What Processes Do States Use to Review Variation in, and Overall Prices of, Premiums?

Some states require strict “prior approval” of proposed premiums. In these states, the insurer files documents showing its proposed premiums and explaining why higher premiums are justified given the expected costs of medical claims, administration, and other factors. The insurer cannot actually begin charging the proposed rates until the state’s department of insurance approves them.

A larger number of states with prior approval laws on the books include provisions to “deem” proposed premiums as approved if the state does not respond by a given time. Insurers can begin charging their new rates after that time, but the state can always challenge the ratings and require revisions later.¹

Still other states allow insurers to “file and use” a premium rate structure. In these states, the insurer files documents showing its proposed premiums, but it need not wait for state approval before it begins charging those premiums. The state may eventually review all premium filings, a sample of premium filings, certain filings in response to a complaint, or premiums that appear to be unusually high or low compared to other insurers. If the state determines that the premiums are not in compliance with state requirements or were not based on sound actuarial principles, the state may require the insurer to make prospective or retroactive adjustments.

States may also perform “market conduct examinations” of insurers. Market conduct examinations can be used to look at the products sold by a health insurance company, the agents’ sale practices, claims payment, underwriting standards, complaint data, a company’s internal oversight procedures, and the premiums charged. The National Association of Insurance Commissioners has developed suggested procedures for market conduct examinations. However, according to a Government Accounting Office (GAO) report, many states do not use the procedures, examine only a small fraction of insurers each year, and do not coordinate their reviews with other states (which would allow them to get the benefit of another state’s findings about a company that operates in several jurisdictions).²

State insurance departments generally respond to consumer complaints about rates, as well as other complaints that consumers may have about their insurance plans. On receipt of a complaint, most states review whether the premiums for that consumer are consistent with the approved rates for the insurer. Using statutes about discrimination or unfair competition and practices, some insurance departments also respond to individual complaints about underwriting decisions. These responses may take the form of mediation with the insurance carrier, or through providing additional information to correct the insurance carrier’s perception of the individual’s medical condition.

Finally, some states use public hearings to gather input on proposed premium increases for some insurers.

Example: Rhode Island law requires the health insurance commissioner to hold public hearings on proposed premiums in the individual market. The insurer must establish that the proposed premiums are “consistent with the proper conduct of its business and with the interest of the public.” Insurers must also demonstrate that they have made efforts to enhance the affordability of their products. Along with the Insurance Commissioner, the Insurance Advocacy Office of the Rhode Island Attorney General’s Office receives a copy of the premium rate filing and may be a witness at the hearing. Sometimes, members of the public also comment.

In the past few years, the hearings have resulted in some lowering of proposed premiums for individual insurance. For example, in 2004, Blue Cross did not meet the standard of affordability and was consequently denied a rate increase. In 2006, an order reduced the proposed premium for “direct pay” products of Blue Cross by two percent.

The hearing process itself may also entail some costs for subscribers: The insurer may be required to pay for the costs of the hearing, including the testimony of expert witnesses, and may eventually pass these administrative expenses on to consumers in their premiums. So, whether the process saves consumers money in the long run depends on the amount of premium reductions it achieves compared to the expense of the review process. In Rhode Island’s recent experience, hearings and rate reviews have produced a net gain for consumers. For example, the most recent Blue Cross hearing cost about $800,000 and saved consumers about $2 million in premiums. That hearing was unusually expensive, though. Typical hearings cost between $200,000 and $400,000.³

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