Inconsistencies mar states' insurance rate reviews

WASHINGTON Thu Dec 2, 2010 4:45pm EST

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WASHINGTON (Reuters) - The federal healthcare reform law empowered U.S. states to review and fight spikes in insurance rates but state governments inconsistently enforce the law, according to a study released on Thursday.

"We found that having approval authority over rates does not necessarily protect consumers from large rate increases, and that the rigor and thoroughness that states bring to rate review can vary widely, depending on motivation, resources, and staff capacity," the survey by the Kaiser Family Foundation found.

The massive overhaul of health insurance passed nearly a year ago requested state insurance departments to review insurance rates each year for "unreasonable increases" in premium charges. This year, for example, Anthem Blue Cross in California raised rates by as much as 39 percent, causing concern at both the federal and state level.

States are not always prepared to use this new authority, Kaiser found. Some have statutes that only apply to certain insurance companies, leaving the states unable to review all insurance carriers' charges.

The standards states apply are subjective, such as one that benefits must be reasonable in relation to premiums charged, and that "can make the process appear arbitrary and opaque," Kaiser said.

Rate decisions are not always made public, and some states allow the companies to make portions of a filing a "trade secret."

"And in no states do policyholders participate in the informal back-and-forth between insurance departments and carriers that underpins the actual practice of rate review," Kaiser said.

Alongside rate reviews, states must implement other key parts of the law, including establishing exchanges where individuals can purchase affordable insurance. For months, they have scrambled to meet deadlines and many have worried that they do not have the funds or staffing to realize many of the law's provisions.

Kaiser found that in the instance of rate reviews "many states do not have a sufficient number of trained actuaries to review all filed rates."

Reviewing rates "requires significant expertise and nuanced judgment calls. And states that do not have adequate resources or staffing may miss those judgment calls or even mistakes made by a carrier in its filing," it said.

The foundation, which tracks public health, suggested that states put in place regulations explicitly governing how they conduct rate reviews.

(Reporting by Lisa Lambert; Editing by James Dalgleish)

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