December 21, 2010
U.S. Proposes Rules on Raising Insurance Premiums
By ROBERT PEAR

WASHINGTON — The Obama administration said on Tuesday that it would require health insurance companies to disclose and justify any increases of 10 percent or more in the premiums they charge next year.

State or federal officials will review the increases to determine if they are unreasonable, the administration said in proposing regulations to enforce the requirement.

Kathleen Sebelius, the secretary of Health and Human Services, said the review of premiums would “help rein in the kind of excessive and unreasonable rate increases that have made insurance unaffordable for so many families.”

The new health care law, signed in March by President Obama, calls for the annual review of “unreasonable increases in premiums for health insurance coverage.” The law did not define unreasonable.

Under the proposed rules, insurers seeking rate increases of 10 percent or more in the individual or small group market in 2011 must publicly disclose the proposed increases and the justification for them.

“Such increases are not presumed unreasonable, but will be analyzed to determine whether they are unreasonable,” the administration said.

Starting in 2012, the federal government will set a separate threshold for each state, reflecting its cost trends, and insurers will have to disclose rate increases above that level.

Under the proposed regulation, the federal government will evaluate each state’s procedures for analyzing insurance rates.

If the federal government finds that a state has an “effective rate review system,” the state would conduct the annual reviews of premium increases. But, the administration said, “if a state lacks the resources or authority to do thorough actuarial reviews, the Department of Health and Human Services would conduct them.”

The federal government will post information about the outcome of all rate reviews on the department’s Web site, and insurers must post the information prominently on their Web sites.

Under the new law, insurers that show “a pattern or practice of excessive or unjustified premium increases” can be excluded from the centralized insurance market, or exchange, that is to be set up in each state by 2014.

In February, just one month before Congress completed work on the health care bill, Mr. Obama proposed giving federal officials the power to block excessive rate increases by health insurance companies. Congress did not accept the proposal, choosing instead to leave rate review primarily in the hands of state officials.

An official at the Department of Health and Human Services said Tuesday: “The statute does not give us authority to disapprove rates. We do not have that authority. The regulation leaves state laws intact. It does not interfere with state law. In some states, rates cannot be put into effect unless the state affirmatively approves the rate increase.” In other states, insurers must file rates with a state agency before using them, but the state does not approve or disapprove rates.

The federal government has awarded $46 million to states to enhance their review of premium increases — the first installment of $250 million that will be distributed for that purpose until 2014.

Under the new regulation, a federal health official said, “we are not setting an absolute numerical standard for whether a rate is unreasonable.” Instead, the proposed rule lays out factors to be considered. It says that a rate increase will be considered unreasonable if it is excessive, unjustified or “unfairly discriminatory.”

A rate increase is defined as excessive if it “causes the premium charged for the health insurance coverage to be unreasonably high in relation to the benefits provided.”

In addition, under the rules, the assumptions used in calculating a rate increase must be based on “substantial evidence.”

Ms. Sebelius said that since 1999, the cost of health insurance for the average working American had risen 128 percent.