Association Sales of Insurance Subject To Rate Reviews Under Amended Final Rule
By Sara Hansard
Association sales of health insurance to individuals and small groups will be subject to rate reviews under an amended final rule issued Sept. 1 by the Department of Health and Human Services.
Association sales will be covered under the amended rule even if states in which the policies are sold do not regulate them as individual or small group sales, according to the rule, which will be published in the Sept. 6 Federal Register.
In many states, a significant portion of individual and small group health insurance is sold through associations, HHS said in a fact sheet accompanying the rule.
“This coverage is sold and delivered in the same manner as the individual and small group coverage not sold through an association,” the fact sheet said. Some insurers sell a large portion of their business through associations, such as travel clubs, that may be used to sell insurance outside the authority of state laws pertaining to individual and small group plans, it said.
“The only real difference is that the association exists as a quasi-employer group; but in reality the enrollees do not work for the association,” HHS said. The amended rule “closes this significant loophole, levels the playing field between issuers, and assures that all insurers in the individual and small group markets nationwide receive the benefit of rate review.”
The Patient Protection and Affordable Care Act requires HHS to conduct annual reviews of “unreasonable” health insurance rate increases. Insurers are required under the law to submit justifications to HHS and states before increases held to be unreasonable are implemented, and the justifications will be posted on an HHS website, http://www.healthcare.gov.
On May 19, HHS finalized its rate review regulation requiring annual rate increases of 10 percent or more for individual and small group plans to be reviewed by state or federal officials (98 HCDR, 5/20/11). The regulation took effect Sept. 1. It does not apply to “grandfathered” health insurance plans that were in effect when PPACA was enacted in 2010, and it does not apply to plans that are self-funded by employers.
HHS Official Heralds Rate Reviews
At a telephone press conference Sept. 1, Steve Larsen, director of the HHS Center for Consumer Information and Insurance Oversight, heralded the beginning of the rate review process, saying it will bring “an unprecedented level of scrutiny and transparency to health insurance rate increases.”
Since 1999, the cost of health insurance has “skyrocketed” 131 percent for a family of four, Larsen said. “A central principle behind the Affordable Care Act is we have to reduce health insurance inflation for families and businesses,” he said. The new rules “will shine a light on proposed double-digit increases in health insurance rates.”
Over the past year, HHS distributed $48 million under PPACA to help states, the District of Columbia, and U.S. territories strengthen their rate review processes, and in February the agency announced a second round of funding for rate reviews, worth $200 million. As part of the second round of grants, HHS is providing $27.5 million in additional payments to states that seek authority to approve or deny rates.
Since PPACA was enacted, 11 states have gained prior approval authority over rate increases, leaving more than 30 states with the power, Larsen said. “Even in those areas in states where it is not yet possible to deny or reduce a rate increase, we believe the power of transparency and review will be a force for change for the benefit of consumers and individuals and small businesses,” he said. Faced with the possibility that a rate increase will be publicly highlighted, insurers “will take special care to ensure that the rate is reasonable and based on reasonable assumptions.”
Consumer Rep Applauds Amendment
Washington and Lee University School of Law Professor Timothy Jost, who serves as a consumer representative to the National Association of Insurance Commissioners, told BNA that the amended rule makes it clear that association plans will come under rate review, as well as all other PPACA regulations pertaining to individuals and small groups.
“They're taking the position this always has been the rule with respect to all other reforms, and they're merely extending the rule to rate reforms,” he said. “It clarifies a huge issue that was a gaping loophole in the Affordable Care Act.”
Associations have often taken the position that their health insurance sales are typically large group sales, Jost said. Treating association-sold plans as large group plans means they would not be subject to rate reviews, essential health benefit requirements that plans must meet, risk adjustment rules, and requirements limiting how much plans can charge for older people compared with younger customers, Jost said. Those requirements apply only to small group and individual plans under PPACA.
Jost also said that, without the rule clarification, there was a greater danger that associations could sell catastrophic plans outside of exchanges targeted primarily at healthy customers. Customers who later experienced medical problems then could leave the catastrophic plans and buy coverage through insurance exchange markets that will be set up in all states in 2014 under PPACA, he said.
“There was the possibility here of seriously undermining the exchanges,” he said. “People could just camp outside the exchanges until they got sick and then head off to the exchange.” Such “adverse selection” could lead to higher prices for plans sold in the exchanges, since the exchange plans could end up covering a disproportionately higher share of sick people.
Industry Stresses Cost Control
America's Health Insurance Plans, which represents about 1,300 health insurance companies covering about 200 million people, posted commentary on its “blog” website arguing that rate reviews “will not control health care cost growth.”
