In an attempt to provide consumers with added protection in the insurance market, new federal regulations will require health insurance companies to disclose and justify any rate increases of 10% or more next year. State or federal officials will then review such increases to determine reasonability.

The summary of the proposed requirements in the Code of Federal Regulations state:

“This document contains proposed regulations implementing the rules for health insurance issuers regarding the disclosure and review of unreasonable premium increases under section 2794 of the Public Health Service Act. The proposed rule would establish a rate review program to ensure that all rate increases that meet or exceed an established threshold are reviewed by a State or HHS to determine whether the rate increases are unreasonable. The proposed rule represents a major expansion of federal authority in an area long regulated by states.”

Kathleen Sebelius, the secretary of health and human services (HHS), stated this would “help rein in the kind of excessive and unreasonable rate increases that have made insurance unaffordable for many families.” Under the Patient Protect and Affordable Care Act of 2010 (Health Care Reform), these rates are subject to annual review of “unreasonable increases in premiums for health insurance coverage.” The meaning of “unreasonable” is not defined in Health Care Reform.

For the past few years, individual and small-group premiums have increased more than 10% each year on average.  This threshold may change, however, when in 2012 the federal government sets a standard for each state that reflects individual trends and costs.

Under the proposed requirements, the first assessment will be of each state’s protocol for reviewing insurance rates. States with adequate oversight will continue to conduct the reviews, but according to the Obama administration, “if a state lacks the resources or authority to do thorough actuarial reviews, [HHS] would do them.”

Under new federal law, insurers that show “a pattern or practice of excessive or unjustified premium increases” can be excluded from the state-wide exchange system set to start in 2014.  A rate increase is defined as excessive if it “causes the premium charged for the health insurance coverage to be unreasonably high in relation to the benefits provided.”

The “health insurance exchange” created under Health Care  Reform is intended to be a marketplace designed to offer affordable high-quality health insurance options. By 2014, state-based health insurance exchanges are expected to provide consumers with a variety of private health insurance plans to consider, focusing on individuals and small employers with 50 to 100 employees.

For an insurer to increase rates in excess of 10% for any insurance product sold to individuals or small groups, it must first file a “preliminary justification” for an increase of 10 percent or more. If state or federal officials disagree and find the increase unreasonable, the insurer must then file a final justification.

HHS estimated that 5,343 rate filings would be subject to the proposed rule in 2011, and 773 of those would meet or exceed the threshold for review. HHS also estimates the new regulations may cost insurers between $10 and $15 million in 2011, and then approximately $4.5 million a year between 2011 and 2013.

[audio:http://hospitalstay.com/wp-content/uploads/2010/12/6-03-State-Of-Confusion.mp3|titles=State Of Confusion]

Additional information can be found online at the Wall Street Journal and New York Times Websites.