Should health insurance premiums be regulated?

helath insurance premiumsFederal legislators have found a major hole in the regulation of health insurance premiums before the new health care reform takes effect.

This hole could lead to even more dramatic increase in premiums than the 39% increase announced by Anthem in California in February as the health care law was being debated in Congress. Missing from that law is the ability to regulate unreasonable or unjustified rate increases by the federal government.

Senator Tom Harkin (D-Iowa), during a hearing of the Senate Committee on Health, Labor Education and Pensions called "Protection from Unjustified Premiums," said that "about 22 states in the individual market and 27 states in the small group market do not require a review of premiums before they go into effect ... This is a gaping hole in our regulatory system."
Unfortunately, even with all the time spent debating the health care bill, no one thought to add a protection for consumers prior to the start date of the new exchanges for purchasing health insurance in 2014, so the old rules will stay in effect and health insurance companies can quickly jack up rates between now and then. Sounds very similar to what happened with credit card rates before the new CARD act took effect in February.

Sen. Diane Feinstein (D-Calif.) noticed the hole when Anthem announced its 39% increase in February but, because of procedural rules, could not add an amendment to the bill, so instead she's introduced the "Health Rate Authority Act of 2010" to make it possible for the federal government to block unreasonable premium increases. During the hearing, Feinstein said, "I am concerned that health insurance companies will continue to do what they have done for far too long: put their profits ahead of people."

As part of her testimony on the bill, she pointed to the profits health insurance companies enjoy:
  • WellPoint, the corporate parent of Anthem/Blue Cross, earned a $4.7 billion profit in 2009, and its CEO received $13.1 million in total compensation in 2009, which was a 51% increase.
  • Insurance companies including WellPoint, UnitedHealth, Humana, and Cigna saw profits increase 56% from 2008 to 2009, from $7.7 billion to $12.1 billion. Only Aetna saw their profits decrease.
California was not the only state to see dramatic increases. Feinstein pointed to others in her testimony, including Blue Cross/Blue Shield of Michigan (56% increase requested for individual market plans in 2009); Regency Blue Cross Blue Shield of Oregon (20% increase requested); and Anthem requested 24% in Connecticut's individual market. Only in Connecticut did regulators approve a reduced amount of 16.5%.

Michael T. McRaith, director of the Illinois Department of Insurance, added his voice of support for federal regulation at the hearing. McRaith said, "Less responsible insurers may opt to increase premiums dramatically, and unnecessarily, in anticipation of the comprehensive reforms effective January 1, 2014. Health insurer rate regulation, therefore, is essential to prevent both inadequate and excessive premiums."

McRaith also explained that in Illinois, the "absence of prior approval rate regulation for health insurance exacerbates the dysfunction in a health insurance marketplace" that he believes fails to "perform efficiently or effectively for Illinois' businesses and families."

Not surprisingly, Karen Ignagni, president and CEO of America's Health Insurance Plans, opposed the bill and said that the Congress should let the new bill take effect before adding on new regulations. She blames the explosive growth of medical costs. She testified that hospitals and health care providers dictate prices.

Her views were supported by Grace-Marie Turner, president of Galen Institute, a think tank that advocates for free-market health policies. She said in her testimony that "capping premiums without recognizing the forces that are driving up costs would be like tightening the lid on a pressure cooker while the heat is being turned up."

If the bill is passed, the Secretary of Health and Human Services would conduct reviews of potentially unreasonable rates in states where the Insurance Commissioner does not already have the authority or capability to do so, Feinstein explained. If a problem is found, the secretary could block an increase or provide rebates to consumers. The secretary will work with the National Association of Insurance Commissioners to implement the rate review process.

For states that already have a protection in place for consumers on health insurance rate increases, the federal government would not get involved. But in states where consumers are not protected by state intervention, the federal government will have the power to step in.

The legislation would create a Rate Authority, which will be a seven-member advisory board to assist the secretary with his rate review responsibilities. The board would include consumers, insurance industry representatives, medical practitioners and other experts.

Feinstein believes that "health insurance should be no different than utilities," because it is "vital for life." So it too should be "strictly regulated so people can afford this basic need."

That's the conundrum the insurance industry faces. Are insurance companies in business purely for profit, or are they a public service industry just like the utility industry?

Lita Epstein has written more than 25 books, including The Complete Idiot's Guide to Social Security and Medicare and The Pocket Idiot's Guide to Medicare Part D.
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