AIS Health Business Daily Piece on Federal Rate Review Grants to States/DC

Featured Story, Sept. 1, 2010

Are Rate Review Grants to States a Strategy to Control Premiums or an HHS PR Maneuver?

Reprinted from HEALTH PLAN WEEK, the industry’s leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

By Steve Davis, Managing Editor
(sdavis)

HHS on Aug. 16 awarded $46 million in grants to help state regulators police the insurance industry and crack down on unjustified rate hikes. State regulators tell HPW that the money is needed to upgrade infrastructure, enhance data collection systems, hire consultants and actuaries and post rate filings and other consumer information on their websites. But some industry observers, including two former insurance commissioners, contend the grants equate to little more than a publicity campaign to promote the health reform law. Moreover, they say, rising health coverage costs are the direct result of fees demanded by hospitals and other providers, and increased scrutiny of filings will have limited impact on rates.

Kansas Insurance Commissioner Sandy Praeger says her office will use some of the funding to hire a consultant to evaluate its current rate-review process. Her office now has 30 days to review and approve requested rates, but she typically only denies requests if she can demonstrate that they are excessive or discriminatory, she tells HPW. Praeger adds that the funding could provide her office with more resources with which to make such determinations.

“Those grants are going to be very helpful to states during difficult budget times and will give us the capacity to do what we need to do, whether that is providing consumer information and improving transparency, or going through the physical review process,” says Oklahoma Insurance Commissioner Kim Holland. She tells HPW that her office will use some of the funding to hire actuarial consultants to help it comply with the new rate review process and an anticipated increase in rate filing volume.

The District of Columbia and all but five states — Alaska, Georgia, Iowa, Minnesota and Wyoming — applied for and were awarded $1 million each. The grants are the first round of $250 million in funding called for by the health reform law to improve the way states review and approve insurance rate increases. Future grants will be awarded over the next five years. Each state that receives a grant is expected to require insurance companies to report more extensive information through a new, standardized process, which HHS says will help state regulators better evaluate proposed premium increases.

But the grants, which were touted during an HHS press conference, are politically motivated and will do little to protect consumers against rate hikes, says Paul Ginsburg, president of the Washington, D.C.-based Center for Studying Health System Change. The funding, he adds, is an attempt to convince the public that changes to the existing insurance system, as a result of the reform law, are already underway even though key provisions won’t take effect until 2014. He tells HPW that the funding will have little impact on health insurers or the rates they charge.

“The potential to lower rates significantly through rate review is not there, but it polls well to ‘put a cop on the beat.’ Part of it is pressure from those who preferred a single payer approach, who are highly suspicious that private insurers can bring value to health care,” he tells HPW.

Just 26 states have the authority to reject proposed rate increases, and many of them lack the resources to exercise that authority, which has contributed to “unjustified” premium increases in some states, according to HHS.

J. Robert Hunter, former Texas insurance commissioner, agrees that many states don’t have the authority to reject rate hikes, but says some of them simply lack the will to do so. Hunter, who now works with the Consumer Federation of America, warns that state regulators could lose some of their authority to HHS if they don’t get tough on rate hikes. “The only way for the federal folks to get [state regulators] to act is to threaten to take over” if they don’t conduct tougher reviews and keep coverage costs reasonable. “This $1 million carrot is vastly inadequate to do the job,” he adds.

Former Maryland Insurance Commissioner Al Redmer calls the grants a waste of money. “I don’t know of any state insurance administration that does not have some statutory authority to review rates already,” he tells HPW. “Typically state regulators can get what they need from the state legislature. [The grants are] just another attempt to spread federal dollars throughout state bureaucracies throughout the country. It is a [public relations] move.” Redmer is now president of Landmark Insurance and Financial Group and is running as a Republican for a state senate seat.

But Holland says turning to the state lawmakers for help might not be that easy. State legislatures are their “own unique animal” that deal with myriad issues. Moreover, rate review is a complex issue that some state legislatures might not want to tackle. Holland says she doesn’t now have rate approval authority, but says her office has asked health insurers in the state to begin filing rates “and they have been cooperating.” Ultimately the state legislature has to grant the insurance department the authority to conduct rate reviews.

States will be allowed to contribute $18,000 of their grant to the National Association of Insurance Commissioners, and nearly all of the grantees intend to do so, says Praeger. The funding will help NAIC add more capacity to its electronic rate and form filing system and standardize some of its data collection, she says.

Most states intend to use part of the funding to post details about the rate requests on their websites, according to their applications. While such information won’t impact rates, state regulators say it will give the public a better understanding of insurance costs.

Here’s a look at a few states and how they intend to use their funding:

  • Arizona: State regulators check filings in the individual market only for completeness. The additional funding will help the department of insurance improve its review process by hiring an actuarial consultant to review 95% of submissions for compliance, and to make recommendations regarding whether filings are unjustified or excessive.
  • Arkansas: The funding will help create and staff a “consumer-driven advisory council,” improve transparency and communications through an expanded website, and create a Rate Review Center for consumers and issuers.
  • Colorado: In its application, the state said it would use some of the funding to hold web-based town hall meetings and public rate hearings.
  • Illinois: Along with posting filings on its website and conducting public hearings on proposed rate requests, the state will translate web and print health insurance information into Spanish, Polish and Korean.
  • Massachusetts: The state insurance department says it will develop “new analytic tools” to evaluate rates. It also intends to require health insurers to separate claims and administrative data into “standardized buckets,” and develop new models to analyze rate data.
  • Oregon: The state, which now reviews only individual and small-group rate proposals, says it will use some of the federal funding to develop and implement a large-group market rate review process. Much of the grant will be used to examine rates requests and provide information to the public.
  • Wisconsin: Sean Dilweg, Wisconsin’s commissioner of insurance, says his office will use the grant money to improve transparency and consumer education around rate increases, and pay for additional “actuarial resources” that will help review proposed rate hikes and identify trends among health insurers. Some of the funding also might be used in the future to help the department make recommendations on whether a health plan can participate, or continue to participate, in the state’s insurance exchange, which must be operational by 2014 under the reform law.

Kevin S. Wrege, Esq.

President

PULSE Issues & Advocacy LLC

4410 Massachusetts Ave., NW, #150

Washington, DC 20016

Office: 202-625-1787

Mobile: 202-253-4929

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