The Role of Rate Review in Managing Premiums

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In the lead up to the launch of insurance marketplaces on October 1, many state insurance regulators poured over premium rates; among them members of Connecticut’s Insurance Department. In a recent article in The Courant, Matthew Sturdevant explained that before insurers could sell products on Connecticut’s health insurance exchange, they needed the department’s approval of those premiums across the four metal levels, bronze, silver, gold and platinum. The article is just one example of how review is becoming an increasingly important and visible component of striking the balance between consumers’ goal to secure affordable insurance and insurers’ goal to remain competitive and sustainable across markets.

Among its key features, the Affordable Care Act (ACA) provides that the Department of Health and Human Services (HHS) will work with states to protect consumers against unreasonable premium rate hikes. Under the law, insurers must submit for review and publicly justify any rate increase of ten percent or higher for non-grandfathered plans. HHS awarded $250 million in grants for the period 2010-2015 to assist states in their individual rate review processes.

States vary in how they go about reviewing insurance rates. Some states use “prior approval” authority that prohibits insurers from implementing or changing insurance rates without the insurance department’s approval or until a certain time period has passed. Other states utilize “file and use” authority under which insurers must file rate changes with the department but may proceed with implementation without approval.

Proponents of states’ rate review authority claim that it has mitigated premium increases, thus making insurance more affordable for families and small employers.  Opponents argue that it has little to no impact. While recent studies have described states’ regulatory processes, there is a lack of evidence quantifying the effect of rate review regulation on premiums.

In an ongoing HCFO-funded study, Richard Scheffler, Ph.D., Brent Fulton, Ph.D., and colleagues at University of California, Berkeley are estimating the impact of states’ health insurance rate review authority and practice on health insurance premiums.  They are collecting information on each state’s rate review process and examining how states exercised that authority from 2001-2010 in the individual and small group markets. As policymakers continue to identify the most effective way to control the cost of health insurance, findings from this study will help determine the value of rate review as one possible tool to moderate increases.