REPORT: Some States Won’t Be Able To Effectively Review Unreasonable Premium Increases

Last month, independent analysts in California discovered that WellPoint “overstated future medical costs” to justify its 39% premium increases in the individual health market and committed numerous other methodological errors and now, Aetna has also withdrawn a filing with California insurance regulators “after discovering it had made calculation errors.” “The company had requested a 19% average rate increase, due to go into effect July 1 and covering 65,000 individual policyholders, but said its actuaries found mistakes in how the annual cost of monthly premiums was calculated, among other things,” the Wall Street Journal reports.

A thorough review of insurance rates across the country will likely produce many more of these mathematical anomalies, but as Scott Paltrow details in a new CAP paper few states actually have the authority to block or question large premium hikes in the individual and/or small group markets. In many states, Paltrow explains, insurers have used their money and clout to lobby against tougher review regulations and consequently, states can do very little to protect patients from unreasonable premium increases. “Records show that large health insurers have been major contributors to candidates for state offices. Four of the biggest health insurers—Wellpoint, UnitedHealth Group, Humana, and Aetna— contributed $8.7 million to candidates for state offices and state campaign committees in 42 states from 2005 through 2008, according to a 2010 report by the National Institute on Money in State Politics,” Paltrow writes.

Here is a taste of their influence:

– 23 states do not review and approve premium changes before insurance companies put the changes into effect.

– 30 states and the District of Columbia do not review and approve premium changes to small employer policies before they go into effect.

The health care law changes some this. Health insurance issuers will have to submit to the Secretary and the relevant State a justification for an unreasonable premium increase prior to the implementation of the increase and that information will be “prominently” displayed on their Internet websites. The federal government will encourage states to conduct rate review by offering grants and states themselves can decide to block certain insurers with a poor history of rate increases from participating in the exchanges. The incentives and extra funding are certainly there, but ultimately, very little is done to diminish the insures’ influence over this whole process. Today, even in states that have rate review, “state regulators and others who monitor state regulation say that regulators even in these states often wave through requested hikes—often because of political pressure by large insurers.” The grants will allow reviewers to bolster their staffs, but will it free them from the political pressure?

Paltrow suggests, and many Democrats agree, that Congress should consider passing Sen. Feinstein and Rep. Schakowsky’s legislation giving the Health and Human Services Department secretary the power to block excessive premium increases. But I suspect this won’t happen unless the insurers really take advantage of the weak review provisions and premiums spiral out of control.