Under President Obama’s new health-care law, regulators gained a radical power: the ability to define “unreasonable” premiums and reject them on state-level insurance exchanges. Because more than 24 million people nationwide are expected to depend on these markets for coverage by the end of the decade, Obama recently gave states $250 million to beef up their review efforts ahead of 2014, when the law goes into effect. But a major question remains: what’s a fair definition of “unreasonable”—and will the health-care industry accept the government’s math?
Don’t bet on it. Massachusetts, which has already been the model for the national health-care overhaul, recently gave its regulators the authority to strike down excessive rate hikes—and the result was a nearly 90 percent rejection rate when insurance companies pitched their new premiums for the second quarter. At a time when the average national rate hike for individual insurance plans is 20 percent, the Bay State tabled everything above 7.7 percent. Earlier this month insurers made their cases to the state for third-quarter increases. But again the state mostly said no, rejecting about 70 percent of 200 proposals and approving only a handful of single-digit bumps.
Many a freelancer is cheering for now (the rejections saved consumers as much as $8 million). And the promise of 24 million new customers should be enough to keep insurers from leaving the exchanges in protest. But if the same blunt approach is applied nationally, insurers may pull out to focus on more profitable market segments—and the promise of universal access could crumble.