May 2, 2019

Rate Review – What a Difference!

Logo of Illinois Depart of Insurance with Department of Prior Approval labelOn April 11, the Freedom from Aggressive Insurance Increases Review Act passed the Illinois House on a bipartisan 73-41 vote. The bill ( HB 471 ), known as the FAIIR Act, would give the Department of Insurance the authority to approve or deny unreasonable health insurance rates. This kind of meaningful rate review is practiced in 37 states and has been shown to curb outrageous rate hikes.

In terms of health insurance, Illinois is what is known as a “file and use” state, which means that insurance companies must file their intended premium rates, which then go into effect without having to be approved by the Department of Insurance. In “prior approval” states, the insurance commissioner can approve, reject, or reduce rates, often actively negotiating with the insurer.

In the absence of real rate review, premiums had skyrocketed wildly in the years before the Affordable Care Act. The ACA created a mechanism that sought to prevent egregious rate increases, by tasking HHS to work with states to review proposed increases of 10% or more in the individual or small group market. But this applies only to states that lack “effective rate review.” File and use is still considered effective, because the state can disallow the rate later if it is found to be unreasonable; the review typically needs to be triggered by consumer complaints.

The ACA also made available $250 million for states to take action against unreasonable rate hikes, which at least 43 states have availed themselves of. In notable cases, Rhode Island reduced a proposed 7.9% hike to 1.9%, and California dodged an 87% increase after scrutiny by the insurance commissioner.

Still, real rate review is the gold standard. States with prior approval have lower premiums and smaller rate increases than file and use states. Just last year, prior approval saved consumers $314 million in proposed rate increases in New York. And with the ACA, we have seen large premium jumps as the market encountered instability in recent years.

Rate review would help move Illinois toward marketplace stability, and could be a big step in making plans more affordable. “The volatility of 50% to 80% rate increases has hurt people in every district in Illinois,” said Rep. Bob Morgan, the sponsor of HB 471, in a press release about its House passage. After months of advocacy from groups including the Protect Our Care-IL coalition and EverThrive Illinois, and negotiations involving the Illinois Department of Insurance and the insurance industry, HB 471 (formerly HB 815) gained 58 co-sponsors and had over 250 witness slips filed in support, the press release said.

Similar legislation had been introduced in past years, but failed. Now, with a more progressive majority in both houses and a governor strong on healthcare access, the prospect for rate review – and a more reasonable health insurance environment – is much brighter.

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