A new requirement of healthcare reform makes insurance companies provide an explanation, and justification, about why they intend to raise the cost of their health insurance premiums. The idea is that rate review will drive market competition, and lower the cost of health care.
You might remember earlier this year when Anthem Blue Cross of California threatened to raise its health insurance rates by 59%. Insurance regulators in California declared that this rate was “unreasonable”. Unfortunately, the Insurance Commissioner in California didn’t have the authority to prevent that rate hike from happening.
New rules now require health insurance companies to publicly post explanations that justify why they feel that a rate increase is necessary. They will have to do this every time they intend to raise their premiums by more than 10%. This law is part of healthcare reform.
The purpose of the law is to try and prevent the insurance companies from raising their rates to the point where coverage is too expensive for families to be able to afford. Secretary of Health and Human Services Kathleen Sebelius says: “Rate review will shed a bright light on the industry’s behavior and drive market competition to lower costs”.
Will it really? The new laws don’t actually give state or federal regulators the authority to block the rate hikes that health insurance companies choose to impose upon their customers. There is federal funding that will help state regulators to increase their oversight of insurance companies. But, right now, there are thirty states where insurance regulators don’t have the legal right to prevent “unreasonable” rate hikes.
Some consumer groups feel that the requirement that makes insurers disclose their reasoning for rate increases is not enough. It will not prevent them from going ahead with whatever they choose to charge their customers for health insurance premiums. In short, the feeling is that this new law will not really do much for consumers until state insurance regulators are granted the authority to prevent excessive rate increases from happening.
Federal regulators are intending to take a look at insurance rate increases in the several states. It will do this in states where it feels that insurance oversight is “inadequate”. In the future, there are plans for the federal government to create individual thresholds, (on a state-by-state basis), that will require insurance companies to provide a public explanation for their rate increases.
Image by Christopher Sessums on Flickr