4 goals in grant application
The South Carolina Department of Insurance listed a number of goals in its July 2010 application for a $1 million federal grant to enhance rate regulation. The department received the grant more than a year ago, but little progress has been made. Regulators originally intended to:Develop an "interactive feature" on the state's website so consumers could review "key information about the filing itself and the reason for the action taken on the filing."Establish a "comprehensive rate review process that is meaningful and transparent and ensures that health insurance rates are fair and reasonable."Host a public forum to discuss the "status of health insurance in South Carolina."Recommend changes to the Legislature.
Ken Riddle, his wife and his two teenage children are healthy, athletic nonsmokers.
Nonetheless, the 48-year-old Irmo resident pays $60 more in monthly health insurance premiums for his family this year than he paid last year. The nearly 10 percent increase means he is spending an extra $720 a year in premiums for the same coverage, which has a $5,000 deductible, that his family had a year ago.
"We've got to pay it," said Riddle, who operates a hair salon with his wife. "We can't go without health insurance."
Like many South Carolinians facing surging medical costs, Riddle wants to know why premiums keep rising. Here, annual premiums for private health insurance have risen about 85 percent for individuals and 75 percent for families in the past decade, federal data show.
South Carolina regulators can take at least some of the blame. Many factors contribute to soaring health care costs, but lax state regulation -- an area increasingly scrutinized as national health care reform takes effect -- has contributed to the problem, critics said.
In South Carolina, the Department of Insurance is tasked with maintaining a balance between keeping policyholders' premiums priced fairly and ensuring that carriers have adequate capital reserves to pay all claims filed.
In other words, department analysts are supposed to assess whether annual premium increases are "reasonable in relation to benefits provided" and necessary for an insurer's financial solvency. They have the power to reject unjustified rate hikes.
But the Department of Insurance has failed on both fronts.
"It's not a distinction that a state wants to brag about," said consumer advocate Ethan Rome, executive director of Health Care for America Now in Washington, D.C.
"There is not a culture of aggressive rate review, and that is what small businesses and consumers need," Rome said. "It is just as important that an insurance company can pay its claims as it is for consumers to pay a fair rate for their product."
In a statement, the Department of Insurance said, "The grant work is progressing and we are continuing to work toward each of these objectives."
Unlike such states as Oregon and Colorado, which require carriers to submit plain-language filings for consumers and occasionally discuss proposed rate hikes in public hearings, South Carolina operates under a weaker system.
By law, only insurers selling individual policies or some small group policies need regulators' "prior approval" to increase premiums. The vast majority of policies are unregulated.
Individual policies now subject to review account for only about 400 of the more than 13,700 requests for rate increases in the state annually, according to state estimates in its grant application. Of all rate-increase requests, regulators rejected or withdrew only 21 in 2010, according to the Government Accountability Office report and a statement from the department.
Another part of the problem is that some insurers selling individual policies in South Carolina bypass regulation entirely by forming out-of-state trusts, or associations, that aren't tracked by state regulators, according to the application and a report by the Kaiser Family Foundation, a nonprofit that focuses on health care policy.
Insurers that sell policies in South Carolina set up these trusts in states with even weaker laws.
Department regulators "have no idea how many carriers are taking advantage of the loophole because they don't have any oversight once a trust has been set up," Kaiser researcher Sabrina Corlette, of Georgetown University Health Policy Institute, said in an e-mail.
South Carolina's rejection rate falls far short of those in Oregon and Colorado, where regulators toss out almost half of rate increase requests.
Effective regulation, which involves frequently questioning unreasonable rate hikes, is key for keeping premiums affordable, according to consumer advocates. "... Active rate review lowers the premium requests filed by insurers," according to the Kaiser report.
Despite that, the director of insurance oversight for the U.S. Department of Health and Human Services, the federal agency that awarded the $1 million review grant, said in a July letter that South Carolina "has an effective rate-review program in all markets."
Ethan Rome, with Health Care for America Now, took issue with the letter. "People don't want their state to get good marks for effort, they want to get results. Unjustified rate increases should get rejected. Unreasonable rates should be adjusted," he said.
Last year South Carolina was among 45 states to receive federal grant funding to enhance insurance rate regulation. In its July 2010 application to the U.S. Department of Health and Human Services, state regulators stressed the need to improve their department, noting that they had received consumer complaints "questioning the justification for premium rate increases."
At the time, then-Gov. Mark Sanford said the $1 million grant would help the state "make policy recommendations aimed at stabilizing health insurance rates and prohibiting potentially abusive rating practices."
The money came through more than a year ago, but so far the effort has been hobbled by delays. Many listed goals -- including a review of the out-of-state trust loophole -- have not been met, according to progress reports the state Department of Insurance submitted to the federal agency.
To date, $177,000 has been spent on data processing upgrades and on hiring a Texas-based consultant to review all rate filings, according to a progress report submitted July 29. The grant period ends Sept. 30. Department officials said in a statement they "may require an extension."
Department of Insurance Director David Black, appointed by Gov. Nikki Haley in January, said this year he thinks the state has done "a good job" at keeping rates affordable.
Many residents, including Ken Riddle and Frank Knapp, president of the state's Small Business Chamber of Commerce, disagree.
Knapp said many small employers have stopped offering coverage to their employees because of the high cost. And Riddle, whose family has a plan through Blue Cross Blue Shield of South Carolina, is bracing for the next round of premium increases in his family's high-deductible plan.
"We always have doctor bills and seem to never pay them all off," Riddle said, noting that he recently paid $508 for a neck X-ray for his 17-year-old son's football injury. "If rates continue to rise like they have the last five to 10 years, we will become uninsured."
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