For the nearly two years, medical utilization has been lower. When combined with regulatory analysis, reductions in administrative expenses and more pressure on providers to improve effectiveness, many health insurers have been able to hold rate increases to single digits.
But that could change if utilization increases. Any rate increase could be met with much regulatory scrutiny. By June 1, HHS intends to publish state-specific thresholds for rate increases in the small-group and individual markets, and has been working with the National Association of Insurance Commissioners to determine what to look at when determining state-specific thresholds. In some cases, state thresholds could be higher than 10%.
The threat of federal rate review might have some health insurers calculating rate increases more carefully and negotiating lower reimbursement rates from providers more aggressively. It is possible that the new federal oversight might not have much of a direct impact on coverage costs, but could help to reveal the underlying medical costs, which is a factor in driving up premium increases.
Some believe that the additional level of federal oversight is redundant and will add cost to the product they want to moderate. They believe that rate review should be left at the state level. Last year, CMS’s Center for Consumer Information and Insurance Oversight (CCIIO) determined that seven states — Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming — lack the resources and/or authority needed to properly regulate the individual and small-group markets. In three other states, Iowa, Pennsylvania and Virginia, federal regulators can review only the small-group market while state regulators are responsible for the individual market. In some states, small-group insurance products had not previously required rate.
When it comes to rising coverage costs, insurance companies are an easy target. Regulators are limited in what they can do to control rate hikes – until there is a more meaningful delivery system. That is to say, changing fee-for-service medicine into something like a value-based purchasing model.
Regardless of the federal oversight, rates will push higher over the next several years because there is no pressure on provider charges to decrease. The cost shifting that is occurring by hospitals to the commercial sector is because of the reductions in reimbursements from Medicare and Medicaid. A possible solution: governmental regulation of the hospital rates that are charged to commercial health plans.
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