New rules require insurers to justify rate increases

December 21, 2010

The Obama Administration has rolled out new rules requiring health insurers to justify any annual rate increases of more than 10 percent.

The proposed regulations, unveiled Tuesday by Health and Human Services Secretary Kathleen Sebelius, represent an escalation of federal involvement in a field historically left to the states.

But the White House said only 26 states have the power to block unreasonable rate increases, and many states lack the resources to effectively police the insurance industry. The new federal rules will come with $250 million set aside in the health reform bill to beef up state regulatory bodies, which will implement the 10 percent rule and examine the insurers’ justification. In states that still cannot handle the increased workload, the federal government will perform the review.

States that don’t now have the power to block rate increases, including California, won’t get that power under the new federal regulations. But they will have the ability to force companies to publicly defend their rates. In theory, that increased level of transparency will lead to smaller increases.

California Gov. Arnold Schwarzenegger signed legislation in October that requires insurance companies to give 60 days public notice before raising rates and to provide more information justifying their rate increases to state regulators.

Here is an HHS statement on the regulation.

–Daniel Weintraub

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