Sebelius: Administration Is Negotiating Rates In Federal Exchanges

Hoping to get consumers the best prices, the Obama administration is negotiating with insurers looking to sell policies in online health insurance marketplaces this fall, Health and Human Services Secretary Kathleen Sebelius said Monday.

“Negotiations are underway and we will be negotiating rates across the country,” Sebelius said at a news briefing.

HHS officials said last year they would not operate the federally-run exchanges using the “active purchaser” model – meaning they would not bar insurers that offered rates they deemed uncompetitive. HHS is operating exchanges in about 35 states starting Oct. 1.

Congress gave federal and state regulators the option to work as “active purchasers,” and California and five other states chose that model.

Consumer advocates prefer an “active purchaser” approach because they believe it will increase competition and lower prices among plans. But the Obama administration opted against that after being lobbied by insurers and business groups who said they prefer the “open market” model because it ensures greater competition.

HHS last year said it would take all insurers that apply to sell policies in the federally run exchanges for at least the first year of open enrollment that runs from October through March.

Negotiating with insurers is a more subtle approach, said a senior health official speaking on background. He said insurers are being told by HHS if their rates are “outliers” as compared to others’. When that occurs, he said, the federal government is asking insurers if they have submitted the correct rates.

“The process is really to make sure the information is accurate and we will be providing plans an opportunity to see what is posted before they become public,” the health official said.

Joel Ario, a fomer Obama administration who is now managing director of consulting firm Manatt Health Solutions, said negotiations between HHS and the carriers could be a win for both consumers and insurers.

“In a marketplace where some insurers know they priced at the high end of their actuarial range, feedback from regulators that allows them to reconsider their pricing might be a welcome opportunity,” he said.  

Sabrina Corlette, project director at the Health Policy Institute at Georgetown University in Washington, pointed out the Obama administration may be limited in such efforts by the fact that many states have only one or two carriers in their individual or small group insurance markets.

“States like Mississippi are struggling to get more than one insurer to participate in the exchange,” she said. But in other states where there are four or five insurers, she said, HHS will have more leverage.

Corlette said HHS officials may also face challenges because they have less knowledge of markets than state insurance officials.