Health insurers will have to start publicly justifying big rate hikes, according to a new requirement of the federal healthcare law that is meant to put pressure on insurance companies to hold down skyrocketing premiums.
The new rule, which went into effect Thursday, will mandate that insurers post on their websites explanations of premium increases exceeding 10% and submit the hikes to state and federal regulators, who also will post them starting this year.
“For far too long, families and small employers have been at the mercy of insurance rate increases that often put coverage out of their reach,” Health and Human Services Secretary Kathleen Sebelius said in a statement. “Rate review will shed a bright light on the industry’s behavior and drive market competition to lower costs.”
The rule does not give state and federal regulators new authority to block rate hikes, however, even if government officials find the increases to be unjustified.
Some states already have such power, and several particularly aggressive states, such as Oregon and Rhode Island, routinely make insurers lower their rate increases after determining that proposed hikes are unjustified.
Even in less activist states, some regulators have been beefing up oversight of insurance companies with the help of federal grant money made available by the healthcare law President Obama signed last year.
But to the chagrin of consumer advocates, 30 states — including California — still do not have authority to block rate hikes in both the individual and small group markets, according to a 2010 survey by the nonprofit Kaiser Family Foundation.
“Disclosure alone will never be enough to prevent health insurers from charging unreasonable insurance premiums. To protect consumers, regulators must have the power to review and reject excessive rates,” said Carmen Balber, Washington director for California-based Consumer Watchdog.
The insurance industry, long a powerhouse in state capitols nationwide, has vigorously fought efforts to give regulators enhanced authority, saying it is unnecessary.
This week, an effort in California to give state regulators greater authority collapsed in the Legislature.
On Thursday, America’s Health Insurance Plans, the industry’s lobbying arm in Washington, reiterated its opposition to stricter oversight, suggesting that insurance premiums are “a reflection of the underlying cost of medical care in a local market.”
The Obama administration plans to rely on state insurance regulators to scrutinize insurance rates.
But federal regulators will handle insurance oversight in states where the administration has determined that state supervision is inadequate, including Alabama, Arizona, Louisiana, Missouri, Montana, Pennsylvania, Virginia and Wyoming.
The administration plans to work with states to set individual state-by-state thresholds for rate hikes that will require public explanation from insurance companies.