Washington, DC— U.S. Senator Dianne Feinstein, Representative Jan Schakowsky, and Maine Superintendent of Insurance Mila Kofman said strong regulation is necessary to prevent excessive rate hikes and hold down costs under federal health reform. They appeared at a Consumer Watchdog briefing on Capitol Hill today.
The nonprofit consumer advocacy organization released a new report finding that rate regulation has begun to curb insurance premiums in Massachusetts, where the mandate that people buy health insurance -- the model for the 2010 federal reform law -- failed to control costs. Other states that are instituting or strengthening state laws requiring rate review and approval of health insurance rates, including New York, Oregon and Maine, are also seeing cost-control results. States without regulation of health insurance rates have seen massive and unjustified rate increases take effect with no power to stop them.
“Regulation of health insurance rates will lower premiums, incentivize insurers to control costs and thus save health reform,” said Harvey Rosenfield, founder of Consumer Watchdog and author of California insurance rate regulation initiative Proposition 103. “The Massachusetts mandate on individuals to purchase insurance from companies can expand access when premiums are subsidized, but we now know it won’t lower prices for consumers. Experience in states from California to New York has shown that rate regulation is the only way to force insurance companies to open their books, justify spending, and block excessive profits. Federal health reform will fail if insurers are allowed to continue raising premiums unchecked and consumers are priced out of the private health insurance market.”
“While insurance premiums continue to spiral out of control, CEO's paychecks are getting bigger, and insurance companies are spending less on medical care and more on profits,” said Senator Dianne Feinstein (D-Calif). “Today, in 17 states including California, state regulators do not have authority to block or modify insurance rate increases that are excessive, unjustified, or discriminatory. In order to protect consumers from skyrocketing insurance premiums, state regulators need this explicit authority to ensure rates are justified. This is why I have introduced the Health Insurance Rate Review Act of 2011, and why I have endorsed state legislation in California, AB 52, to close this loophole.”
“Maine’s comprehensive rate reviews of individual health insurance policies have saved consumers millions,” said Maine Superintendent of Insurance Mila Kofman. “Our current approach includes public hearings around the state and the involvement of the Attorney General and consumer groups as intervenors. The rate filings and the backup data is public. Transparency and accountability are essential for effective consumer protection.”
“Insurance companies have increased rates by double digits over the past several years – one of the reasons we needed health care reform in the first place. Experience shows that consumers benefit when there is a cop on the beat – an insurance regulator not just with the power to review premiums but with the authority to block increases that are not justified. The Consumer Watchdog report proves that all consumers – individuals, families and businesses – benefit when insurance companies are prevented from imposing unjustified rate increases, “ said Representative Jan Schakowsky (D-Ill).
The primary conclusions of the Consumer Watchdog report are:
The Massachusetts “mandate” model did not control premiums.
Massachusetts’ 2006 health reform law was the model for federal reform. It was predicted that the mandate on individuals to buy insurance from private firms would bring healthy people into the system and lower insurance costs and rates. However, premiums in Massachusetts remain the second-highest in the nation. Consumers and businesses are shifting to lower-benefit policies in response. The state is now racing to put in place strong rate regulation as the increases threaten the viability of the 2006 reform.
- Between 2006 and 2009, premium growth in Massachusetts outpaced the national average: Family insurance premiums increased 18.4% in Massachusetts, compared to 13.4% nationally. Single insurance premiums increased 19.8%, compared to 14.5% nationally.
- Massachusetts started requiring insurance companies to justify their rates in 2010. Rate increases for small businesses that were as high as 25% in 2010 were all below 10% in 2011.
States moving to add or strengthen regulation are bringing down insurance rates.
Independent examinations of health insurance rate hike requests have uncovered math errors favoring the insurers, indications that rates were deliberately padded, and exaggerated projections of future losses. States that are moving to add prior approval regulation, or enforce laws already on the books, are showing success in reducing the rate of premium increases.
- New York: New rate requests were trimmed by an average 25% after the state’s prior approval law was re-instated in 2010.
- Oregon: Rate increase requests by the largest insurer in the state’s individual market were reduced by more than 25% since 2008.
- The Maine Supreme Court just dismissed Anthem’s appeal of a decision by the state superintendent of insurance to reduce an excessive health insurance rate increase based on consideration of the company’s overall profitability.
California property insurance regulation contains keys to successful rate oversight.
California’s voter-approved Proposition 103 is the model for effective regulation that protects consumers from unjustified rate hikes. The law, which regulates auto, homeowners and business insurance (but not health insurance), requires prior approval of every rate change by the insurance commissioner, prevents insurers from passing on excessive administrative costs and profits to consumers, and allows consumers to independently challenge rates and be reimbursed for their time.
- Drivers have saved $62 billion since 1988.
- California is first among all states in holding down auto insurance premiums, with a 3.8% increase compared to an average national increase of 42.9%, through 2008.
- California has the 4th-most competitive auto insurance market in the country.
Proposition 103’ protections translate directly to health insurance regulation.
Federal health reform does not require prior approval of rates
Although the 2010 federal reform law encourages rate oversight, none of its provisions require effective regulation of rates. The health reform law contains two provisions addressing what health insurers may charge:
- States or HHS must review “unreasonable” rate increases. However, the federal law does not give states or HHS authority to modify or deny rates that are “unreasonable,” and consumers have no opportunity to challenge proposed rates.
- Health insurers are required to spend 80% or 85% of premiums on medical care and health quality improvements, limiting administrative costs or profits. However, this system encourages insurers to pad and inflate medical spending numbers in order to increase the dollar amount they can collect for overhead and profit.
HHS is expected to issue final regulations for review of “unreasonable” insurance rate hikes under the 2010 federal reform law by June 1.
States should be primary regulators, with federal backup if they fail.
- State lawmakers should enact prior approval regulation of health insurance rates and public participation rules, and citizens in the 24 states with the initiative process should take the fight to the ballot if they do not.
- HHS should encourage prior approval regulation through its bully pulpit and grant-making powers.
- Congress should give HHS the authority to regulate rates when states fail to enact or enforce prior approval laws and the right of consumer participation.
Sen. Feinstein and Rep. Schakowsky (S137, HR416) have introduced legislation in Congress that would amend the federal health care law to authorize HHS to reject excessive and unjustified health insurance rates if states fail to regulate rates.
Download the report here: http://www.consumerwatchdog.org/resources/cwrateregulation.pdf
Health insurance premiums increased 138% in the last decade while medical inflation rose just 31%, according to the Kaiser Family Foundation. All five of the largest health insurance companies continue their trend of profit increases throughout the recession, with 1st quarter 2011 financial results showing profits up from the 1st quarter of 2010 by an average 16%. Consumer Watchdog’s report finds that, if premium increases continue unchecked, health reform will fail in its primary goal of expanding access to health coverage because individuals will increasingly be unable to afford private insurance.
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Consumer Watchdog is a non-partisan public interest organization with offices in Santa Monica, CA and Washington, D.C. For more information, visit is on the web at http://www.ConsumerWatchdog.org