Despite health-care reform, AZ powerless to regulate premiums - East Valley Tribune: Health

Despite health-care reform, AZ powerless to regulate premiums

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Posted: Monday, August 16, 2010 5:46 pm | Updated: 10:46 pm, Tue Aug 17, 2010.

Arizona is getting $1 million from the federal government “to help crack down on unreasonable health insurance premium hikes.’’

The grant, announced Monday by U.S. Health and Human Services Secretary Kathleen Sebelius, is part of $46 million her agency is giving to states in the wake of enactment of the new federal health insurance law. She said her agency wants to work with states to prevent the kind of double-digit premium hikes that some companies are trying to enact.

But Arizona law sharply limits the ability of the state Department of Insurance to regulate what health insurers charge. And state lawmakers never gave the agency the power to help enforce the new federal health care law.

Erin Klug, spokeswoman for the state insurance department, said her agency has absolutely no authority over what rates are charged by health maintenance organizations. And even with individual policies, state law requires only that companies pay out at least 50 to 60 cents in benefits for every dollar received in premiums, depending on the type of coverage.

By contrast, one of the key provisions of the Patient Protection and Affordable Care Act requires insurers to spend at least 80 cents out of every dollar received in premiums on medical care “rather than administrative overhead.’’ There also is a requirement that insurers to “justify unreasonable premium increases, both to state regulators and her agency.’’

But Arizona insurance officials, responding to a survey by the National Association of Insurance Commissioners, called it “unlikely’’ state lawmakers ever would provide the authority.

The reason, they said, is that Arizona is one of nearly two dozen states challenging the legality of the federal law in the first place. Arizona is objecting to the requirement for individuals to obtain coverage and cost obligations on the state.

And the survey said the agency is powerless to expand even on the limited authority it has because Gov. Jan Brewer last year “instituted an indefinite rule-marking moratorium.’’

Despite that, Klug said she believes there are ways her agency can help ensure that Arizona consumers get the protections of the new federal law, even without specific state legal authority.

The first provisions of that law, which take effect next month, bar insurers from charging for certain preventative care and preclude a lifetime limit on benefits. Other sections preclude rescinding coverage except in limiting circumstances.

Klug said staffers at her agency already have authority to review the forms a company files. What that means, she said, is her agency can compare what is and is not covered and compare that with what is required in the new federal law.

“Now, that’s not grounds for us to disapprove a filing,’’ she said. But Klug said insurers, informed of similar problems in previous instances, tend to fix the mistakes.

And what of recalcitrant companies?

“The answer may be we’re going to send it off to HHS and let them know that we’ve got an insurance company that’s violating a federal law,’’ she said.

Klug said the federal dollars will help her agency even with its limited rate review authority.

What happens now, she said, is an insurer simply files a declaration from an actuary that its rates meet the standards required by Arizona law. So, a company offering a “major medical’’ policy — one with low premiums and high deductibles designed to cover major ailments — must show that 55 percent of what it collects goes out in benefits.

But Klug said her agency does not have the staff to actually review those numbers and pretty much needs to take the company’s word for it. She said some of that $1 million grant will go to the department retaining its own actuarial consultant to actually review 95 percent of the company filings.

Sebelius said that can make a difference.

She cited an instance in California, which does not have authority to deny a company from imposing rate hikes. Sebelius said regulators there decided to review the proposal.

“Their review determined that the company had used erroneous data,’’ she said.

Review of HMO rate hikes, however, will remain off limits in Arizona because lawmakers in this state don’t even require they be filed with the Department of Insurance.

And none of that provides Arizona with any authority over “unreasonable’’ rate hikes by any type of health insurer that will be forbidden under the new federal law. Enforcement of that will have to be at the federal level.

Sebelius conceded Monday her department has no specific formula for what that will entail. She said her agency is talking to consumers, insurers and state regulators before putting together a rule to spell out exactly what makes a rate hike unreasonable.

She said, though, that it can’t be defined by pure numbers.

“A 20 percent rate hike of a company who has not raised rates for five years and, even at 20 percent, is still at the low end of the market is very different than a 20 percent rate hike for someone who this is the fifth year in a row and is 100 percent above market,’’ she said.

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