What's A 'Reasonable' Insurance Rate?
What is a good way to determine if insurance rates are reasonable?
Last week, HHS official Jay Angoff, who heads the department's insurance oversight office, said the agency was working on the regulation that would define a "reasonable" increase in health insurance premiums. Angoff said HHS was focused on medical trends, or the rate at which medical expenses generally increase.
"If you [increase premiums] by two or three or four times more than the medical trend," said Angoff, "we wonder how it is justified."
But an August decision from the Massachusetts state insurance division determined that a strict interpretation of medical inflation alone was not enough to deny an increase in one insurance company's rates, because it did not consider future costs or those comparable to the company's prospective claims.
If medical inflation is not a sound calculation on its own, what else should be used to determine reasonable rates? Will a more general picture of rising costs in the health industry produce a sufficient threshold for what is "reasonable"?
September 2, 2010 3:22 PM
It's Time To Focus On The Soaring Cost Of Medical Care
By Karen Ignagni
President and CEO, America's Health Insurance Plans
As working families and small businesses struggle, it has never been more important for the country to address the soaring cost of medical care. Throughout the health care reform debate, discussion centered around health insurance premiums but ignored the most important policy questions facing our health care system: Why are medical costs consistently rising faster than overall economic growth? Why has the use of tests and equipment continued to soar? How have changes in the health insurance risk pool impacted premium rates?
The new health care reform law includes several changes to the way premiums are regulated, but did very little to address the underlying issues that cause premium increases. The legislation include a new federal cap on health plan administrative costs and profits, new processes to review the reasonableness of premium increases, and additional resources to states to conduct these reviews. As final regulations are drafted in these areas it is critical that they be based on objective actuarial standards that take into account all of the fa...
As working families and small businesses struggle, it has never been more important for the country to address the soaring cost of medical care. Throughout the health care reform debate, discussion centered around health insurance premiums but ignored the most important policy questions facing our health care system: Why are medical costs consistently rising faster than overall economic growth? Why has the use of tests and equipment continued to soar? How have changes in the health insurance risk pool impacted premium rates?
The new health care reform law includes several changes to the way premiums are regulated, but did very little to address the underlying issues that cause premium increases. The legislation include a new federal cap on health plan administrative costs and profits, new processes to review the reasonableness of premium increases, and additional resources to states to conduct these reviews. As final regulations are drafted in these areas it is critical that they be based on objective actuarial standards that take into account all of the factors that drive up health care costs. As we saw in Massachusetts, an arbitrary and politicized rate review process can have significant unintended consequences for consumers. In that state, regulators attempted to cap premiums while allowing medical costs to continue to escalate. This action threatened to cause massive instability and disruption for families and employers and was eventually overturned by an appeals panel.
The Massachusetts appeals panel rejected the argument that medical CPI is an accurate measure of how much health care costs are rising. The medical component of the Consumer Price Index (Medical CPI) is an average of prices charged for a defined group of services. It doesn’t reflect hospitals that are demanding double-digit increases or new pharmaceuticals that cost hundreds of thousands of dollars. Nor does it include other major factors that drive increases in health care spending, such as increased utilization, the needs of an aging population, and the increased use of expensive new medical technologies.
Rates that are actuarially justified should be deemed reasonable. This review should continue to be conducted at the state level because states have the experience, infrastructure, and local-market knowledge to review premium rates. If premiums are not allowed to keep up with rising medical costs, it would put at risk the coverage that patients rely on today.
Now is the time for the country to shift focus to the real source of the cost problem and consider solutions that will reduce the future rate of growth of health care costs. Health plans can play an important role in addressing this challenge.
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