Criticism of the Legislature's decision to temporarily suspend insurance premium oversight for plans most affected by federal health care reform is misguided. Our decision was made after gathering all of the facts and determining this suspension was the best possible decision for Florida, and the bill passed both chambers with overwhelming majorities and bipartisan support.
The federal Patient Protection and Affordable Care Act, or PPACA, creates many new insurance laws and regulations for small group and individual health coverage — traditionally regulated only by state governments.
Many of these new regulations will drive insurance costs up by requiring insurance companies to cover more services and spread risk differently. Guaranteed issue, limits on age rating, prohibitions on gender rating and annual and lifetime limits, taxes and fees, and many new covered services will all increase costs. Some of these changes shift costs from the old to the young and from women to men — from high-risk people to lower-risk people. Other changes add to coverage — and more coverage costs more money.
Some federal requirements could reduce costs. Floridians with incomes between $11,490 and $45,960 will receive federal subsidies to buy insurance through the federal exchange. This will reduce costs for those Floridians. The individual and employer mandates — that everyone have insurance and that midsize and large businesses provide coverage for their employees — may drive costs down since having more insured people may reduce costs by spreading the risk more broadly.
The Florida Office of Insurance Regulation released early projections of the regulatory costs of PPACA. Premiums for small group plans are expected to rise 15-20 percent; individual plan premiums 30-40 percent. Those are just estimated averages — impact will vary significantly depending on age and sex. Young men will experience the highest rate increases; older women may see decreases.
Ordinarily, OIR reviews and approves insurance premiums by analyzing regulations, actuarial data and historic cost trends. But OIR has no experience with any one of these significant regulations; certainly not with applying them all at once. It is impossible for OIR to do a sound or adequate rate review because of this lack of experience and because there is no valid measurement for what an appropriate premium should be in this context. In this situation, OIR's power to protect consumers is illusory. Pretending otherwise is foolish and deceives consumers.
The truth is that PPACA creates significant uncertainty and the true cost to everyone is unknown. That is why the Legislature chose to suspend OIR's authority to review rates for two years. OIR will still regulate market conduct and forms, but it will not pretend to know whether the new products offered under PPACA are priced correctly. It will collect two years of data, analyze it, and be ready to properly review rates in 2015.
Undoubtedly, many consumers will be unpleasantly shocked by their new insurance premiums. To ensure they understand their new plan costs, insurers will give them an estimate of the portion of the premium that is due to the new federal requirements. Before they receive this notice, consumers eligible for federal subsidies will know their subsidy amounts by enrolling in the exchange.
Contrary to the opinion of some, the federal government does have authority to protect consumers as much as they can be protected in this uncertain time. The U.S. Department of Health and Human Services will have all the same information about insurers the state has, and can declare rates to be "unreasonable." This will discourage individuals and businesses from purchasing those plans.
HHS can also ban products from being offered on the exchange entirely if it decides they are too expensive. HHS is in the best position to protect exchange consumers, because it will both review the plan premiums and build and operate the exchange. Finally, federal law requires insurers to issue premium refunds to consumers if they don't meet the federal medical loss ratio of service expenditures compared to premiums. Refunds have already gone out to many Floridians.
PPACA created great uncertainty for both insurance companies and consumers. Instead of basing government action on wishful thinking, the Legislature's action acknowledges that, while the federal law is called the "affordable care act," the state cannot ensure that the insurance created by the federal government will be, in fact, affordable.
State Rep. John Wood, R-Winter Haven, serves on the Select Committee on the Patient Protection and Affordable Care Act and was the sponsor of HB 7155 regarding health insurance. Sen. Aaron Bean, R-Fernandina Beach, serves on the Select Committee on the Patient Protection and Affordable Care Act.