Although an HHS report released Sept. 20 emphasized the impact that health insurance rate-review grants have had on controlling premium costs, industry trade group America’s Health Insurance Plans (AHIP) maintains that such reviews place too much emphasis on premium hikes and not enough on the underlying reason behind those increases — rising health care costs.

Also on Sept. 20, HHS said it was awarding even more funding — $109 million to 28 states — to further help states bolster rate review. However, this time around, the vast majority of states receiving the new grants already have prior-approval authority.

The report, “Rate Review Works,” comes just weeks after a new provision of the health reform law went into effect Sept. 1, requiring that proposed premium hikes of 10% or more get additional review by either state or federal regulators. Moreover, insurers will have to justify their requests, with the documentation placed on an HHS website (HPW 8/1/11, p. 1).

AHIP maintains that premiums are a reflection of the underlying cost of medical care. According to federal data, it says, between 2000 and 2009, the growth in premiums tracked directly with the growth in benefits.

“The current focus on rate review ignores the soaring cost of medical care that is driving up the cost of coverage and taking up a greater and greater share of federal and state budgets,” says AHIP spokesperson Robert Zirkelbach. “Now is the time to focus on the underlying cost of health care in order to make coverage more affordable for families and employers.”

HHS says the first cycle of rate-review grants — $43 million, announced in August 2010 — has allowed the 42 states that received funding to strengthen their rate-review processes. For example, the agency reports nine states have passed legislation to enhance their reviews, 29 states have hired new staff, and 37 states have boosted their information technology capabilities to provide more effective reviews.

It also cites states that have used rate-review authority to lower or thwart proposed increases. The North Carolina legislature last year expanded the state insurance commissioner’s authority to include review of small-group products. The commissioner then reduced a rate increase from the state’s largest insurer, Blue Cross and Blue Shield of North Carolina, saving members $14.5 million, according to the report. And in Oregon, the state approved a 12.8% rate increase for Regence BlueCross BlueShield of Oregon in July, even though the insurer requested a 22% increase.

Although HHS touts the success of rate reviews, some state efforts on that front have faltered recently. On Aug. 31, California Assemblyman Mike Feuer (D) pulled a bill he sponsored that would have given the state insurance department authority to modify or reject proposed increases in premiums (HPW 9/5/11, p. 3). The state Dept. of Finance said first-year implementation costs of the legislation would be about $57.7 million. And in July, Connecticut Gov. Dannel Malloy (D) blocked legislation that would have required the state to hold a “public symposium” for rate requests of more than 10%.

While Mairin Brady, senior manager in the health reform practice at consulting firm Avalere Health LLC, believes rate reviews do have a dampening effect on rate increases, she says that compliance with medical loss ratio requirements likely has had a greater impact on rate hikes.

She tells HPW that as a requirement of receiving rate-review grants, states must report health plans that have a pattern of excessive or unjustified rate increases to their local exchange board. “Plans are still evaluating what they want to do in 2014,” Brady says. “I am sure they are aware of the potential negative of being branded as a plan that has a pattern of rate increases.”

To view the report, visit http://www.tinyurl.com/3nzld67.

At the AIS Blogs, Editor Jennifer Lubell asked, "Will More States Pursue ‘Prior Approval’ Authority?" Join the conversation!