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Centers for Medicare & Medicaid Services

Health Insurance Rate Review: Lowering Costs for American Consumers and Businesses

For more than a decade, health insurance premiums have risen rapidly, straining the pocketbooks of American families and businesses. Since 1999, the cost of coverage for a family of four has climbed 131 percent.[i]  These increases have forced families and employers to spend more money, often for less coverage. Many times, insurance companies have been able to raise rates without explaining their actions. In most cases, consumers receive little or no information about proposed premium increases, and aren’t told why health insurance companies want to raise rates.

The Affordable Care Act is bringing an unprecedented level of scrutiny and transparency to health insurance rate increases. The Act ensures that, in any State, any proposed rate increase by individual or small group market insurers at or above 10 percent will be scrutinized by independent experts to make sure it is justified. This analysis will help moderate premium hikes and lower costs for individuals, families, and businesses that buy insurance in these markets. Additionally, insurance companies must provide easy to understand information to their customers about their reasons for unreasonable rate increases, as well as publicly justify and post on their website any unreasonable rate increases. These steps allow consumers to know why they are paying higher rates.

The Affordable Care Act makes $250 million available to States to take action against insurers seeking unreasonable rate hikes. To date, 43 States and the District of Columbia are using $44 million in grants provided by HHS to help them improve their oversight of proposed health insurance rate increases. 

State rate review activities are paying off for consumers:

  • Rhode Island’s Insurance Commissioner used his rate review authority to reduce a proposed increase by a major insurer in that State from 7.9 percent to 1.9 percent.
  • Californians were saved from rate increases totaling as high as 87 percent after a California insurer withdrew its proposed increase after scrutiny by the State Insurance Commissioner.
  • Nearly 30,000 North Dakotans saw a proposed increase of 23.7 percent cut to 14 percent following a public outcry.
  • Connecticut’s Insurance Department rejected a proposed 20 percent rate hike by one of the State’s major insurers.

New Tools Will Help States, Consumers

Starting September 1, 2011, insurers seeking rate increases of 10 percent or more for non-grandfathered plans in the individual and small group markets are required to publicly disclose the proposed increases and the justification for them.  Such increases will be reviewed by State or Federal independent experts to determine whether they are unreasonable. In future years, the threshold for review will be set on a State-by-State basis using data that reflect insurance and health cost trends in each State.  And an easy-to-access, consumer-friendly disclosure form explaining the proposed increases will also be made publicly available through HHS, State and/or insurer websites.

The rate review regulations work in conjunction with other parts of the Affordable Care Act that will also hold premiums down. The law requires insurers to spend at least 80 percent of premium dollars on direct medical care or to improve the quality of care instead of on overhead, advertising, and executive salaries and bonuses. If an insurer fails to meet that test, they must pay a rebate to their enrollees.  This “medical loss ratio” regulation, released on November 22, 2010, makes the health insurance marketplace more transparent and increases the value consumers receive for their money. 

States with Effective Rate Review Programs

HHS encourages States to conduct rate review and has worked with States to strengthen their programs. As detailed in the rate review regulation finalized on May 19, 2011, States with effective rate review systems must conduct reviews of proposed rates above the applicable threshold (10% from September 2011-August 2012), but if a State lacks the resources or authority to conduct the required rate reviews, HHS will conduct them. 

An effective rate review system:

  • Must receive sufficient data and documentation concerning rate increases to conduct an examination of the reasonableness of the proposed increases.
  • Must consider the factors below as they apply to the review:
    • Medical cost trend changes by major service categories
    • Changes in utilization of services (i.e., hospital care, pharmaceuticals, doctors’ office visits) by major service categories
    • Cost-sharing changes by major service categories
    • Changes in benefits
    • Changes in enrollee risk profile
    • Impact of over- or under-estimate of medical trend in previous years on the current rate
    • Reserve needs
    • Administrative costs related to programs that improve health care quality
    • Other administrative costs
    • Applicable taxes and licensing or regulatory fees
    • Medical loss ratio; and
    • The issuer’s capital and surplus.
  • Must make a determination of the reasonableness of the rate increase under a standard set forth in State statute or regulation.
  • Must post either rate filings under review or preliminary justifications on their websites or post a link to the preliminary justifications that appear on the CMS website.
  • Must provide a mechanism for receiving public comments on proposed rate increases.
  • Must report results of rate reviews to CMS for rate increases subject to review.

To determine whether a State met these standards, HHS reviewed all available documentation, and met with State regulators and their staff to verify the information and obtain any updates. CMS will continue to accept information from States and monitor States in order to ensure correct classification.  CMS can reevaluate the status of this list as changes are made in each State.

As of July 1, 2011:

  • 43 States, the District of Columbia and 1 U.S. territory have effective rate review in at least one insurance market;
  • 40 States, the District of Columbia and the U.S. Virgin Islands have effective review for all insurance markets and issuers.
  • In three States, the Federal government will partner with the State to conduct reviews; and
  • The Federal government will conduct review in seven States and four U.S. territories until those areas are able to strengthen their review processes and authorities.
  • Resources and assistance are available to States and territories to help strengthen their review processes.

List of Effective Rate Review Programs

The list below indicates whether Federal or State process will be used to review proposed insurance rate increases.

 

STATE

Individual MarketSmall Group Market

Effective Rate Review Program

Alabama

Federal

Federal

No

Alaska*

State

State

Yes

Arizona

Federal

Federal

No

Arkansas

State

State

Yes

California

State

State

Yes

Colorado

State

State

Yes

Connecticut

State

State

Yes

Delaware

State

State

Yes

District of Columbia

State

State

Yes

Florida

State

State

Yes

Georgia

State

State

Yes

Hawaii

State

State

Yes

Idaho

Federal

Federal

No

Illinois

State

State

Yes

Indiana

State

State

Yes

Iowa

State

Federal

Partial

Kansas

State

State

Yes

Kentucky

State

State

Yes

Louisiana

Federal

Federal

No

Maine

State

State

Yes

Maryland

State

State

Yes

Massachusetts

State

State

Yes

Michigan

State

State

Yes

Minnesota

State

State

Yes

Mississippi

State

State

Yes

Missouri

Federal

Federal

No

Montana

Federal

Federal

No

Nebraska

State

State

Yes

Nevada

State

State

Yes

New Hampshire

State

State

Yes

New Jersey

State

State

Yes

New Mexico

State

State

Yes

New York

State

State

Yes

North Carolina

State

State

Yes

North Dakota

State

State

Yes

Ohio

State

State

Yes

Oklahoma

State

State

Yes

Oregon

State

State

Yes

Pennsylvania

State

Federal

Partial

Rhode Island

State

State

Yes

South Carolina

State

State

Yes

South Dakota

State

State

Yes

Tennessee

State

State

Yes

Texas

State

State

Yes

Utah

State

State

Yes

Vermont

State

State

Yes

Virginia

State

Federal

Partial

Washington

State

State

Yes

West Virginia

State

State

Yes

Wisconsin

State

State

Yes

Wyoming

Federal

Federal

No

Territories

  

 

American Samoa

Federal

Federal

No

Guam

Federal

Federal

No

Northern Marianas Islands

Federal

Federal

No

Puerto Rico

Federal

Federal

No

Virgin Islands

State

State

Yes

 

*Note:  Alaska will have effective rate review authority in all markets on January 1, 2012 per state statute.  Until that date, CMS will review Alaskan commercial plans and the state will review Blue Cross Blue Shield plans.