This is the accessible text file for GAO report number GAO-11-878T 
entitled 'Private Health Insurance: State Oversight of Premium Rates 
and Changes in Response to Federal Rate Review Grants' which was 
released on August 2, 2011. 

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United States Government Accountability Office: 


Before the Committee on Health, Education, Labor, and Pensions, U.S. 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Tuesday, August 2, 2011: 

Private Health Insurance: 

State Oversight of Premium Rates and Changes in Response to Federal 
Rate Review Grants: 

Statement of John E. Dicken:
Director, Health Care: 


Chairman Harkin, Ranking Member Enzi, and Members of the Committee: 

I am pleased to be here today to discuss state oversight of health 
insurance premium rates in 2010 and changes that states that received 
Department of Health and Human Services (HHS) rate review grants have 
begun making to enhance their oversight of premium rates. In 2009, 
about 173 million nonelderly Americans, about 65 percent of the U.S. 
population under the age of 65, had private health insurance coverage, 
either through individually purchased or employer-based private health 
plans. The cost of this health insurance coverage continues to rise. 
In a 2010 survey, over three-quarters of U.S. consumers with 
individually purchased private health plans reported health insurance 
premium increases. Of those reporting increases, the average premium 
increase was 20 percent.[Footnote 1] A separate survey found that 
premiums for employer-based coverage more than doubled from 2000 to 
2010.[Footnote 2] Policymakers have raised questions about the extent 
to which these increases in health insurance premiums are justified 
and could adversely affect consumers. 

Oversight of the private health insurance industry is primarily the 
responsibility of individual states.[Footnote 3] This includes 
oversight of health insurance premium rates, which are actuarial 
estimates of the cost of providing coverage over a period of time to 
policyholders and enrollees in a health plan.[Footnote 4] While 
oversight of private health insurance, including premium rates, is 
primarily a state responsibility, the 2010 Patient Protection and 
Affordable Care Act (PPACA) established a role for HHS by requiring 
the Secretary to work with states to establish a process for the 
annual review of unreasonable premium increases.[Footnote 5] In 
addition, PPACA required the Secretary to carry out a program to award 
grants to assist states in their review practices.[Footnote 6] Since 
the enactment of PPACA, members of Congress and others have continued 
to raise questions about rising health insurance premium rates and 
states' practices for overseeing them. 

My statement will highlight key findings from a report we are publicly 
releasing today that describes state oversight of health insurance 
premium rates in 2010 and changes that states that received HHS rate 
review grants have begun making to enhance their oversight of health 
insurance premium rates.[Footnote 7] For that report, we surveyed 
officials from the insurance departments[Footnote 8] of all 50 states 
and the District of Columbia (collectively referred to as "states"). 
We received responses from all but one state.[Footnote 9] In order to 
obtain more detailed information about state oversight of health 
insurance premium rates in 2010, we also conducted interviews with 
insurance department officials from five selected states.[Footnote 10] 
Additionally, we interviewed other experts and officials from relevant 
organizations, including the Center for Consumer Information and 
Insurance Oversight within the Centers for Medicare & Medicaid 
Services, the National Association of Insurance Commissioners (NAIC), 
the American Academy of Actuaries, America's Health Insurance Plans, 
two large carriers based on their number of covered lives,[Footnote 
11] NAIC consumer representatives (individuals who represent consumer 
interests at meetings with NAIC), and various advocacy groups such as 
Families USA and Consumers Union. We also reviewed portions of the 
states' Cycle I rate review grant applications submitted to HHS and 
other relevant HHS documents. Our work was performed from September 
2010 through July 2011 in accordance with generally accepted 
government auditing standards. 

In brief, we found that oversight of health insurance premium rates-- 
primarily reviewing and approving or disapproving rate filings 
submitted by carriers--varied across states in 2010. While nearly all--
48 out of 50--of the state officials who responded to our survey 
reported that they reviewed rate filings in 2010, the practices 
reported by state insurance officials varied in terms of the timing of 
rate filing reviews, the information considered in reviews, and 
opportunities for consumer involvement in rate reviews. Specifically, 
respondents from 38 states reported that all rate filings reviewed 
were reviewed before the rates took effect, while other respondents 
reported reviewing at least some rate filings after they went into 
effect. Survey respondents also varied in the types of information 
they reported reviewing. While nearly all survey respondents reported 
reviewing information such as trends in medical costs and services, 
fewer than half of respondents reported reviewing carrier capital 
levels compared with state minimums. Some survey respondents also 
reported conducting comprehensive reviews of rate filings, while 
others reported reviewing little information or conducting cursory 
reviews. In addition, while 14 survey respondents reported providing 
consumers with opportunities to be involved in premium rate oversight, 
such as participation in rate review hearings or public comment 
periods, most did not. Finally, the outcomes of states' reviews of 
rate filings varied across states in 2010. Specifically, survey 
respondents from 5 states reported that over 50 percent of the rate 
filings they reviewed in 2010 were disapproved, withdrawn, or resulted 
in rates lower than originally proposed, while survey respondents from 
19 states reported that these outcomes occurred from their rate 
reviews less than 10 percent of the time. 

