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When consumers consider whether health care reform has been a success, many of them will have a simple test in mind – when they open the envelope that lays out their health insurance rates, will the premium increase be affordable, or will it be unreasonable? Experts know that there are a host of inefficiencies, misaligned incentives, and system failures behind that one number, many of which have little to do with any particular insurer. Still, Section 2794 of the recently-enacted Patient Protection and Affordable Care Act (“the ACA”) offers a significant opportunity to protect consumers from unscrupulous and inefficient insurers, as well as increasing competitiveness through greater transparency and driving much needed quality enhancing, cost-lowering reforms throughout the health care system.
Rate Review Processes
While there are some plusses and minuses associated with the different rate review approaches, in general, the more comprehensive and transparent a rate review process is, the better it is able to lower premiums and increase consumer confidence.
Characteristics of a strong system include: 1) its applicability to all rate increase proposals, not just some; 2) broad regulatory authority to reject a proposal, which is not limited only to a narrow set of circumstances (for example, where a regulator can only reject a proposal if the resulting medical loss ratio would be below a certain threshold); 3) robust opportunities for consumer involvement, to comment on the impact of rising rates and/or to trigger increased scrutiny of a particular plan; 4) full transparency allowing the public access to all the information insurers provide and regulators use when assessing a rate proposal. Similarly, the strongest rate review processes should apply to all products, and should not be weakened or altered when it comes time to assess “special” products like high-deductible plans and newly-offered plans. While these products may behave differently in some respects – such as placing greater pressure on the deductible and less on the premium side of rate increases, or boasting temporarily higher administrative costs – these considerations are generally less important to consumers than the fundamental question of whether the rate increase is justified and transparent. There is thus no cause for a relaxation of any of the regulations’ standards when it comes to these so-called “special” plans.
Defining “Unreasonable” Increases
The ACA requires insurers to file a justification for any “unreasonable” premium increases. Obviously, there is no simple, uncontested way to define a premium increase as “unreasonable,” as the determination must turn on highly contextual factors such as the overall increase in medical costs in a state, an insurers’ particular claims experience in preceding years, and the state of the economy as a whole, among many others. Instead of attempting to deal with all of these factors, the Department should apply a simpler test that is more in keeping with consumers’ experience of premium increases: whether a proposed increase is out-of-line line with the overall growth of a state’s economy by more than a percentage point and a half.
This standard will certainly be over-inclusive, sweeping up rate increases that do have an adequate actuarial grounding and do reflect the overall medical trend. But this is far preferable to allowing potentially erroneous and unreasonable rate hikes to go into effect with no public scrutiny. Because insurers should already be compiling and evaluating all of this information in drafting their proposals in the first place, a broad requirement will not be overly burdensome.
Further, there is a significant benefit to consumers in having access to the information Section 2794 requires to be reported. Many consumers distrust their insurance company, and posting a full statement of the reasons for the increase will help to assuage these doubts in cases where an insurer is doing its best to hold down costs.
Beyond the simple aggregate premium increase, specific components of the increase might also mark out a proposal as unreasonable. For example, while medical costs continue to skyrocket, there is little reason why administrative costs should increase faster than the Consumer Price Index (CPI) – if a proposal does include administrative costs whose rise exceeds the CPI, it should be presumed unreasonable in the absence of adequate justification explaining the discrepancy. Similarly, if an insurer has had to pay out significant regulatory fines or legal damages due to bad practices, these financial losses should come out of its profits, rather than providing an excuse for the insurer to raise its rates.
Insurers should also be required to report on changes to their health care cost containment and quality improvement efforts, including prevention, evidence-based medicine and better chronic disease management. This reporting and evaluation is critical to begin aligning insurance rate review factors with the overall goal of health reform – quality, affordable coverage. Given the crisis of exploding costs, an insurer that does not take active steps to adopt payment and delivery innovations is almost by definition subjecting its enrollees to unreasonable rates. In their filings, insurers should make it clear how the cost containment is achieved and with what impact on quality.
As a corollary to the broad interpretation that should be put on “unreasonable” rate increases in order to increase disclosure, the Department should also assess the reports it receives and make a final judgment about whether or not a given rate proposal is ultimately justified. This assessment should look to all of the factors identified above, and determine what a reasonable rate increase would have been. This will allow consumers to better gauge the performance of different insurers, enhancing competition; it will also serve to put low-performing insurers on notice.
Finally, consumers should play a role in the rate review process. They should be allowed to petition the Department to consider a rate increase to be unreasonable and therefore require public reporting and justification. They should also be allowed to submit comments on particular rate proposals, so that the Department has information on the likely impact of the premium increase.
Insurers should not be able to hide from their customers by using aggregation to disguise low-performing products. They should be required to separately justify rate increases for every plan with a distinct set of benefits and cost-sharing, as well as separately breaking out the impact by market: individual, small group, and large group. This will also ensure that when a consumer checks on the rate proposal for their plan, they can receive relevant information, rather than a skewed average that does not reflect their experience.
Exclusion from the Exchange
Plans with a history of unreasonable rate increases should pay a penalty for their behavior. While some consumers will be able to monitor their behavior through the disclosures discussed above, stronger measures will have a greater impact in promoting affordability and competitiveness. In particular, regulators are required by the ACA to make recommendations on whether a plan should be excluded from participation in a state’s exchange due to its poor track record.
Obviously such a step should not be taken lightly, as it could disrupt the existing coverage of enrollees. At the same time, exchange exclusion may be one of the most significant levers available to get an insurer to correct its repeated bad behavior. Regulations, then, should require that insurers are to be given early notice that they are in danger of being excluded, and given a specific plan laying out how to correct their performance. With a long lead-time and a clear way for insurers to maintain their eligibility for the exchange minimizing the likelihood of a sudden exclusion harming consumers, regulators should be directed to be aggressive about making recommendations to low-performing insurers. This public notice should also be publicly available to consumers and advocates, to promote transparency and accountability.
Making Information Consumer-Friendly
The public availability of rate filings will help to promote consumer confidence in the insurance products they buy, as well as helping to weed out mistakes, errors, and bad practices that can inflate premiums. But care will have to be taken to ensure that this information is actually useful to the consumers for whom it is meant.
First, it is absolutely critical that all the information an insurer submits be made publicly available. Second, in addition to the full details, insurers should also produce a simple, understandable summary for each of their plans, stating the range of premium increases enrollees will see (including the average increase), how much of the increase is due to the underlying medical trend, how much to changes in the health status of the risk pool, how much due to increased administrative costs, and so on. The expected level of profit should also be included, and insurers should also note their previous year’s proposal, and how well their estimates lined up with their actual experience. Third, the information should be easy for consumers to look up, allowing them to quickly use the information on the insurance card or other plan information they receive from their insurer to determine which plan to look at. Fourth, the database should be easy to search and sort, so that consumers can make comparisons between different plans and see which have a history of performing well and lowering costs, and which do not have a strong track record. Taken together, these steps will improve transparency and also help make the insurance market more competitive by increasing consumer information and power, further lowering costs.
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