HHS Secretary Kathleen Sebelius announced on Monday the award of $1 million to California to help crack down on health insurance premium increases.

California will use this Affordable Care Act funding to help improve the oversight of proposed health insurance premium increases, take action against insurers seeking unreasonable rate hikes, and ensure Californians receive value for their premium dollars.

“The Affordable Care Act puts in place critical market reforms to improve quality and reduce the cost of health care for employers and individuals. Increased competition, lower insurance overhead, and better risk pooling in health insurance Exchanges in 2014 are expected to reduce premiums in the individual market by anywhere from 14-20 percent according to the Congressional Budget Office,” said HHS Secretary Kathleen Sebelius.

“Between now and then, we will continue to work with States to ensure consumers are receiving value for their premium dollars and to avoid the kind of double digit premium increases seen recently,” Sebelius said. “The state proposals approved today demonstrate the need and desire for new resources and tools to help them protect against unjustifiable premium increases.”

The Affordable Care Act provides states with $250 million in Health Insurance Premium Review Grants over five years to help create a more level playing field by improving how states review proposed health insurance premium increases and holding insurance companies accountable for unjustified premium increases. Applications for the first round of Health Insurance Premium Review Grants were made available on June 7.

The grants build on the Obama Administration’s work with states to implement the Affordable Care Act. Earlier this year, Secretary Sebelius called on certain insurance companies to justify large premium increases and encouraged State and local officials to obtain stronger health insurance premium review authorities under State laws.

This increased scrutiny by the administration and by several states has led to the withdrawal or reduction of several proposed health insurance premium increases that in some cases turned out to be based on faulty assumptions and data.

This grant will be used for the purposes detailed in the approved application. The following is a general summary of how California intends to use its funding:

• Pursue additional legislative authority: The governor will present legislation that synchronizes review activities across the Department of Managed Health Care and Department of Insurance offices. California’s Department of Managed Health Care conducts limited review of small group and guaranteed issue rates for HMO and other managed care plans. The California Department of Insurance reviews health insurance premium increases in the non-HMO market prospectively. An actuary reviews rates for compliance with California’s 70 percent medical loss ratio rule and also assesses actuarial assumptions and trends. Insurers are contacted regarding most filings and approximately two thirds resubmit lower rates. For small group, plans must demonstrate compliance with rate factors requirements. There is no large group review by either entity.

• Expand the scope of the review process: California will expand the authority of the Department of Managed Health Care to collect and review all submitted individual and small group health insurance premium increases.

• Improve the review process: The Department of Managed Health Care currently has limited review authority. Both the Department of Managed Health Care and the Department of Insurance will improve the collection of health insurance premium information, enhance the depth and breadth of current rate review activities, and make IT system improvements. The Department of Managed Health Care will initiate actuarial review of filings and the Department of Insurance will enhance its existing actuarial review capacity.

• Increase transparency and accessibility: Currently only the Department of Insurance posts filings by insurance companies. The Department of Managed Health Care will also begin to post filings and both agencies will educate consumers on influential underlying factors of cost data so consumers are able to understand the cost of health care choices.

• Develop and upgrade technology: California will build the infrastructure necessary to scrutinize a significantly greater number of rate proposals.

“States will use these grant dollars in the way that makes the most sense for their insurance consumers,” said Jay Angoff, director of the Office of Consumer Information and Insurance Oversight. “As we continue to implement the new health insurance reform law, we will continue to work with States to ensure they have the tools they need to ensure the stability of the marketplace, keep costs low and provide consumers with increased transparency, choice and quality they need to make the best health care decisions for their businesses and families.”

The Health Insurance Premium Review Grants are one element of a broad effort under the Affordable Care Act to reduce the unreasonable premium increases proposed by some insurers today. Additional resources from this $250 million program will be available in subsequent years to further strengthen State health insurance premium review procedures.

Other statutory provisions designed to improve affordability include:

• In 2011, the Affordable Care Act allows the Secretary of the U.S. Department of Health and Human Services to review justifications for unreasonable increases in premiums and make them public;

• In 2011, insurers will generally be required to spend at least 80 percent of premium dollars on medical care services and quality-improvement activities and limit their spending on overhead, marketing, CEO salaries, and profits; and

• In 2014, the Affordable Care Act empowers States to exclude health plans that show a pattern of excessive or unjustified premium increases from the new health insurance Exchanges.

The Affordable Care Act includes a wide variety of provisions designed to promote a high-quality, high-value, health care system for all Americans and to make the health insurance market more consumer-friendly and transparent.

Some of the provisions that take effect by the end of next year, or are already in effect, include prohibitions on pre-existing condition exclusions for children; prohibition on lifetime dollar limits in all health plans; extended access to insurance for many young adults; and an unprecedented level of transparency about health insurance through www.HealthCare.gov.

To read more about how each state will use its grant funding, visit www.healthcare.gov/center/grants/index.html. For a national fact sheet visit www.healthcare.gov/news/factsheets/rates.html.