(Health Insurance News) - Health insurance companies that increase premiums by more than 10 percent would be required to justify those higher rates publicly, according to new rules proposed Tuesday by the Obama administration.

Under the proposal, premium increases of more than 10 percent in 2011 for individuals and small businesses would set off a review by states or the federal government to determine whether those rates are unreasonable.

While federal health officials said the new policy would help curb unjust increases, there is nothing in the law that allows the federal government to stop the rate increases even if they are deemed unreasonable.

"California consumers have been suffering under these staggering health rate increases for years," said Betsy Imholz, special projects director for Consumers Union, the nonprofit publisher of Consumer Reports. She said the new regulations would help lift "the veil of secrecy" around what goes into rate increases.

California drew national attention this year when Anthem Blue Cross tried to raise rates as much as 39 percent for its 700,000 policyholders in the state who buy coverage as individuals.
Legislature responds

The proposed increases helped jump-start the debate over national health legislation and prompted the state to conduct an independent actuarial review of the rate increase filing. After the review found that Anthem Blue Cross had erred in its rate calculations, the company reduced its increases to an average of 13.5 percent.

The Legislature responded by passing a measure, which was signed by the governor and will go into effect Jan. 1, that goes further than the federal law. It makes insurers ensure the accuracy of all rate increases for small business and individuals, as well as those imposed on large businesses that exceed 10 percent. The increases must be certified by an independent actuary.

The state Senate failed to pass a bill this year that would have given California regulators the authority to reject unreasonable increases.

The 10 percent threshold announced by the Department of Health and Human Services is a reasonable level to prompt a review, Imholz said. The regulations still need to go through a public comment period before taking effect.

Anthony Wright, executive director of Health Access California, agreed, but with a caveat. "This scrutiny can have an impact on rates, but it is not full-blown authority to reject or deny rates," he said.
Watchdog unhappy

Another consumer group, Consumer Watchdog of Santa Monica, criticized the federal government for not requiring justification for all rate increases.

"The new rules rely on public disclosure to shame insurance companies into charging consumers fairer prices, and this symbolic stoning may work to hold down increases in some cases," said Carmen Balber, director of the group's Washington, D.C., office. "However, regulators must ultimately have the power to modify and deny premium increases."

Some policyholders also remain skeptical about the new federal regulations, because many of them have received notice their rates will go up Jan. 1, in part because of changes required by the federal health law.

Joanne Cannell, an independent kitchen and bath designer in San Francisco, is facing rate increases of 30 percent in January.

Cannell, 60, said her insurer, Blue Shield of California, offered plenty of reasons the rates were going up, and she isn't convinced the proposed federal guidelines would make a difference. "I'll believe it when I see it," she said. "I think they'll be able to justify them, and it won't do any good."

Debbie Karel of San Francisco also is looking at rate increases well above 10 percent.

"My basic feeling is that it's a step in the right direction, but it doesn't sound like it will help me if there's nothing that will make them stop doing it," said Karel, 60, who also is a Blue Shield customer.
States have responsibility

States retain the primary responsibility for regulating the health insurance industry, which the California Association of Health Plans, a trade group representing health insurers, said was appropriate.

Under the proposed regulations, each state would conduct its own reviews, unless the federal government determines the state doesn't have an effective system to protect consumers.

E-mail Victoria Colliver at vcolliver@sfchronicle.com.

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This article appeared on page A - 1 of the San Francisco Chronicle
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