The U.S. Department of Health and Human Services (HHS) announced January 12, 2012  that premium increases proposed by an insurer in five states were “unreasonable” and “excessive.” HHS has authority under the Affordable Care Act to review premium increases over 10% to determine if such increases are reasonable. If HHS determines that a premium increase is unreasonable, the insurance company must post a justification on its website within 10 days.

The rate increase at issue in yesterday’s announcement is a 13% increase by Trustmark Life Insurance Company which would affect approximately 10,000 residents in Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. In addition, small businesses in Alabama and Arizona experienced rate increases of 27.2% and 18.1%, respectively, when combined with other rate increases over the last year. After a review by independent experts, HHS concluded that Trustmark’s rate increases were unreasonable because (1) the insurer would be spending a low percent of premium dollars on actual medical care and quality improvement and (2) Trustmark’s justifications were based on unreasonable assumptions.

This is not the first rate increase that HHS has found “excessive” under HHS’ rate review authority. HHS determined that a November 2011 12% rate increase for small businesses in Pennsylvania was excessive. A majority of states also have the authority to review rate increases to determine if they are unreasonable.

Additional information regarding HHS’ rate review authority and process is available here.