Beginning Thursday, the Obama administration and states will automatically scrutinize any proposed health-premium increase of 10% or more as part of the 2010 health -- overhaul law. The change applies to an estimated 34.8 million insurance policies that Americans buy on their own or get through a small employer -- two markets where consumers have faced particularly hefty increases in recent years.
America's Health Insurance Plans, the industry's main lobbying group, found that about half of all increases in the individual-insurance market exceeded 10% each year for the past three years.
Before an insurer raises rates, it will now have to submit a seven-page form justifying the increase to regulators, who will determine whether the increase in rates is reasonable. But there's a big catch. Even if regulators find the rate increase is unjustified, the law gives them no new powers to block the insurer from charging it. Instead, federal regulators say they are hoping that disclosure of large increases—which will be posted on the Department of Health and Human Services' website—will be enough to discourage carriers.
"In theory, yes, they can proceed if they find it to be unreasonable," said Steve Larsen, director of the federal Center for Consumer Information and Insurance Oversight at HHS. "But the fact of the matter is it has a deterrent effect for carriers to move forward with an unreasonable rate increase."
Insurance-industry officials say the reviews amount to a shaming process and that many rate increases reflect the rise of hospitals' prices and usage rates of many medical procedures. Carriers have said complying with the richer benefits called for under the health overhaul have increased their costs, yet they won't get to exempt them from rate-review calculations.
AHIP warned federal officials that "politicizing" the rate-review process would undermine plans' financial health. "It's really not about the costs and the actuarial veracity," Candy Gallaher, vice president of state policy at the group, said of the process.
Under the program, most states will conduct their own review of rate increases, while nine will get full or partial help from the federal government. Some of those states have earlier resisted cooperating with President Barack Obama's health overhaul.
Policies offered through large employers, which generally haven't seen such sharp increases in recent years, won't be included in the review. Small-employer policies include those with 50 or fewer workers.
Some insurance regulators, including those who support the health law, say the provision has little point. "What we found is the authority to review without the authority to reject or modify is not terribly effective," said California Insurance Commissioner Dave Jones, a Democrat. "The health insurers and the HMOs can raise the rates as they see fit."
Federal officials say exposure alone helped quash a proposed 39% increase for WellPoint Inc.'s Anthem Blue Cross unit in California last year after federal officials held up the increase as unfair. But Mr. Jones said that in other instances, carriers went forward with rate increases even after the state found the increases unjustified.
Other regulators say the health-overhaul law's rate review is making insurers more cautious about raising rates. The law also restricts the amount of premium revenue that carriers can spend on administrative costs and retain for profit, which insurance-industry officials say has helped keep a lid on rates.
"They're still going up, but the 15% and 20% increases, I don't think we're seeing as much of," said Sandy Praeger, a Republican who is Kansas' insurance commissioner and a committee chairwoman with the National Association of Insurance Commissioners. "I think there's some evidence that they're lower, and I think that's probably due to the pressure of knowing that there's going to be this additional scrutiny."