Once lauded as a way for the federal government to aid states in conducting reviews of “unreasonable” rate increases on health insurance, a plan pitched by the Obama Administration is not in a health reform bill set for a vote March 21.

According to published reports, a new Health Insurance Rate Authority, under the oversight of the U.S. Department of Health and Human Services, was cut out of the $940 billion dollar measure being pushed forward in the U.S. House as it did not fit under the rules of using budget reconciliation to get legislation approved.

Sources close to the White House said while not included in current legislation, the proposed federal body is still an effort Washington, D.C., hopes to advance.

Sandy Praeger

The proposed Health Insurance Rate Authority would have provided federal assistance and oversight to states without full rate authority to help ensure that proposed increases are indeed justified.

The National Association of Insurance Commissioners (NAIC) recently said it supported the “federal backstop,” offering its assistance to work with the Obama Administration and HHS to develop suitable standards.

In a conference call on the proposed agency, Sandy Praeger, chair of the NAIC’s Health Insurance and Managed Care Committee, said the goal of those talks would be “to make sure they have no reservations about what is going on in the states regarding rate approval.

“We don’t think that the rate approval should in any way be taken away from the state regulators,” said Praeger, who serves as Kansas’ insurance commissioner. “Rate approval and solvency go hand-in-hand and we don’t regulate to keep rates artificially low, we regulate for rate adequacy.”

States not ready to cede authority

The result of these discussions, she said, can assist some states that have less authority over rate requests and increases “to get a little more authority.

“That is well workable, but not giving up or not having our authority to regulate pre-empted at the federal level,” she said. “That just won’t work.”

Among the states that would welcome a little more authority are Pennsylvania and Illinois.

Pennsylvania Insurance Commissioner Joel Ario told IFAwebnews.com that state legislation containing rate restrictions, information requirements and other consumer protections, especially in the small-group markets, has stalled in the Pennsylvania Senate, leaving the state idle in this realm of regulation.

“We’ve sought this in the legislature and seen the [Pennsylvania] House pass bills to do this in 2008 and 2009, but it hasn’t been approved in the Senate, leaving us with spotty authority,” he said. “So a federal backstop, setting new, stronger standards is appropriate. Once standards are set, you need to give the states the ability to do their work and let them do their jobs. That is the best state-federal partnership, I believe.”

Michael T. McRaith, director of insurance in Illinois, said he does not have rate request authority and has witnessed the state’s for-profit health insurance market seek significant increases above medical inflation, especially in the small-group market.

“What I would want [from the federal government] and would appreciate is perspective of any outside experts on how to improve health insurance in Illinois,” McRaith told IFAwebnews.com. “Now, we are near the point of failure from the consumer’s perspective as they can be denied coverage or subject to borderline abusive rescission practices …so, in my view, we don’t need another functional regulator, but I’d welcome additional tools to improve or extend regulatory authority.”

An earlier version of this story appears in the April 2010 edition of Insurance & Financial Advisor.