New Affordable Care Act insurance rate review rules start September 1

Starting Sept. 1, health insurance rates for the individual and small group markets will face stricter scrutiny to determine whether they are reasonable under new rules required by the Patient Protection and Affordable Care Act. The Centers for Medicare and Medicaid Services will review rates in nine states that lack the authority to adequately do so. The remaining 41 states will conduct their own reviews.

“These new rules, combined with the funding states are receiving under the Affordable Care Act, will trigger much closer scrutiny of health insurance rate hikes,” says DeAnn Friedholm, director of Consumers Union's health reform campaign. “But ultimately, it will be up to the states to protect consumers when rate increases are found to be unreasonable. States need to make sure they have the tools necessary to prevent unreasonable rate increases from going into effect. And some states that have the authority to curb rate hikes need to act more aggressively to prevent insurers from gouging consumers.”

Starting Sept. 1, rate increases higher than 10% will be reviewed by states with rate-review procedures meeting certain standards; states lacking such standards will be reviewed by CMS. CMS will conduct rate review covering both the individual and small group markets in Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming. It will conduct small-group market reviews in Pennsylvania and Virginia.

Prior to implementing a rate hike greater than 10%, insurers will have to submit a “justification” to CMS and state regulators, which the agency will post on its website. Insurers also will be required to post a justification on their websites for rate hikes that are determined to be unreasonable.

Under PPACA, the power to deny or modify each proposed rate increase remains with the states. But not all states have the power to prevent unreasonable rate increases from going into effect or have regulators who exercise this authority. Some state regulators closely examine proposed rate increases and insurers' justifications, but other states have little capability to do so. In most states, consumers do not receive adequate information about rate increases and are not able to participate in the review process through hearings or other public forums. Most states have received federal grant funds to improve their rate review process.

Consumers Union has developed a state model rate review law for individual market plans and is working to encourage states to adopt reforms that ensure greater oversight, transparency and insurance company accountability.