Moving to restrain skyrocketing health insurance premiums, the Obama administration is proposing rules requiring insurers to justify increases of more than 10% a year in 2011.
At the same time, administration officials plan to step up federal review of premiums if state regulators cannot adequately protect consumers, a move cheered by many leading consumer advocates.
The increased oversight comes as consumers nationwide struggle with rate hikes that have exceeded 30% in some places, even as insurance industry profits have swelled.
In the lead-up to passage of the new law, the soaring rates fueled calls to give state and federal regulators more power to scrutinize premiums and even deny increases that appear unjustified. Only some states currently have such authority.
The draft regulations unveiled Tuesday would not give state or federal officials the ability to deny rate hikes. Instead, the administration is relying on state regulators to scrutinize proposed hikes and to assess if they are justified by increases in the cost of care or other factors.
Insurers whose rate increases are deemed unreasonable would be required to provide written justifications that would be posted on the federal government's new health website, http://www.healthcare.gov.
"Ultimately, we know that the bright light of sunshine convinces more insurers to think twice and check their math before submitting large rate hikes," Secretary of Health and Human Services Kathleen Sebelius said Tuesday in announcing the proposed regulation, authorized by the new healthcare law. "This is our latest step to put consumers back in charge of their own healthcare."
Insurance companies have said their headline-grabbing rate increases are being driven by the rising cost of healthcare, an assertion that the industry's senior Washington lobbyist reiterated Tuesday.
Karen Ignagni, head of America's Health Insurance Plans, criticized the 10% threshold as unrealistic. "It does not adequately factor in all of the components that determine premiums, including the cost of new benefit mandates and the impact of younger and healthier people dropping coverage," she said.
Insurers have fiercely resisted increased scrutiny of their rate setting at the state and federal level.
Consumer groups, in contrast, largely applauded the additional oversight, which Families USA Executive Director Ron Pollack called "a very helpful and reasonable first step" to reining in rates.
Under the new healthcare law, states retain primary responsibility for policing the insurance industry. The federal Department of Health and Human Services has made grants to 46 states to help them increase oversight.
If states do not have the capacity to review rates, however, the federal department would step in to conduct the review under the proposed new rules.
"What they try to do is to provide a backstop behind states," Rhode Island Health Insurance Commissioner Christopher Koller said Tuesday.
The administration has estimated that about half of proposed rate hikes for plans serving people who buy insurance on their own could be subject to review.
A slightly smaller share of increases in plans purchased by small businesses are expected to trigger review. Plans serving large employers will not be subject to the additional review.
After 2011, federal officials plan to develop new state-by-state criteria for assessing rate increases. That could allow bigger rate hikes in some states and lower increases in others.