Impact of State Rate Review Regulation on Health Insurance Premiums
Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization Program (Grant No. 69906). This grant included a sub-award to the University of Minnesota.
California Program on Access to Care, School of Public Health, University of California, Berkeley and University of California Office of the President
April 1, 2012 – September 1, 2014
Policy Context and Background
During the past decade, increases in health insurance premiums have outpaced inflation. In the individual market, the mean premium for single coverage increased 43 percent from 2001 to 2008, or twice the rate of inflation. In the small group market, it increased 53 percent from 2001 to 2009, or 2.5 times the rate of inflation. These escalations have made insurance unaffordable to many families and small employers.
Under the Affordable Care Act (ACA), effective September 1, 2011 or later, all states must review and determine the reasonableness of proposed rate increases at or above 10 percent. If the state did not have an effective rate review program, the U.S. Department of Health and Human Services (HHS) would determine the reasonableness of these rates increases, but would not have the authority to disapprove the proposal.
Most states have two main forms of rate review programs: “file and use” and “prior approval.” For either type, insurers must file rates. Under file and use, insurers are able to apply the rate without the state’s approval. Under “prior approval” (the most common type of rate regulation), carriers cannot use a rate until it is approved by the state’s health insurance regulator or the rate is “deemed approved” after a specified period of time passes (typically 30 or 60 days). In some states this authority is relatively limited. In these cases, a regulator can only use one criterion to determine whether a rate was excessive or unreasonable: a statutorily- or regulatory-established anticipated loss ratio requirement.
Just before the passage of the ACA, approximately thirty-five states had some statutory authority to prohibit a carrier from using a rate if it was excessive or unreasonable in relation to benefits provided.
Several recent studies have described states’ rate review regulation; however, none quantitatively assesses its impact on premiums. Our objective is to fill this gap. The research questions include the following:
- What was the impact of prior approval authority versus a file and use requirement or no rate review regulation on health insurance premiums, in the individual and small group markets from 2001-2013?
- How did states respond to the federal incentives to establish a rate review program, and, like other aspects of the ACA, did this decision vary by political party control of the state?
Data Collection and Methods
We collected information on the rate review authority and loss ratios of all fifty states and the District of Columbia between 2001 and 2013. Our primary sources of information for rate review authority and minimum loss ratios were statutes, regulations, and insurance department bulletins, and we consulted with state regulators and legislative librarians to confirm the accuracy of our information.
Understanding the impact of rate review regulation holds significant policy interest, given the number of states with prior approval authority and the number of pending bills designed to enhance a state’s authority. With the Affordable Care Act, the federal government is becoming involved in states’ rate review process. Our study will inform states and the federal government on whether rate review regulation moderates health insurance premium increases, thus making insurance more affordable to families and small employers.
Karaca-Mandic, P., B. Fulton, A. Hollingshead, and R. Scheffler. 2015. “Stronger State Rate Review Authority is Associated with Lower Premiums in the Individual Market.” Health Affairs (publication date: August 3, 2015).
Fulton, B., A. Hollingshead, P. Karaca-Mandic, and R. Scheffler. 2015 (Forthcoming). “Republican States Bolstered their Health Insuarnce Rate Review Programs Using Incentives from the Affordable Care Act.” Accepted for publication in Inquiry (publication date: October 2015).
Working Papers and Reports
Fulton BD, Karaca-Mandic P, Tsan-Yao H, Scheffler RM. “Association between State Health Insurance Rate Review and Health Insurance Premiums in the Individual Market, 2002-2013” (working paper).
Fulton BD, Scheffler RM. “Health Insurance Premium Rate Review: Case Studies to Inform California.” Berkeley, CA: California Program on Access to Care, 2012.
August 3rd, 2015 – Study: State-level prior approval authority over health insurance rates in the individual market from 2010 to 2013 was associated with a 10 percentage point lower rate of increase in premiums