, meaning that HHS believed that less than 80% of the new premiums would be spent on providing or improving the quality of health care.

Rate review is intended to reduce health care costs for individual consumers and small businesses, and to provide transparency by requiring that insurers submit justifications for large rate increases.  These justifications are then made available online at Healthcare.gov.

Beginning in September of 2012, the 10% threshold will be replaced by state-specific thresholds intended to reflect market norms in different regions.  Insurers that implement rate increases which have been deemed unreasonable are required to post the results of the reviews, along with their responses to it, on their companies’ websites for at least three years.

Although HHS does not have the authority to block unreasonable rate increases, 37 states have passed laws enabling state agencies to do so. Additionally, insurers may halt the review process at any point by voluntarily lowering their proposed rate increases to below the 10% threshold.