New Rules Protect Consumers From Insurance Industry Abuse
August 31, 2011
Here's an occurrence that was far too common over the last few years: you open a letter from your insurance company, and it says your premiums are going up 25 or even 50 percent. There's no explanation why. There's nothing you can do. You either need to find thousands of dollars in your family's yearly budget or risk losing your health coverage.
Until now, insurers could get away with these exorbitant, unexplained premium hikes because the rules were stacked in their favor. They had all the information. They had limited competition. And in many states, there was little oversight or accountability.
The result was that even as insurers made record profits, far too many hard-working Americans saw their health insurance bills skyrocket out of reach. As one Florida small business owner whose premium had just gone up by more than 23 percent wrote to me: "I am near the breaking point. With guaranteed annual increases at 10 to 15 times inflation, eventually we will go out of business or be forced to cancel insurance. Either way, it's a lousy set of options."
Beginning today, help is on the way. Thanks to a provision in last year's health care law, insurers must submit a written justification every time they try to raise your premium by ten percent or more. As rate increases are proposed, that information will be posted in a clear, easy-to-understand format on the new consumer website Healthcare.gov.
Most importantly, these rates will also be evaluated by experts to see whether they're justified, and that information will be made available to consumers too.
As a former Kansas Insurance Commissioner, I've seen firsthand how this kind of transparency can benefit consumers. Insurers are much more likely to think twice about a double digit rate hike if they know their reasons will be made public.
That's especially true because Healthcare.gov also allows consumers to type in their zip code and, for the first time, see the prices and benefits for all available insurance options in one place. When you line up information about plans side by side, insurers suddenly become very reluctant to be the most expensive option.
Around the country, we have numerous examples of the power of greater transparency and scrutiny. In the last year alone, numerous states have exposed, blocked or reduced unjustified rate increases that would have devastated the finances of families and businesses.
When one of California's largest insurance companies tried to raise rates three times in the last year, for example, increasing some premiums by as much as 87 percent, the State Insurance Commissioner asked the company to justify its increases. The insurer backed down and withdrew the rates, saving families and small business owners millions of dollars. And we've seen similar results in states like Connecticut, Oregon, North Carolina, Rhode Island, and North Dakota.
To help states step up their efforts to keep insurers in line, our department is also providing them with $250 million under the law to hire new staff, enhance consumer protections, and conduct more thorough rate reviews. And we're encouraging them to make the most of the oversight powers they already have. As a result, according to a recent report from the Government Accountability Office, 41 states have already taken steps to strengthen their scrutiny of unreasonable rate hikes.
But you shouldn't have to live in a certain state to be protected from unjustified increases in your health insurance bills. That's why today's announcement is so important. It ensures that all Americans have the information and expert help to make sure insurers don't rip them off.
Of course, if we want to stabilize premiums in the long run, we'll also have to address the rising cost of care. That's why the health care law contains what 272 leading economists have called: "essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending." But given that many of the exorbitant health insurance rate hikes of the last decade far exceeded the underlying growth in health care costs, additional protections were needed.
Beginning today, the deck is no longer stacked in insurers' favor. The next time your insurance company tries to raise your premium by double digits, they'll have to explain themselves. And you'll have all the information you need to make the right decision for your family.