In industry circles, it's no secret that the medical loss ratio, which allows the federal government to dictate an insurer's profit margin, is one of the most controversial parts of health care reform. Closely tied to this MLR mandate is increased regulation at the state level, which brings carriers' annual premium rate hikes under the scrutiny of state insurance departments.
In 2010, the Department of Health and Human Services distributed $46 million to help push along this increased regulation. This year, another $200 million will go to the states to make insurance premiums more transparent and give them greater power to stop what they determine to be unreasonable premium increases.
Approximately $149 million has been allotted to improve the rate review process and increase rate transparency across all states. Another $50 million will go to states that meet specific standards: $22.5 million for states with larger populations and more health insurers, another $27.5 million for states that have already granted or will grant their insurance departments the ability to reject higher rates.
California will receive some of this money: The state's size and number of insurers makes it a prime contender for a piece of the $22.5 million pie – what the Department of Health and Human Services has named "workload" grants. But state Insurance Commissioner Dave Jones is vying for more.
"I have every intention of securing California's fair share of these funds … however, we will miss out on some of these federal funds unless rate regulation legislation is passed this year," said Jones, an active proponent of premium rate reviews, in a recent statement. "I strongly urge the legislature to pass this important legislation, not only to increase the level of federal funding available to California, but to increase consumer protections, as well."
The agent's perspective
So what do agents think about premium rate reviews? According to Agent Media's 2011 Health Insurance Market Study, opinions are split: Forty-two percent of agents support premium rate reviews for private insurance, 33 percent do not support them, and 25 percent aren't sure what to think.
This division may be partly due to a lack of knowledge. When asked for their thoughts on the current rate review process in their state, 31 percent of agents said that they didn't know what their state's process was, a higher percentage than any other response option. The truth is that these rate increases may not hold that much meaning for agents. With or without greater rate restrictions, most carriers are already substantially dropping commissions. Thirty-five percent of agents said that their commissions were being lowered by 91 to 100 percent of their individual major medical carriers, and some by as much as 50 percent.
John Barrett, founder and managing partner of the Pasadena-based Health Insurance Brokers, said that he is not concerned about increased rate regulation, though he is very worried about the state of the industry.
