Reform tightens oversight of premiums

July 1, 2010

Federal officials are pressuring insurers to keep premium rates under control for the coming year.

WASHINGTON-Federal officials from the White House to the Department of Health and Human Services (HHS) are pressuring insurers to keep premium rates under control for the coming year.

Amid challenges from Republicans that "Obamacare" will boost healthcare costs for all, administration officials are anxious to demonstrate that health insurance will remain affordable and that programs will expand access.

They mainly want to show that health reform will protect consumers from "unreasonable" rate increases. HHS Secretary Kathleen Sebelius has been waving a big stick at insurers that propose high premiums. At the same time, Democrats realize that for health reform to succeed, private insurers must be able to provide affordable coverage to millions of additional consumers.

Many insurers have indicated that they need to increase premiums for 2011 to reflect rising medical costs, as well as to cushion the blow of lower rates. Plans also are looking to reduce free or low-cost services, such as vision, dental and prescription drug benefits.

Sebelius recently sent letters to several leading MA plan sponsors urging them to hold the line on premiums and co-pays for 2011 and to maintain choice. She complained about MA plans raising cost-sharing for high-cost beneficiaries and threatened to use HHS's added authority to deny bids it finds discriminatory or unfairly priced.

Steep cuts in MA plan payments inevitably will result in higher premiums and benefit reductions for seniors, according to Robert Zirkelbach, spokesman for American's Health Insurance Plans (AHIP).

"Washington can't slash $200 billion out of Medicare Advantage and then try to shift the blame to the health plans that administer the program," he says.

The Congressional Budget Office projects that these developments will prompt many insurers and millions of seniors to exit the MA program.

HHS also is supporting stronger state oversight of health plan rates and benefits. The reform legislation gives states and the federal government authority to review premium proposals deemed "unreasonable," a tricky standard that remains to be defined.

To support this initiative, HHS will provide $250 million in grants to bolster state insurance regulation. One aim is to encourage more preapproval authority over insurance rates, as opposed to less stringent file-and-use or informational filing policies.

The HHS Office of Consumer Information and Insurance Oversight (OCIIO) is launching the assistance program by handing out $1 million grants to states that submit plans for expanding insurance regulation.

"States have a lot of leeway in what they can propose to get grants," says OCIIO Director Jay Angoff. State insurance agencies may use the funds to hire more actuaries, enhance information systems, revise standards or strengthen refiling programs. Angoff says that HHS is eager to give states additional tools to review rates before they go into effect.

During this interim period leading up to 2014, insurers will face a number of new mandates, including new medical loss ratio limits that will require 80% of premiums to be spent on care. Last month, the National Association of Insurance Commissioners said it needed more time to develop recommendations for how to define those services and activities that fall under "healthcare," as opposed to administrative and marketing activities, executive salaries and shareholder dividends.

A controversial issue is whether programs such as utilization review, disease management and patient hotlines count as medical services; if not, plans are likely to eliminate them to meet the new spending limits. HHS would like to issue MLR regulations well before the Jan. 1, 2011 implementation deadline to give industry time to adjust.