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Putting a Stop to Big Rate Hikes

One reason people are skeptical of health care reform is that they don't believe it will help reduce their insurance premiums. On Monday, President Obama will give at least some of these people reason to rethink that skepticism.

As part of the proposed House-Senate compromise the administration is unveiling at the White House website, Obama will call for improving the regulation of insurance rates for people who buy individual policies through the new insurance exchanges. The idea, as first reported in the New York Times and explained later by a senior administration official speaking on background, is to give the federal government power to block exorbitant premium increases--like, for example, the 39 percent rate hike Anthem Blue Cross was about to impose on thousands of California beneficiaries earlier this month.

Anthem backed off that proposal, at least temporarily, following a public outcry and a letter of protest from Health and Human Services Secretary Kathleen Sebelius. But, under the new plan, the HHS Secretary could do more than complain about rate hikes. The Secretary could actually reject increases if they were "unreasonable."

The key question, of course, is what constitutes "unreasonable."

Both the House and Senate bills had provisions giving HHS some authority to review rate increases. But, as far as I can tell, the administration proposal would go farther, in part by establishing a seven-member commission to advise HHS on how to judge rates. The commission would include consumer advocates, a physician, various experts, plus one (but apparently only one) representative from the insurance industry.

How much good can this sort of review do? It's hard to say for sure. But regulators in some states already have this authority--and, in at least some cases, they use it. Last week, a deputy insurance commissioner in Arkansas described to me how his department rejected a request from Blue Cross to raise some premiums by 28 percent, forcing the plan to raise premiums by only 11 percent. In Maine, as Columbia Journalism Review's Trudy Lieberman has reported, aggressive regulators have come down pretty hard on some insurers, although insurers have learned to fight back by suing the state's officials.

Anthony Wright, who as executive director of Health Access in California is more than familiar with these issues, sees the proposal as a sort of fail-safe mechanism on premiums:

In California and most of the United States right now, insurers can unilaterally raise rates without justification--especially for individual families and small businesses with little market power. The pending bills already would have provided indirect relief--but rate regulation provides a clear check against insurer abuses.*

Larry Levitt, vice president of the Kaiser Family Foundation, agrees, noting that the proposal could be particularly important in the next few years:

A provision like this could be particularly important in the period before reform goes into effect. Some insurers may not see themselves as playing a major role in the new system, and try to raise premiums in the short term to maximize profits. Reform itself should help to hold excessive increases down in a number of ways, such as broadening the pool of people insured, forcing greater competition through Exchanges, and preventing people with pre-exiting conditions from getting trapped with one insurer.

The administration official describing the plan also pointed out that the new authority would not pre-empt existing state regulations. The feds would step in only if states did not, or could not, stop high rate increases on their own. This ought to allay the concerns of those who worry about the federal government trampling on state rights--or, more generally, about government interfering with the private market. (If Arkansas has this sort of regulation, how radical can it be?)

At the same time, this idea ought to ease the anxiety of those who worried that, without a public option, insurers could jack up rates virtually at will.

None of this is to say rate review is some kind of magic elixir for rising health care costs. Clearly, it isn't. Once I learn more about this idea--I'll resume reporting at daybreak--some downsides will surely become apparent.

There is also a major procedural question to answer: Would the parliamentarian deem this proposal sufficiently relevant to the budget to qualify for part of the reconciliation process under the Byrd rule?

Still, at first blush, this looks like good politics and good policy. That's not a bad way to start off this make-or-break week for health reform.

*Yes, that's the same Anthony Wright who contributes to The Treatment and made the case for rate review just a few days ago in this space. Wright also mentioned that California Senator Diane Feinstein had been working on a proposal along these lines even before Anthem announced its rate hike. Sure enough, the administration official describing the plan said that the White House had consulted with Feinstein in crafting its scheme.