Sebelius: ‘I Think The Rate Increases Are Likely To Be Somewhat Substantial’

Speaking this morning at the National Journal’s Empowering Conversations series, HHS Secretary Kathleen Sebelius — who last week warned insurers against using the early benefits in the health care law to substantially increase premium rates — pointed to two actuarial estimates which found that the early benefits could increase costs gradually by “1 to 2 percent.” Still, Sebelius conceded that insurance premiums will continue to increase. “Well, I think the rate increases are likely to be somewhat substantial,” Sebelius admitted, agreeing that the poor economy will continue to force healthier individuals to leave the risk pool and increase costs for everyone else:

SEBELIUS: The cost trends and their practice is fairly substantial and it has little to do with the passage of the Act. It has to do with their market place. And frankly there is some justification in saying that one of the issues that has hit companies in the economy — again particularly in the individual market where people are out purchasing on their own — is that healthy folks drop their coverage when the economic squeeze occurs. If you are sicker of have a sicker family member you don’t have that luxury, so you’re keeping it. So their own risk experience is becoming more expensive. So what we have to do is get healthier people back into the marketplace.

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Sebelius did argue that insurers often overstate their premium requests. “I was in the state legislature in Kansas for eight years. And year after year after, when legislatures would consider some sort of a mandated benefit, companies would testify to dramatic rate increases as a result,” she explained. “Year after year after year, that turned out to be absolutely factually incorrect. It was never justifiable and frankly in most cases they didn’t do it at all.”

Sebelius also explained that the burden of the rate review will fall to the states, where the jurisdiction of state insurance commissioners “varies dramatically.” “It’s a real catch 22,” she said. “The law assumes that states will regulate rates, that that’s the best marketplace. This is really a state-based bill…only if they abdicate that responsibility or say that they don’t want to participate do we have kind of the back-up responsibility.”

The Department of Health and Human Services is also preparing medical-loss ratio (MLR) regulations that would require insurers to spend 80 to 85% of premium dollars on health care costs. Sebelius said she hoped to define “health care spending” in the next month and implement the remainder of the regulation by the end of the year. The regulation — which requires insurers that don’t meet the ratio to issue rebates for the difference — is fully implemented by 2012.