In industry circles, it’s no secret that the medical loss ratio, which allows the federal government to dictate an insurer’s profit margin, is one of the most controversial parts of health care reform. Closely tied to this MLR mandate is increased regulation at the state level, which brings carriers’ annual premium rate hikes under the scrutiny of state insurance departments.
In 2010, the Department of Health and Human Services distributed $46 million to help push along this increased regulation. This year, another $200 million will go to the states to make insurance premiums more transparent and give them greater power to stop what they determine to be unreasonable premium increases.
Approximately $149 million has been allotted to improve the rate review process and increase rate transparency across all states. Another $50 million will go to states that meet specific standards: $22.5 million for states with larger populations and more health insurers, another $27.5 million for states that have already granted or will grant their insurance departments the ability to reject higher rates.
California will receive some of this money: The state’s size and number of insurers makes it a prime contender for a piece of the $22.5 million pie – what the Department of Health and Human Services has named “workload” grants. But state Insurance Commissioner Dave Jones is vying for more.
“I have every intention of securing California’s fair share of these funds … however, we will miss out on some of these federal funds unless rate regulation legislation is passed this year,” said Jones, an active proponent of premium rate reviews, in a recent statement. “I strongly urge the legislature to pass this important legislation, not only to increase the level of federal funding available to California, but to increase consumer protections, as well.”
The agent’s perspective
So what do agents think about premium rate reviews? According to Agent Media’s 2011 Health Insurance Market Study, opinions are split: Forty-two percent of agents support premium rate reviews for private insurance, 33 percent do not support them, and 25 percent aren’t sure what to think.
This division may be partly due to a lack of knowledge. When asked for their thoughts on the current rate review process in their state, 31 percent of agents said that they didn’t know what their state’s process was, a higher percentage than any other response option. The truth is that these rate increases may not hold that much meaning for agents. With or without greater rate restrictions, most carriers are already substantially dropping commissions. Thirty-five percent of agents said that their commissions were being lowered by 91 to 100 percent of their individual major medical carriers, and some by as much as 50 percent.
John Barrett, founder and managing partner of the Pasadena-based Health Insurance Brokers, said that he is not concerned about increased rate regulation, though he is very worried about the state of the industry.
“I don’t think [revisions to the rate review process] will hurt the industry. I do think the industry is hurting the agents,” Barrett said. “The major fact is until they repeal the anti-trust agreement, which they may very well do, like in New York, in California, the mandates are causing the premium increases.”
Broker Earl Dworkin agreed.
“What I know and what I see and what I hear is that [even if the rate review legislation goes through], nothing is going to change. Everything’s on the table; nothing will change until 2014,” he said. “It’s all lip service. And if the repeal is in place, [the insurers] won’t have to do what they don’t want to do.”
The bigger picture
Just over half of the states have the authority to approve or reject rate increases, and another dozen or so are applying for greater authority.
Those states that have passed this legislation have used their veto power. In Massachusetts, for example, state insurance authorities rejected 235 of 274 rate filings over the past year, citing them as “unreasonable or excessive.” In Connecticut, the state commissioner recently rejected a 19.9 percent rate increase proposed by the state’s largest insurer.
With more federal funding now on the table, it seems likely that California will join the list of regulating states in the next few months. Perhaps, as predicted, this legislative change will not have any immediate effect on agents. Perhaps the damage has already been done through lowered commissions. What this change will do, however, is continue to shift the industry’s power away from the industry. As with so many pieces of the ACA, a tighter rate review process means that agents must continue to consider how they will fit into a radically changing insurance landscape.
Nichole Morford is the managing editor of the Agent’s Sales Journal. She can be reached at NMorford@SBMedia.com.