Thursday, December 2, 2010

qotd: Can states control private insurance premiums?

Kaiser Family Foundation
December 2010
Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable

The Patient Protection and Affordable Care Act (ACA) requires the Department of Health and Human Services (HHS) to work in collaboration with state insurance departments to conduct an annual review of "unreasonable increases in premiums" for "nongrandfathered" health plans. Plans that propose an unreasonable rate will be required to provide a justification for the increase to HHS, and post the justification on their websites.

Yet the ACA does not alter states' existing regulatory authority over health insurance rates. Such state authority varies dramatically, ranging from states with no authority at all to those that have robust authority to review and approve or disapprove rates before they are implemented.

Key findings include the following:

A state's statutory authority often tells little about how rate review is actually conducted in the state.

In many cases, statutory authority to disapprove rates does not extend to all market participants.

Most states we interviewed use a subjective standard to guide the review and approval of rates.

Most of the states we interviewed have made little or no effort to make rate filings transparent.

Many states lack the capacity and resources to conduct an adequate review.

Comment:  Proponents of the Patient Protection and Affordable Care Act (ACA) have claimed that states will be given broad powers to control private health insurance premiums, making health plans affordable again. Can we really anticipate relief from the outrageous prices of private health plans?

Under ACA, the federal role in premium regulation is limited to reviewing unreasonable rate increases and requiring plans to post on their websites a justification for their increases. The law does not alter the states' existing regulatory authority over health insurance rates.

So how well are the states doing? Not very well. You need only look at the numerous media reports of outrageous premium increases that have provoked the state regulators to demand explanations for these unconscionable incidences of rate gouging (is it really gouging?). The followup stories reveal that the regulators have been successful in convincing insurers to roll back their increases to mere multiples of the rate of inflation. Year after year. The current level of premiums is proof that the state regulators have been ineffective in making decent health plans affordable.

This report from the Kaiser Family Foundation confirms that state regulation is spotty at best, but we know that even in states with greater regulatory power, premiums have continued to rise inexorably. The only successes in slowing premium increases have been in those instances in which the regulators permit plans to strip benefits and shift costs to patients. Of course, that has resulted in making health care unaffordable, impairing access and sometimes resulting in personal bankruptcy.

If a plan is going to provide adequate coverage for health services, those costs will have to be paid by the insurer, and there is no way that state insurance regulators can demand a rollback to rates that would deplete the insurers' reserves and drive them into bankruptcy.

It's nice that the Department of Health and Human Services has been granted the authority to require the insurers to post explanations for why their premiums are so high (it's the costs of health care, stupid), but it is disingenuous to say that this would have any real impact in slowing premium increases for adequate insurance plans.

An unfortunate, unique feature of health care financing in the United States is the profound administrative waste that has been a major contributor to placing us first amongst all nations in what we spend on health care. The premium game that state insurance regulators are playing is only one more example of that waste. 

Single payer supporters already know what we should do to reduce this egregious waste. Eliminate the insurance middlemen and replace them with our own public monopsony (single buyer) - an improved Medicare for everyone. Then we can use more effective and more equitable single payer tools to slow future cost increases.

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