By Mark Huffman

April 21, 2010
In the rush to pass health care legislation this year, Congress created at least one provision that even the law's backers say needs to be changed.

Sen. Dianne Feinstein (D-CA) has authored a bill that she says would close an "enormous loophole" in the new federal law. As written, she says the law would allow health insurance providers to rapidly raise rates on health benefit policies that Americans will soon be required to buy.

The Feinstein bill calls for the National Association of Insurance Commissioners ("NAIC") to write key definitions of what constitutes an "unreasonable" rate increase and to assess the value of current state regulations. Amendments are needed to assert that HHS has the sole authority to determine the definitions that will make or break the law. The bill must also assure that direct federal regulation is used only as a fallback when states fail to develop adequate regulation and review of health insurance rates.

However, Consumer Watchdog, a California-based consumer group, says the health care law "fix" doesn't go far enough. In fact, the group says the bill as written the bill would give too much power to the insurance industry over defining "unreasonable" rates that could be blocked.

"Senator Feinstein should be commended for proposing legislation to close a gaping loophole in the federal health reform law," said Jerry Flanagan of Consumer Watchdog." As written, nothing in the health reform law prevents insurers from dramatically increasing rates in advance of the law's requirement that Americans must buy insurance policies or face tax fines."

History repeating itself?

Consumers, in fact, witnessed a similar occurrence last year when Congress passed credit card reforms in May, but didn't implement the new law until this past February. Credit Card companies spent the intervening seven months raising rates and implementing other soon-to-be prohibited activities.

Consumer Watchdog sees problems by designating NAIC as the official referee when it comes to insurance rates.

"NAIC is a private organization that is not subject to the transparency and public participation rules of a government body, is funded in large part by the insurance industry, and NAIC members enjoy a 'revolving door' of job opportunities in the industry thanks to the organization's close ties to insurance companies," Flanagan said. "The insurance industry's dominance of the NAIC will allow it to game the regulatory system through complicit regulators and undefined standards that industry actuaries are expert in manipulating."

Senate Health, Education, Labor, and Pensions (HELP) Committee Chair Tom Harkin (D-IA) called the lack of state "prior approval" of rate increases a "gaping hole" in health care reform. Under a "prior approval" system, insurance companies must receive approval from state regulators for rate increases before they go into effect.

Consumer Watchdog says the Feinstein Bill would establish a federal rate authority to review rates and take corrective action, including blocking rates or requiring rebates, only in states that do not have the authority or capability of doing so on their own. A better approach, it says, would be frontline state regulation of health insurance rate increases with strong federal fallback if states fail to act just as envisioned by the legislation.