Rate review authority has far-reaching effects

While many states already have been active in the oversight of insurer premiums and profits, seven states have increased their authority in the area. The scope of HHS' new authority and ongoing state action is likely to have a significant impact.

HHS announced in July 2011 that six states did not meet its criteria for an "effective rate review program"-Alabama, Arizona, Louisiana, Missouri, Montana and Wyoming. Thus, in these states, HHS is responsible for reviewing all proposed increases greater than 10%. HHS will conduct reviews for certain product lines in several other states until the states increase their authority.

HHS found the proposed increases to be unreasonable, based on the explanations and data provided by the insurers. In January, HHS explained that its determination was based on its finding that "the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions."

Although it generates attention, HHS cannot preclude the increases from going into effect. Instead, it has called on the insurers to rescind the rates, issue refunds or publicly explain their refusal to do so. Some states do have the power to prevent the increases, so HHS does not step in to do rate review.

MAINE ACTION

Over the past several years, the Maine Superintendent of Insurance has been engaged in a series of battles with an insurer regarding the state's oversight of rates. Maine law requires that health insurance rates not be "excessive, inadequate or unfairly discriminatory" and empowers the state to block any increases that violate the standard. In 2009, the superintendent denied the insurer's requested 18% rate increase because she determined that the rates were excessive and discriminatory, and instead declared that she would approve rates at a 10.9% average increase, which reduced the insurer's profit margin from 3% to 0%.

Similar battles ensued for proposed rate increases in 2010 and 2011, which resulted in the superintendent's imposition of profit margins of 0.5% and 1%, respectively. The insurer has challenged the scope of the Superintendent's authority in a lawsuit that has finally reached Maine's highest court. The court heard oral arguments in November and no decision has been issued. However, the result will likely have far-reaching effects on other states' interest in enforcing or expanding their authority.

Based on these recent federal and state actions, there is little doubt that the oversight of health insurance premiums is undergoing significant changes and shape-shifting that may not solidify anytime soon.

This column is written for informational purposes only and should not be construed as legal advice.

Laura McBride is an associate in the Litigation practice of Calfee, Halter & Griswold LLP.