Definition & Overview According to the National Conference of State Legislatures, the rate review process consists of states reviewing rates for health insurance coverage and determining whether rates are “unreasonable.” By 2011, states were required to establish their own thresholds for “reasonable” rates (more specific information concerning Alabama’s standard is pending, following communication with Mark Fowler at the Alabama Department of Insurance); however, federal guidelines indicate a de facto threshold, since insurers seeking rate increases of 10% or more are subject to certain actions (see “Rate Review Requirements” section for further information). The rate review process applies to rates in the individual and small group markets and, beginning in 2014, to qualified health plans offered through the exchange. The rate review process supplements other aspects of the Affordable Care Act designed to keep premium costs down. For example, the ACA requires insurers to spend at least 80% of their premium dollars on direct medical care or improvements to care rather than on administrative and other costs. Insurers offering plans that that fail to meet this standard must pay a rebate to enrollees.
Rate Review Requirements Beyond the state-specific measure of “reasonable” rates, in 2011 all insurers seeking rate increases of 10% or more in individual and small group markets were required to: (1) publicly disclose the amount of the increases and justifications for rate increases (2) submit justifications for the increases to the secretary of Health and Human Services (HHS) prior to implementing the rate increases (3) provide “sufficient data” to the appropriate commissioner with the state department of insurance** to assist the commissioner in determining whether a proposed rate is reasonable and (4) provide “consumer-friendly disclosure forms” that are made publicly available through HHS, state, and/or insurer websites.
As previously noted, by 2011 every state was required to establish a standard for determining whether a proposed rate is reasonable. Furthermore, each state’s Department of Insurance must post on its website rate filings, justifications, or links to the federal government’s posting of rate justifications.
When evaluating whether a rate is reasonable, states must consider: “medical cost trends, changes in utilization, benefits and cost sharing, changes in the risk profile of enrollees, reserves, administrative costs, taxes and fees, and medical loss ratios.”
**Not every state commissioner has the authority to effectively conduct the rate review process (i.e., to influence or regulate rates). In the event that state laws do not authorize regulation by state commissioners, HHS conducts the state’s rate review process. As of February 2012, the Center for Consumer and Information Oversight (CCIIO), a division within HHS, determined that 44 states and the District of Columbia had effective rate review programs in at least one insurance market.
Alabama is one of six states (Alabama, Louisiana, Missouri, Oklahoma, Texas, and Wyoming) where the state is considered to have an ineffective rate review program for either individual or small-group health insurance (please see Figure 1). In Alabama’s case, the state commissioner does not possess the authority to regulate insurance rates, and the legislature did not introduce a widely anticipated bill in 2012 to amend the state’s rate review authority. Therefore, beginning in fall 2011, the Centers for Medicare & Medicaid Services were expected to review health insurance premium increases greater than 10% for individual and small-group insurance plans in Alabama. However, the federal government may only review, not disapprove, increases.
Alabama’s Federal Rate Review Grant Alabama was one of 46 states to apply for a Rate Review Grant Award in the first cycle of applications in July of 2010. On August 16, 2010, Alabama was awarded 1,000,000 to further its rate review process in fiscal years 2010 and 2011. To date, the Alabama Department of Insurance has received more than $10 million in three different HHS grants, including the rate review grant, to implement various aspects health care reform. The grant mandated that insurance rates be published.
Recipients of the rate review grant were required to meet the following conditions:
Provide information to the HHS about trends in health insurance premium increases in rating areas
Recommend excluding particular health insurers from taking part in the exchange in 2014 based on a practice of excessive premium increases
With the Rate Review grant funding, Alabama proposed to: (1) introduce legislation during the 2011 session seeking the authority to review and approve health insurance premiums in the individual and small group market (2) expand the scope of its health insurance premium review to include additional health insurance companies and new lines of business, (3) develop a new review unit in the Department of Insurance, and (4) develop and implement new regulations and establish a standardized filing and review process. The state also indicated it would seek legislative authority to post consumer-friendly summaries of health insurance premium reviews, develop toolkits for consumers, upgrade its existing systems to assist in the rate review process, and conduct town hall meetings for consumer education.
According to a study conducted by the Urban Institute, Alabama reported that outcomes of the grant spending included initiating review of certain rate filings and conducting stakeholder meetings.
Alabama did not apply for the second round of funding; according to the Urban Institute study, respondents who did not apply for both sources of funding stated that they either did not need the additional funding or did not want to rely on federal funds.
Case Study Comparison The Urban Institute study examined ten states that received a rate review grant. Several states were successful in curbing increased premiums:
Rhode Island’s Insurance Commissioner used his rate review authority to reduce a proposed increase by a major insurer in the state from 7.9% to 1.9% (note that like Alabama, Rhode Island only has two insurance providers for individual plans through the marketplace).
Californians were protected from rate increases totaling as high as 87% after a California insurer withdrew its proposed increase in response to scrutiny by the State Insurance Commissioner.
In North Dakota, a proposed increase of 23.7% affecting nearly 30,000 North Dakotans was cut to 14% following public opposition to the increases.
Connecticut’s Insurance Department rejected a proposed 20% rate increase by one of the state’s major insurers.
Five of the ten states in the study also took action to change their legal authority to review rates and collect information from insurers and/or began utilizing rate review authority permitted but not previously exercised. As previously stated, Alabama did not take such action.
Other rate review efforts undertaken by states in the Urban Institute study are included below:
Eight of the states—all but Alabama and Virginia—used grant funds to hire or contract with additional staff to “enable a more comprehensive examination of insurers’ assumptions about cost trends and better market analysis.”
