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Can health insurance companies charge whatever they want?

Not exactly.

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Each state regulates insurance companies that operate within its jurisdiction, but how much authority a state can wield to control health insurance rates varies widely. Twenty-six states and the District of Columbia have passed laws that give their insurance departments the legal authority to reject unreasonable premium hikes, but even some of those states don't have the resources to exercise authority, according to the U.S. Department of Health and Human Services.

The Affordable Care Act included measures to prevent health insurers from unfairly raising health insurance premiums, but didn't get into the specifics of what constitutes an unfair increase. Instead, the law directed federal health and human services officials to write rules for how state and federal governments would force insurance companies to justify unreasonable rate increases.

Under preliminary rules issued in December 2010, insurance companies must publicly disclose and justify rate hikes of 10 percent or more for individual or small-group policies beginning in 2011. In 2012, states will set their own thresholds for when rate hikes must be disclosed and justified.

Meanwhile, even though the law gives federal and state governments the right to review unreasonable increases, it doesn't give them the right to reject them. In California, for instance, Blue Shield of California announced a series of rate hikes in 2011 that added up to as much as a 59 percent annual increase for policyholders. Although the California Department of Insurance is reviewing the rate hikes, it has no power to block the increases, even if it determines they are excessive.

To help states strengthen their authority and improve their rate-review process, the Affordable Care Act provides $250 million in grants to be doled out among states over five years. So far $46 million has been awarded.

For more, see health insurance rate review battles.

Last updated: May. 14, 2011
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