Effects of Implementing State Insurance Market Reform, 2011-2012. Executive Summary


This study uses public data obtained from state insurance departments’ websites to assess premium increases of major medical insurance policies during the period 2011 to 2012. The study further examines modification of proposed premium rate increases by state regulators, possible determinant characteristics of state markets, and possible effects of increased transparency in those markets. ASPE asked NORC to conduct this assessment in the context of recent changes in the regulation of health insurance established under the Patient Protection and Affordable Care Act (ACA).

Under the ACA, two important provisions affecting premium rate review began in 2011. First, Section 1003 authorizes state regulators, or the Department of Health and Human Services (DHHS) in cases where the state’s review process is deemed ineffective, to review the reasonableness of proposed rate increases. DHHS regulations require insurers increasing premiums by 10 percent or more to justify such premium increases either to the state insurance department or to DHHS.1 This “unreasonable rate review” program began on September 1, 2011.

The second provision aims to prevent insurers from retaining an unreasonable share of the premium dollar for administrative expenses and profits. Section 2703 of the ACA requires insurers to meet target medical loss ratios (MLRs – defined for the purposes of this regulation as the percentage of premium income spent on medical benefits and quality improvement across the whole line of business). DHHS set the MLR target at 80 percent for individual and small group coverage. Carriers not meeting this target are required to provide customers with premium rebates. In August 2012, the first rebates were issued for medical loss ratios incurred in 2011.

The objective of this study is to examine trends in premiums in the individual and small group markets in 2011 and 2012. Specific research questions include:

  • How have rates of premium increases across states included in our sample changed over time?
  • How do premium increases vary by type of insurance product and by states in our sample?
  • What percentage of premium requests in our sample have been denied or modified?
  • What are trends in premium increases at the state level for states in our sample?
  • How has the transparency of rate premium increases changed over time for states in our sample?

1 States and the Federal governments review rate increases of non-grandfathered plans in the individual and small group markets above a certain threshold (at or above 10 percent for September 2011 to August 2012) to determine if they are unreasonable. See http://cciio.cms.gov/resources/factsheets/rate_review_fact_sheet.html.

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