Nine of the ten states (all but Alabama)—used the grants to establish websites that provide information for consumers and opportunities for public input. Grant funds have also been used by other states to host meetings for stakeholders.
Conclusion Alabama appears to have made minimal changes to its rate review process following receipt of the federal Rate Review Grant. Blue Cross Blue Shield retains approximately 88% of the consumer base in Alabama, and due to a lack of legislative authorization, the state cannot review rates independently. Moreover, the federal and/or state reviewer does not appear to have conducted stringent oversight of increased rates, since premium increases affecting Blue Cross Blue Shield plans have been cited at up to 100% (with reports of even higher increases circulating in the media). Finally, very little information concerning specific premium increases and justifications for those increases is publicly available; Blue Cross Blue Shield cites the ACA’s provisions as the source of rate increases but has not responded to requests for the average amount of premium increases.
For more information concerning Alabama’s recent health care reform grants and expenditures, please see Mark Oliver’s “Alabama spent […]” article, cited in the references section.
Stated below is partial copy of an email sent by myself to Demetricus Johnson of the Department of Health and Human Services on 15 November 2013; in this communication, I requested further information concerning the rate review process. Mr. Johnson provided a follow-up email on 6 December in which he indicated that a response from CMS would be forthcoming later in the week.
“First, I would like to provide some context for the information we currently have about the rate review process. One of the more ambiguous aspects of the rate review process appears to be the identity of the individual, department, or group responsible for conducting the process. From what I understand, Alabama is one of 6 states that does not have an effective rate review system for individual or small-group health insurance (in Alabama's case, presumably because the state commissioner does not possess the authority to regulate health insurance rates). Evidently, in the fall of 2011 the Centers for Medicare and Medicaid Services were expected to review health insurance premium increases greater than 10% for individual and small group markets in Alabama. The CMS website indicates that federal independent experts are required to conduct the rate review process.
My understanding is that federal experts/HHS can review rate changes but not regulate them, as regulation of rates is still the onus of states. Therefore, there appears to be an "authority gap" for challenging rate increases, since in Alabama the state legislature failed to grant the Alabama Department of Insurance the authority to regulate health insurance rates.
This leads me to my questions:
Who is responsible for conducting the rate review process in Alabama? Does this individual/group/department at the state/federal level possess the authority to actually challenge or deny rate increases or only to review the increases?
Ms. Koko Mackin of Alabama Blue Cross Blue Shield indicated that BC/BS filed their rates for 2014 with both the Alabama Department of Insurance and the federal Department of Health and Human Services--could you clarify what the relative roles and responsibilities of the two departments are in regard to the rate review process?
Mr. John Pickens, Executive Director of Alabama Appleseed, was advised that Robert Yates is the appropriate contact at the federal government concerning rate review; however, Mr. Pickens was unable to obtain a response to his questions regarding rate review from Mr. Yates. Could you verify whether Mr. Yates is still the appropriate person with whom to communicate about the rate review process in Alabama?
Third, could you confirm when the rate review process was/will be implemented? We were uncertain as to whether rates would or would not be regulated by the rate review authority beginning after the first year of the qualified health plans (i.e., the proposed 2015 rates would be regulated based off of 2014 rates).
If you could provide some guidance regarding these questions at your earliest convenience, I would be deeply appreciative. Essentially, we are trying to ascertain who has the power to monitor and regulate the costs of health care in the state in order to ensure accountability and fairness for consumers.”
Appendix Figure 1
Figure 2 The following table lists the details of Alabama’s grant as described by the Alabama Rate Review Grants Award List. I have provided updates on the outcomes of the grant provisions where possible.
Summary of Grant Provisions and Outcomes from Alabama’s Cycle I Rate Review Grant Award
Pursue additional legislative authority
The Department of Insurance will introduce legislation during the 2011 session that seeks the authority to review and approve health insurance premiums in the individual and small group markets.
Alabama did not amend its rate review authority. While regulators expected rate review legislation to be enacted in 2012, no bill was introduced.
Expand the scope of the review process
Alabama will expand the scope of its health insurance premium review to include additional health insurance companies and new lines of business.
Alabama continues to provide only two health care insurance provider options: Blue Cross Blue Shield of Alabama and Humana.
Improve the review process
The State proposes to develop a new review unit in the Department of Insurance. Alabama also intends to develop and implement new regulations and establish a standardized filing and review process.
Pending response from commissioner
Increase transparency and accessibility
The State will seek legislative authority to post consumer-friendly summaries of health insurance premium reviews, develop toolkits for consumers and conduct town hall meetings for consumer education
Pending response from commissioner
Alabama will upgrade its existing systems to assist in reviewing health insurance
Pending response from commissioner
References “Alabama Rate Review Grants Award List” < http://www.cms.gov/cciio/Resources/Rate-Review-Grants/al.html>
“Federally Approved State Rate Review Programs” “Rate Review FAQ Sheet” “Rate Review” “Review of Insurance Rates”
“Shining a Light on Health Insurance Rate Increases.” 21 December 2010
Corlette, Sabrina, Kevin Lucia, and Kate Keith. “Cross Cutting Issues: Monitoring State Implementation of the Affordable Care Act in 10 States: Rate Review.” September 2012.
Diel, Stan. “Health insurance premiums in Alabama to come under federal review” 15 July 2011. Oliver, Mark. “Alabama spent $3.7 million researching Obamacare --but left $6.9 million unspent.” 7 November 2013. Oliver, Mark. “Who is watching out for excessive health insurance rate hikes under Obamacare?” 4 November 2011
Pear, Robert. “Federal Auditors Will Soon Review Health Insurance Rates in 10 States.” 25 July 2011
Ranaivo, Yann. “Alabama still has ineffective health insurance rate review system.” 12 November 2013