Health Insurance Rate Hikes: Unreasonable if Excessive, Excessive if Unreasonable


A lawyer friend once joked to me that every time the government passed a regulation based around the word "reasonable," it meant full employment for another class of lawyers. Between the FCC—which earlier today gave itself the right to determine what counts as "unreasonable" network management on the Internet—and a new rule governing health insurance rate increases released by the Department of Health and Human Services, the government put a lot of lawyers to work today. As The New York Times reports:

The new health care law, signed in March by President Obama, calls for the annual review of "unreasonable increases in premiums for health insurance coverage." The law did not define unreasonable.

But HHS did! If a health insurer proposes a rate hike of more than 10 percent, the rate review process kicks in. That doesn't mean, however, that there's a bright line to determine what counts as unreasonable.

Under the new regulation, a federal health official said, "we are not setting an absolute numerical standard for whether a rate is unreasonable." Instead, the proposed rule lays out factors to be considered. It says that a rate increase will be considered unreasonable if it is excessive, unjustified or "unfairly discriminatory."


rate increase is defined as excessive if it "causes the premium charged for the health insurance coverage to be unreasonably high in relation to the benefits provided."

In addition, under the rules, the assumptions used in calculating a rate increase must be based on "substantial evidence."

Thanks to this clarifying list of descriptors, it's all makes sense now: A rate hike is unreasonable if it's excessive. It's excessive if it's "unreasonably high." If you're worried that this sounds circular, then let me suggest that you hop on the Gravitron, start spinning, and let me know when you can't tell which way is up.

Whatever. HHS might as well have just declared that "they're unreasonable when they're too damn high, and that's whenever we say so. The end!" These regulatory definitions are all spin, and they're all mostly worthless; evidence becomes "substantial" whenever HHS says it does, based on whatever it wants: legal criteria, regulatory intuition, coin-toss, or the winner of a three-out-of-five Twister tournament.

Earlier this year, when a group of state insurance commissioners was putting together recommendations to HHS for a different regulations, one of them noted its potential impact and said very earnestly that "we don't want to drive companies out of business by being arbitrary."

That's a nice sentiment, but it's more than a little clueless: When writing guidelines for essentially discretionary rules like those we saw today, the entire regulatory process is arbitrary. There's no reason that insurers should be forced to spend some specific percentage of their premium revenue on clinical expenses, no correct definition for what counts as a clinical expense or an administrative expense, and no matter how many unpleasant-sounding adjectives you pack into your regulatory definition book, no non-arbitrary way to determine which rate hikes are unreasonable.