Federal health reform implements a provision to require a review of what is called "unreasonable" increases in the cost of medical insurance. Here in Connecticut the General Assembly passed a law in the 2011 session to also review rates. It even included a provision to hold a symposium on proposed increases! If I recall the proposal was to have one of these up to four times a year at an estimated cost over 7 figures. Luckily the Governor vetoed this bill because of the big cost and that it duplicated existing regulations.
Anyway lets do a quick look at what a medical insurance rate review might do?
Background: Over quite a few years 85% of each premium dollar small businesses pay for their medical insurance goes to pay medical treatment costs. Of the 15%, which is for plan administration about 3% is for company profit. Consequently, rates have been going up 10% or more each year because of the rapidly increasing medical treatment costs. Data also is available that connects about 70% of these treatment costs to lifestyle choices such as smoking, eating to many burgers and fires, etc.
Now to reviewing rates: Conn. has regulations that proposed premium increases have to be sent to Connecticut's Insurance Department along with lots of justification. The federal Department of Health and Human Services (HHS) recently issued regulations to implement the federal law. It states a public review must be held for any increases of 10% or more.
The question to be asked then is - What is a public hearing going to do to change peoples lifestyle choices and the increasing amount of dollars going for treatment? Yes no one likes to pay more for medical insurance but folks jumping up and down at a public hearing to complain about all this is certainly not going to change ever increasing medical treatment costs.
One interesting thing about requiring increase reviews it's just a kind of price control and results in what is called a price ceiling, which really becomes a price floor. In other words a medical insurance company might have, for competitive reasons, sent in a proposed increase of 7.5% now can just send in 9.9% and the federal regulators will be happy. Studies of price controls have documented this effect does happen! Again - what did that do for consumers?
There is another purpose for Connecticut's regulations to review rate increases and that is to watch for examples of a company keeping rates low to attract more business when in fact the increase will not cover their treatment costs. This could result in the company becoming insolvent! If that were to happen policy holders and taxpayers (you & I) would become liable for the treatment costs the company could not pay!
Guess what? The federal HHS also provided big grants of about 1 million to each state, including Connecticut, to set up the procedures for these rate review hearings! I raise the point these federal review procedures could very easily conflict with the procedures Connecticut has developed during it's long history of premium review regulations! Who is the better regulator to look for what is best for Connecticut residents. State procedures, which have evolved over time, or federally mandates procedures?
Bottom line - what does all this do to control the cost of medical insurance!