Who decides Obamacare rates?
The Affordable Care Act tries to bring a level of transparency to health insurance rate increases. It doesn't always work out that way though.
Health insurance rate increases
Obamacare rates are rising, which is not unexpected.
Health insurance premiums have risen rapidly for more than a decade. Many times, insurance companies have been able to raise rates without explaining their actions to regulators or the public.
• In most cases, consumers received little or no information about proposed premium increases, and were not told why they were receiving large rate increases.
The U.S. Department of Health and Human Services (HHS) is tasked with issuing regulations and establishing a process for the annual review of unreasonable increases in premium rates by insurance carriers across the country.
♦ The Affordable Care Act requires that large proposed premium increases must be evaluated to make sure they are based on reasonable cost assumptions and solid evidence.
• The new regulations lay out a process for the states and the federal government to review rate increases by insurers, as well as to publicly disclose those increases.
• The regulations define the threshold for a premium increase that would cause it to become subject to review, and outlines a process for evaluating whether the increase is unreasonable.
• Insurance companies must provide easy to understand information to their customers about their reasons for significant rate increases, as well as publicly justify and post on their website any unreasonable rate increases.
♦ The HHS does not have the authority to deny premium increases.
• The hope is that the process of requiring more open disclosure from insurance companies will discourage excessive increases.
The Affordable Care Act made $250 million available to states to take action against insurers seeking unreasonable rate hikes.
This is grant money provided to the states to help them improve their oversight of proposed health insurance rate increases. To date, almost all states have taken advantage of this grant money.
• Generally the federal provisions do not preempt state laws and regulations that provide more extensive scrutiny or powers to disapprove proposed rate increases.
While many states have enacted laws that allow them to deny unreasonable increases in some insurance markets, a few other states have taken a pro-business approach and rate increases seldom get challenged until there is a loud public outcry.
What is unreasonable?
The HHS encourages states to establish rate review systems and most have done so.
• The ACA called for rate increases above 10% to be reviewed. This was the rule for many years.
♦ In 2019, the Trump administration changed the rules to allow insurers to raise premiums up to 15% without giving any explanation.
If a state lacks the resources or authority to conduct the required rate reviews, the HHS will conduct them.
• Currently 3 states depend upon the HHS to oversee rate reviews for Individual and Small Group: Oklahoma, Texas and Wyoming.
The rate review regulations are intended to work in conjunction with other parts of the Affordable Care Act to help hold premiums down.
• A little known part of the law requires insurers to spend at least 80 percent of premium dollars on direct medical care.
• The intent being to improve the quality of care instead of using premiums to cover on overhead, advertising, and executive salaries and bonuses.
• If an insurer fails to meet that test, they must pay a rebate to their enrollees.
♦ In 2019, the Trump administration changed this rule to allow insurers to keep more premiums. Insurers can now claim that a portion of the premium goes toward quality improvement programs.
This essentially carves out something that would have been an administrative cost and shifts it toward the consumer side of the equation. Insures are less likely to have to return money to consumers and instead are expected to increase their profits.
It is estimated that this rule change has allowed insurers to keep $67 million a year rather than return it enrollees.
Source: CMS, HHS