Our survey of state insurance department officials found that 41 
respondents from states that were awarded HHS rate review grants 
reported that they have begun making changes in order to enhance their 
states' abilities to oversee health insurance premium rates. For 
example, about half of these respondents reported taking steps to 
either review their existing rate review processes or develop new 
processes. Other states reported that they were changing information 
that carriers are required to submit with rate filings, incorporating 
additional data or analyses in rate filings, or taking steps to 
involve consumers in the rate review process. In addition, over two-
thirds reported that they have begun to make changes to increase their 
capacity to oversee premium rates, including hiring staff or outside 
actuaries, and improving the information technology systems used to 
collect and analyze rate filing data. Finally, more than a third 
reported that their states have taken steps--such as introducing or 
passing legislation--in order to obtain additional legislative 
authority for overseeing health insurance premium rates. 

Chairman Harkin, Ranking Member Enzi, this concludes my prepared 
remarks. I would be pleased to respond to any questions you or other 
members of the committee may have at this time. 

For questions about this statement, please contact John E. Dicken at 
(202) 512-7114 or Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this statement. Individuals making key contributions to this 
testimony include Kristi Peterson, Assistant Director; Kelly DeMots; 
Linda Galib; and Peter Mangano. 

[End of section] 


[1] The Kaiser Family Foundation, "Survey of People Who Purchase Their 
Own Insurance," (Menlo Park, CA, June 2010). 

[2] The Kaiser Family Foundation and Health Research & Education 
Trust, "Employer Health Benefits 2010 Annual Survey," (Menlo Park, CA, 
September 2010). 

[3] See Law of Mar. 9, 1945, ch. 20, 59 Stat. 33 (codified, as 
amended, at 15 U.S.C. ch. 20) (popularly known as the McCarran-
Ferguson Act). The McCarran-Ferguson Act provides states with the 
authority to regulate the business of insurance, without interference 
from federal regulation, unless federal law specifically provides 
otherwise. Therefore, states are primarily responsible for overseeing 
private health insurance premium rates in the individual and group 
markets in their states. Through laws and regulations, states 
establish standards governing health insurance premium rates and 
define state insurance departments' authority to enforce these 
standards. In general, the standards are used to help ensure that 
premium rates are adequate, not excessive, reasonable in relation to 
the benefits provided, and not unfairly discriminatory. 

[4] To determine rates for a specific insurance product, carriers 
estimate future claims costs in connection with the product and then 
the revenue needed to pay anticipated claims and nonclaims expenses, 
such as administrative expenses. Premium rates are usually filed as a 
formula that describes how to calculate a premium for each person or 
family covered, based on information such as geographic location, 
underwriting class, coverage and co-payments, age, gender, and number 
of dependents. 

[5] Pub. L. 111-148 §§ 1003, 10101(i), 124 Stat. 119, 139, 891 (adding 
and amending § 2794 to the Public Health Service Act (PHSA)). 

[6] Pub. L. 111-148 § 1003, 124 Stat. 139, 140, 891 (adding and 
amending PHSA § 2794 (a)(1) and (c). 

[7] GAO, Private Health Insurance: State Oversight of Premium Rates, 
[hyperlink,] (Washington, D.C.: 
July 29, 2011). 

[8] For the purposes of this report, we refer to the entities 
responsible for the oversight of premium rates as insurance 
departments, even though the entity responsible for oversight of 
premium rates in each state was not always called the Department of 
Insurance. For example, in Minnesota, the Department of Commerce is 
responsible for the oversight of health insurance premium rates. 

[9] Officials from the Indiana Department of Insurance declined to 
complete our survey. In addition, not all states responded to each 
question in the survey. We conducted the survey from February 25, 
2011, through April 4, 2011, collecting information primarily on state 
practices for overseeing premium rates in calendar year 2010. 

[10] We selected these states--California, Illinois, Maine, Michigan, 
and Texas--based on differences among the five states in terms of 
their (1) state insurance departments' authority to oversee premium 
rates, (2) proposed changes to their existing practices for overseeing 
premium rates, (3) size, and (4) geographic location. 

[11] A carrier is generally an entity--either an insurer or managed 
health care plan--that bears the risk for and administers a range of 
health benefit offerings. 

[End of section] 

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