Health Care Reform (9): Rate review to the rescue: Protecting consumers from excessive rate hikes

This is the ninth in an ongoing series of posts examining the Affordable Care Act, including previous posts on health insurance exchanges and temporary high risk pools.  You can also visit the health care reform page on our website for more resources and information.  If you have thoughts on health care reform, we encourage you to comment below or contribute a guest blog.

Addressing the rising costs of care was a driving force behind the passage of national health care reform.   During the long and contentious debates leading up to reform, members of Congress, the media, and the public could all agree on one fact:  health care costs are rising and they are rising fast.  Family premiums for employer-sponsored health coverage increased by 131 percent between 1999 and 2009.  Many factors contribute to the growth of health care spending over time, for example, the enormous expense of supporting an aging population with a longer life span and a greater prevalence of chronic disease.  In addition to a long list of well-documented and legitimate cost drivers, some insurers engage in accounting practices that overestimate expenses and underestimate revenue, artificially inflating consumer premiums.  I recently attended a conference on how to protect consumers from excessive premiums and make health insurers justify rate hikes, hosted by Consumers Union, the nonprofit publisher of Consumer Reports.

The new federal health reform law, the Affordable Care Act (ACA), does not fundamentally alter how states regulate the rates insurers can charge their customers.  However, it does strengthen some basic consumer safeguards, like requiring state insurance commissioners to work with the Department of Health and Human Services to conduct annual reviews of “unreasonable increases” in premiums.  HHS finalized a rule-change in May that makes double-digit premium increases subject to greater regulatory scrutiny. The new health reform law also institutes a standard national medical loss ratio (MLR) of 80 percent (85 percent for the large group market), which requires insurers to spend 80-85 percent of premium revenues directly on medical care, or pay rebates if spending on medical care falls short of that minimum

An 80 percent MLR is a significant victory for consumer protection.  Insurance companies in the individual market spend about 40 cents of every premium dollar on non-medical administrative expenses, i.e. executive salaries and bonuses, sales agent commissions, supplies, advertising and profits.  Maine’s insurance commission even discovered that insurers were attempting to charge higher premiums to cover court costs and lawyers fees from lawsuits the company lost for violating customer contracts.  Before the health reform law was passed, fifteen states enforced a minimum medical loss ratio in the individual market; Oklahoma was not one of them.  FamiliesUSA explains how an MLR benefits consumers:

A handful of states require insurance companies to spend at least 75 cents of every premium dollar on medical care, retaining 25 cents or less for administration, marketing, and profit. In these states, if an insurer does not spend enough premium dollars on medical care, it must either refund consumers or adjust its premiums accordingly for the following year. This requirement is called a minimum medical loss ratio. Without a minimum medical loss ratio, insurance companies can charge very high premiums to individuals and spend a startlingly low proportion of these premium dollars on health care services.

While the Affordable Care Act enacts new consumer protections, each state has interpretation and enforcement authority.  It’s up to consumers and consumer advocates to hold insurers accountable by making sure that state regulators enforce the new MLR and thoroughly review proposed rate increases.  Compared to other states, Oklahoma does an underwhelming job of regulating insurers and rate review is more a filing formality than a consumer protection.  HHS handed our state regulator $1 million dollars to strengthen the processes that would protect Oklahoma consumers from unreasonable rate hikes.  The grant was intended to help the Oklahoma Insurance Department (OID) cover the additional expense of conducting thorough rate reviews, like data collection, hiring new staff, improving their website, etc.  Insurance Commissioner John Doak elected to return the funds to HHS.

Oklahomans deserve the same protection against unfair rate hikes as the residents of any other state.  The Oklahoma Insurance Department should first and foremost be representing the consumer.  Yet, Insurance Commissioner John Doak is more committed to representing the insurance industry, specifically insurance agents and brokers:

I’m an agent.  I’ve made a living doing what you’re doing [..]

I believe that I am here for a specific reason, it’s a difficult time, there is a lot of things that are changing.  But I am here to represent you all, and to protect your jobs, and protect your livelihoods [..]  I have to take the stance to protect your role at every point possible in this discussion.

Doak has also publicly denounced the new regulations he is tasked with enforcing.  Any insurance regulator would be quick to point out that their first priority is the solvency of the insurers in their state.  Obviously, regulating a carrier into bankruptcy would devastate insured families who are counting on their insurer to pay medical expenses.  However, insurance companies continue to post record profits, even while enduring a severe economic downturn.  New consumer protections need the backing and enforcement of the Oklahoma Insurance Department to ensure fairness for families struggling to keep up with ever-rising premiums.