Health Insurance Articles

Why Health Insurance Premiums Should Be Regulated

2010-05-04

Health care reform, also referred to as Obamacare, has passed the Congress and has been signed into law by the President. As the country wonders what the effects of the changes may be, some members of Congress are already talking about new legislation to regulate health insurance premiums.

One of the major arguments in favor of the health care reform law was that insurance companies could arbitrarily increase health insurance premiums. During the debate on the legislation, a California health insurance company announced that it would increase its premiums 39 percent. Other insurance companies around the country either raised or asked for permission from state regulators to raise their premiums. One insurance carrier asked regulators in Connecticut for a 24 percent increase, but the panel reduced the increase to 16.5 percent.

As the health care reform law stands now, there are no mechanisms to stop health insurance providers from raising their premium rates. The law does include Insurance Exchanges in which private health insurance companies compete for customers. It is expected that the competition will help keep premium costs down. But the exchanges will not start until 2014. So, Democratic members of Congress including Senator Diane Feinstein of California and Senator Tom Harkin of Iowa, say that there is currently a hole in the new law and that there are no incentives for health insurance companies to lower the cost of their premiums. So Feinstein has introduced new legislation called the "Health Rate Authority Act of 2010" which would make it possible for the federal government to stop "unreasonable" premium increases.

The Senate Committee on Health, Labor Education and Pensions has held hearings on the issue. Committee members have discovered that about 22 states that have individual markets and 27 states that are part of small group markets do not require a review of premium increases before they go into effect.

The Committee heard testimony from Michael T. McRaith, director of the Illinois Department of Insurance, who said that he supports federal regulation. He said that as things stand now, insurers will increase premiums in anticipation of the start of the exchanges and other reforms on January 1, 2014.

Those who oppose the legislation say that the new health care reform law has only recently passed and it should be given time to take effect before new legislation is adopted. They also argue that price fixing will force insurers into bankruptcy in the long run.

The new legislation only provides a temporary fix until the entire reform law takes effect in 2014. But all of the background talk on the law explains the reason and need for regulation. More debate is sure to come.