(WASHINGTON) -- Health insurance companies that want to increase the cost of their premiums by 10 percent or higher will now have to justify those proposed rate hikes, the Obama Administration announced Tuesday.
Rate increases became a sore political point since earlier this year, when the White House seized on an astounding 39 percent hike by Anthem Blue Cross of California to justify the health care bill.
A review by the Congressional Budget Office earlier this year revealed the health care reform bill signed into law by President Obama does not contain any caps for rising insurance costs, and as such won't prevent premiums from doubling in the next six years.
Premium increases have been most prominent in the individual and small business market, Health and Human Services Secretary (HHS) Kathleen Sebelius said Tuesday, and the new rules will create more transparency for consumers.
Premium costs for people with private insurance have risen sharply in recent years, with double-digit rate increases each of the first three years of the new millennium, according to the non-partisan Kaiser Family Foundation.
States that already have effective rate review systems will conduct their own reviews. But for states without that capability, HHS will step in -- a move that is likely to spur more anger from states that are already claiming that the health care law impinges on their constitutional rights.
The Obama administration plans to disburse $250 million to states to help them develop and improve their rate oversight processes. As part of that effort, HHS gave $46 million to 45 states and the District of Columbia in August.
Currently, only 26 states and Washington, D.C., require insurers to submit their rate increases and have legal authority to reject premium increases they consider "unreasonable." Reviewing methods vary widely from state to state.
Under the new guidelines, state insurance commissioners will be responsible for reviewing rates, collecting data, conducting analysis and setting a standard. By 2014, states would be required to set a more specific threshold based on their individual analysis, rather than using the 10 percent threshold rule.
Sebelius said the notion that this is a federal overreach is absolutely wrong.
Insurance companies panned Tuesday's announcement, charging that it doesn't take into account the high costs that they have to incur given the market changes.
"The public policy discussion on health care costs has focused on health insurance premiums, while ignoring the root causes that are driving up the cost of coverage, including soaring medical prices, new benefit mandates and changes to health plans' risk pools," Karen Ignagni, president and chief executive of America's Health Insurance Plans (AHIP) said in a statement Tuesday.
Copyright 2010 ABC News Radio