Feds fire warning shot to health insurers

Health insurance companies trying to bump up rates by more than 10 percent will have to answer to federal regulators, according to a new plan announced by Health and Human Services Secretary Kathleen Sebelius Tuesday.  The proposed rule explains how the government will oversee insurers as required by the massive health care bill – the Affordable Care Act – that was signed into law this spring.

After 2011, regulators will decide on a state-by-state basis which rates will be reviewed.
The process will determine which rate hikes are “unreasonable,” a tricky definition since “a 10 percent increase by a company that’s not had a rate increase in five years and is looking at a narrow profit margin, is not necessarily the same as a company that’s raised rates three years in a row and is looking at fat profits,” Sebelius said. “We decided we would start somewhere and we went with 10 percent, not as a definition of unreasonable, but as a figure that would bring scrutiny.”
As part of the scrutiny, proposals for large rate hikes will be posted online, along with each company’s justification for the increase.  A significant number of plans are likely to be affected; according to HHS,  hikes greater than 10 percent make up the majority of rate increases in the individual market over the past three years.
The new federal requirement does not replace but adds a layer to various state laws regulating insurers.  According to HHS, 43 of 50 states currently review health insurance rates.  In states without “an effective process,” HHS will conduct the review, said spokeswoman Jessica Santillo.
While federal regulators won’t have the power to block rate increases, insurers whose rate hikes are deemed “unreasonable” could be barred from insurance “exchanges” – the planned marketplaces where many companies and consumers will purchase coverage plans, starting in 2014.
The online postings will also discourage sharp hikes by making consumers better informed, Sebelius said.
Insurance companies and the public have 60 days to comment on the rules, before the new regulations take effect