Florida’s Changes to Rate Review: Heading Backward?

Of the many consumer protection tools available to state health insurance regulators, one of the most powerful is the ability to review premium rates.  And those regulators who have the authority to not only compel and review rate filings, but also to prevent an unacceptable premium rate from being implemented are especially empowered to protect their states’ consumers.  That’s why recent decisions to abdicate authority to review health insurance premium rates in Florida, Oklahoma, and Texas are baffling. Unlike Oklahoma and Texas—where federal regulators began reviewing rates as of April 1, 2013—the Florida legislature took a different approach and rolled back some, but not all, of the state’s rate review authority.

The Florida State Legislature recently passed Senate Bill 1842, which amends the Florida insurance code to suspend the requirement that certain premium rates (those proposed for the nongrandfathered small group and individual markets) be reviewed and approved before they are implemented.  Despite calls for the legislation to be vetoed, the Governor signed the bill into law on May 31, 2013.  Although the requirement that rates and rate increases be filed remains in effect, insurers and HMOs can implement rates and increases without approval by the Office of Insurance Regulation (OIR), an agency with a reputation for being a highly proficient rate regulator.

And that’s not all. Similar to recent legislation we’ve seen enacted in other states, the newly-signed law includes another provision that requires insurers and HMOs to provide a notice to consumers with the first issue or renewal of a policy.  The notice must provide the consumer with the average premium in the state for the policy they’re purchasing and then break down that premium by assigning a dollar value to specific requirements of the Affordable Care Act (ACA). The requirements to be listed are guaranteed issue – including the impact of the individual mandate, exchange subsidies, and estimated reinsurance credits – and the dollar amount of the premium attributable to fees, taxes, and assessments.

The notice must also quantify the effect (increases or decreases) of the ACA’s new rating requirements, including the 3-to-1 age ratio restriction and the prohibition from using gender as a rating factor. This estimate is required to appear on the notice for both males and females in three different age categories:  21 to 29, 30 to 54, and 55 to 64.  Finally, the notice must identify the portion of the premium that is attributable to meeting the ACA requirement that essential health benefits be provided and that the benefits meet a target actuarial value. Then, the issuer must show a comparison of that cost to “the statewide average premium for the policy or contract for the plan issued by that insurer or organization that has the highest enrollment in the individual or small group market on July 1, 2013, whichever is applicable.”

When analyzing a piece of legislation like SB 1824, there’s usually an assumption that the initiative’s proponents intended to right a wrong, or improve a condition, so there’s an expectation that there will be winners and losers resulting from the effort. With this one, the losers are easy to spot. They include Florida health insurance issuers, who, in addition to the onerous task of retooling to meet ACA data reporting requirements, must now also comply with additional requirements and create a notice showing their enrollees and policyholders exactly how the ACA’s requirements are affecting their premiums.  While few would disagree that providing consumers with information about their coverage options is important, there are concerns that this exercise is likely to be a lot of busywork for insurers with minimal gain for consumers. The reality is that when the cost of a specific requirement is divided among the thousands of people insured by a policy or plan, the quotient is likely to be pennies or fractions of pennies when expressed on a per person basis. While some consumers might find this information mildly interesting, it will be useless to most.

Another loser could be the Florida OIR, who might lose their status with the Centers for Medicare & Medicaid Services (CMS) as an “Effective Rate Review” state. That means, like Oklahoma, Texas, and a few other states, it could fall on the federal government to review Florida’s proposed rates and rate increases.  Rates proposed for policies to be offered in Florida through the Federally Facilitated Exchange will be examined by CMS’s Exchange actuaries to identify outliers; and rate increases proposed for policies offered outside the Exchange could become the responsibility of the CMS Rate Review Program.  That Program reviews rates in a manner similar to a state regulatory review, but its authority is restricted to rate increases, so it does not review new rates.  Although both programs are staffed with highly skilled actuaries, the ACA did not give CMS the authority to reject an undesirable rate. That means that no matter how unreasonable a proposed rate increase may be found to be, the issuer will be free to implement it in Florida.  Florida consumers could conceivably end up paying unreasonable rates that may have been reduced or withdrawn had they been reviewed by Florida’s own OIR.

This leads us to SB 1824’s biggest loser– the Florida health insurance consumer.  In 2011, while implementing the ACA’s rate review provisions as the director of Rate Review in CMS’s Oversight Division, my colleagues and I undertook the process of identifying states with effective health insurance rate review programs. We did so because states with effective rate review programs know their markets better than federal regulators do, and thus are in the best position to protect their consumers from unreasonable rates. At the time, several states that didn’t have express authority to meet CMS’s requirements sought and secured that authority so that their rate review programs could be deemed “effective.”  States distributed bulletins, promulgated emergency rules, and passed legislation to gain or retain the privilege of protecting their health insurance consumers from unreasonable rate increases.  Florida regulators did not have to seek new authority or change its processes.  The OIR’s rate review program was already effective.

In fact, a review of Florida health insurance rates filed in 2011 and 2012 reveals that Florida regulators saved consumers more than $16 million in modified, withdrawn, or rejected rate increases, but—with the changes made by SB 1824—Florida consumers may not benefit from that kind of savings in 2014 and 2015. And, unfortunately, there’s nothing in the newly required notice that will illustrate the cost to the consumer of suspending rate review in a state where regulators had significant authority to stop undesirable insurance rates from being implemented and a track record of using that authority effectively.   As stated, it’s baffling.

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