Strong state health insurance rate review found to lower individual premiums

August 4, 2015

money and stethescopeA new study, published in the August issue of Health Affairs, found that states with prior approval authority over health insurance rates in the individual market experienced a 10 percentage point lower rate of increase in premiums, and states with an additional loss ratio requirement were associated with overall lower health insurance premiums. 

The research, conducted at the University of Minnesota School of Public Health in collaboration with the UC Berkeley School of Public Health, was the first evaluation of state rate review authority in individual market after the implementation of the Affordable Care Act (ACA) in 2010. 

Study authors collected rate review authority and anticipated loss ratio requirements from each state and the District of Columbia by examining statutes, regulations, and bulletins and distributed a questionnaire to each state and the District of Columbia.

According to Pinar Karaca-Mandic, Ph.D., lead author and associate professor in the University of Minnesota School of Public Health, the researchers found significant variations in rate review authority across states and a strong association between these variations and the differences in premiums that were adjusted for insurance carrier, insurance market, provider market, political, and population differences across states. 

“Our findings suggest that rate review by states with prior approval authority may be a viable option for moderating the growth in health insurance premiums," said Richard Scheffler, principal investigator and distinguished professor of health economics and public policy at UC Berkeley. “Given the massive rate increases in adjusted premiums being proposed this year, our results could not be timelier.”

The ACA requires carriers in certain categories of health insurance to provide public justification for rate increases of 10 percent or more. During the 2010-13 time period, 44 states upgraded their health insurance rate review programs by hiring or contracting actuary services, upgraded information systems, and enhanced insurance rate transparency.

"Many states bolstered their rate review programs after the passage of the Affordable Care Act using federal grants, but will now need state funding to maintain their programs," said Brent Fulton, assistant adjunct professor of health economics and policy at UC Berkeley.

The authors say given the expansions in individual-market coverage, it will be important to further evaluate state rate review authority and activity to determine whether study findings remain in effect over a longer time period and are generalizable throughout the expanded individual insurance market.

The research was funded by Robert Wood Johnson Foundation through its Changes in Health Care Financing and Organization Program and by the National Institute on Aging.