Reporting from Washington — Public outrage over double-digit rate hikes for health insurance may have helped push President Obama's healthcare overhaul across the finish line, but the new law does not give regulators the power to block similar increases in the future.
FOR THE RECORD:
Insurance premiums: An article in Tuesday's Section A about insurance premium regulation reported that the recently enacted healthcare legislation would for the first time require insurance companies to dedicate at least 75% of their premiums to paying medical claims. The law places that requirement at 80% for plans serving individuals and small groups and at 85% for plans serving large groups. —
And now, with some major companies already moving to boost premiums and others poised to follow suit, millions of Americans may feel an unexpected jolt in the pocketbook.
Although Democrats promised greater consumer protection, the overhaul does not give the federal government broad regulatory power to prevent increases.
Many state governments -- which traditionally had responsibility for regulating insurance companies -- also do not have such authority. And several that do are now being sued by insurance companies.
"It is a very big loophole in health reform," Sen. Dianne Feinstein (D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are pushing legislation to expand federal and state authority to prevent insurance companies from boosting rates excessively.
At least in the short term, regulators will be able to do little more than require insurers to publicly explain why they want to raise rates. Consumer advocates think that will not be an effective deterrent against premium increases such as the 39% hike that Anthem Blue Cross sent some California customers last year.
"The irony here is that it was the Anthem rate increase that breathed new life into the healthcare bill," said Jerry Flanagan, medical policy director of Consumer Watchdog, a longtime supporter of tougher premium regulation. "But there is nothing in this bill to guarantee that it doesn't happen again."
The lack of muscle is stoking concerns that more rate jumps -- and an angry backlash from ratepayers -- could undermine support for implementing the healthcare overhaul.
Insurance industry officials say that talk of more regulation is misguided and have urged federal officials to focus instead on containing rising medical costs, which help drive up premiums.
"Politicians are much more comfortable looking at healthcare premiums," said Karen Ignagni, president of America's Health Insurance Plans, the industry's Washington-based lobbying arm.
Ignagni, as well as some independent healthcare experts, said policymakers should look at ways to control what hospitals and other providers charge, although few elected officials have shown much appetite for doing so.
Obama endorsed Feinstein's insurance proposal this year, including it in the healthcare blueprint he unveiled in February as Democrats were struggling to revive their proposals. But congressional rules prevented Democratic leaders from including the rate control provision in the final healthcare package.
Many consumer advocates think this enhanced regulation -- known in the industry as "prior approval" authority -- is the only real way to protect ratepayers from insurers, particularly for-profit companies under pressure to generate returns that satisfy Wall Street investors.
Prior approval requires insurers to submit proposed rate increases to regulators, who can then comb through companies' financial and actuarial data to see if the proposals are justified.
Insurers cannot raise premiums without explicit permission from the regulator.
Some states have given prior approval authority to their insurance commissions and have used it to force down premiums.
In New York, the state insurance department reduced nearly a quarter of the proposed premium increases between 1990 and 1995, according to a recent department analysis.
More recently, state regulators in Kansas successfully pushed Blue Cross Blue Shield of Kansas to reduce a proposed premium increase for some of its elderly customers, according to state Insurance Commissioner Sandy Praeger.
California, which does not have the power to block health plan increases, has been using similar authority to control property and auto insurance premiums for more than 20 years, said Dwight M. Jaffee, a real estate and finance professor at UC Berkeley's Haas School of Business. "It has been very successful," said Jaffee, who studied the state's experience.
Health insurance, however, is more complicated than property and auto coverage. And even the most active state regulators typically cannot investigate every proposed change in every segment of the insurance market.