“The current approach to health care cost-containment will neither make health care more affordable for working families and small employers, nor put the system on a sustainable path,” AHIP said in the posting. “Highly publicized provisions such as premium rate review may make for good sound bites, but literally do nothing to address the soaring cost of medical care,” it said.
Premium costs are a reflection of the underlying cost of medical care in local markets, AHIP said. According to National Health Expenditures data from the Centers for Medicare & Medicaid Services, the growth in health care premiums directly tracked the growth in benefits between 2000 and 2009, AHIP said.
State mandates for richer benefits, the “outdated” fee-for-service system that “rewards volume over value,” high-priced new treatments, provider consolidation, and medical liability that leads to providers practicing defensive medicine have contributed to high costs, AHIP said.
AHIP also cited estimates from consulting firm Milliman that found that cost shifting to private insurance from Medicare and Medicaid, which often fails to reimburse doctors and hospitals for their costs, increases premiums by $1,788 per year for families, more than 10 percent of total premiums.
“As scrutiny of premiums grows, policymakers are beginning to recognize the far-reaching implications that premium review can have,” AHIP said, citing the withdrawal of legislation this week in the California Legislature that would have given the state rate-setting authority.
“The legislature was deluged with an outpouring of opposition from public retirees, doctors, hospitals, and others who recognized that rate review would lead to arbitrary cuts in reimbursements and access, regardless of the quality of care provided and patient outcomes,” AHIP said. “California is illustrative.
States are far better suited to review premiums because they have the experience, infrastructure, and local market knowledge needed to ensure consumer protection and health plan solvency. The federal government has no comparable expertise.”
The amended final rule is at http://op.bna.com/hl.nsf/r?Open=bbrk-8laln4.
U.S. requires health insurers to publicly justify big rate hikes
Under a new rule, insurers must post on their websites explanations of premium increases of 10% or more and submit them to state and federal regulators.
By Noam N. Levey, Los Angeles Times
September 2, 2011
Reporting from Washington
http://www.latimes.com/health/la-fi-health-insurance-20110902,0,7950538.story
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.
LEGAL AND FEDERAL HEALTH CARE REFORM AND MEDICAID LEGISLATION UPDATE, August 29th to September 2nd, 2011
Rules AND REQUESTS FOR COMMENTS Announced or PUBLISHED: August 29th to September 2nd, 2011
Group Health Plans and Health Insurance Issuers: Rules Relating to Internal Claims and Appeals and External Review Processes; Correction
26 CFR Part 54
Employee Benefits Security Administration
Department of Labor
29 CFR Part 2590
Department of Health and Human Services
Published on: August 29, 2011
Effective Date: July 22, 2011
Correction of amendment to interim final rules with request for comments
This rule corrects certain technical errors in the June 24, 2011 amendment to the interim final rule “Group Health Plans and Health Insurance Issuers: Rules Relating to Internal Claims and Appeals and External Review Processes.”
Medicare Program; Medicare Advantage and Prescription Drug Benefit Programs; Final Rule
42 CFR Parts 417, 422, and 423
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Published on: September 1, 2011
Effective Date: October 31, 2011
Final Rule
This final rule revises regulations to the Medicare Advantage program, the prescription drug program, and section 1876 cost plans, including cost-sharing for dual eligible enrollees in the Medicare Advantage program.
Rate Increase Disclosure and Review: Definitions of “Individual Market” and “Small Group Market”
45 CFR Part 154
Center for Consumer Information and Insurance Oversight
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Released on: September 1, 2011
Published on: September 6, 2011
Effective Date: November 1, 2011
Final Rule
This final rule amends a May 23, 2011 final rule entitled “Rate Increase Disclosure and Review.” This amends the definitions of “individual market” and “small group market” that apply for rate review purposes to include individual and small group coverage through associations. It also updates health insurance standards for issuers regarding disclosure and review of unreasonable premium increases (those annual rate increases of ten percent or more).
Federal Legislation Update: August 29th to September 2nd, 2011
None (Congress is in recess)
COURT DEVELOPMENTS: August 29th to September 2nd, 2011
Bryant v. Holder
On August 29th, Judge Keith Starrett of the Southern District of Mississippi determined that the private plaintiffs had standing to challenge certain provisions of the Affordable Care Act (ACA). However, it stated that Mississippi Lt. Governor, Phil Bryant did not have standing to challenge the individual mandate. The court also determined that the private plaintiffs have standing to claim that the minimum coverage provision violates their right to privacy.
Congressional Hearings AND MARKUPS: August 29th to September 2nd, 2011
None (Congress is in recess)
