DraftMedicarePolicy N/A

Rate Increase Disclosure and Review

Proposed HHS regulation establishing a process for disclosure and review of premium rate increases that meet or exceed a threshold, affecting health insurance issuers and State regulators (individual and small group markets primarily).

Policy Summary

PayerMedicare

PolicyRate Increase Disclosure and Review

Policy CodePolicy N/A

Change TypeProposed regulation

Effective DateN/A

Next Review DateN/A

Key ActionIssuers must submit a preliminary justification (parts 1 and 2) to the applicable State and to HHS for rate increases meeting the threshold prior to implementation.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

10%threshold for rate increases subject to review

43/50States with some rate review process

individual & small groupmarkets covered

$250Mtotal premium review grants available

Coverage, Scope, and Review Criteria

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inv-01: Coverage stance and criteria — Markets and exemptions

Markets and exemptions

Applies to individual and small group markets; rate increases in these markets that meet or exceed the applicable threshold are subject to review.

Large group market: not subject to the proposed rate review process; HHS solicits comments on whether future review of large group market should differ from individual/small group process.

Excepted benefits (as defined in section 2791(c) of the PHS Act and 45 CFR 144.103) are exempt from these proposed regulations.

HHS will adopt a State's determination that a rate increase is unreasonable if the State has an effective rate review program for the relevant market.

inv-02: Applicability and review criteria — Scope and applicability of the proposed regulation.

Scope and applicability of the proposed regulation.

Applies to health insurance issuers offering individual and small group coverage in a State; does not apply to grandfathered health plan coverage.

Excepted benefits are excluded from applicability to allow consistent administration with other PHS Act provisions.

For filings on or after July 1, 2011 (or effective on or after July 1, 2011 where filing is not required), rate increases meeting or exceeding the applicable threshold are subject to requirements of this part.

HHS will adopt a State determination when the State has an effective rate review program for the market; HHS reviews only where a State has not established an effective process.

inv-03: Review and transparency criteria — Criteria determining whether HHS or a State will review a rate increase and how HHS evaluates State programs.

Criteria determining whether HHS or a State will review a rate increase and how HHS evaluates State programs:

HHS will adopt a State's determinations regarding whether a rate increase is unreasonable if the State has an effective rate review program as evaluated under §154.301(a).

An effective State program must include legal authority to obtain sufficient data and documentation, and the ability to effectively review submitted data and assumptions.

An effective review must examine reasonableness of issuer assumptions and validity of historical data and include analyses of at least: medical trend, utilization, cost-sharing, benefit changes, prior trend impact, enrollee risk profile, reserve needs, administrative costs (including quality programs), applicable taxes/fees, other administrative costs, medical loss ratio, and issuer risk-based capital status.

When HHS will review

State lacks an effective rate review program for the market
State has not established adequate legal authority or processes to conduct effective review

HHS will post on its website a list of States determined to have effective rate review programs and will update it as appropriate.

inv-04: Submission and review criteria — Criteria for when issuers must submit justifications and when HHS or States will review.

Criteria for when issuers must submit justifications and when HHS or States will review:

Issuers must complete and submit a preliminary justification for each proposed rate increase that meets or exceeds the established threshold (§154.200).

Parts one (spreadsheet) and two (3–5 page narrative) of the preliminary justification must be submitted to both HHS and the applicable State prior to implementation, regardless of whether HHS or the State will review.

Part three of the preliminary justification must be completed and submitted to HHS only when HHS is conducting the review; issuers have five business days to respond to HHS requests for additional information.

If HHS adopts a State determination, the State must report its final determinations and explain its bases as required under §154.210(b)(2).

inv-05: Rate review criteria — Reporting and review applicability for rate increases.

Reporting and review applicability for rate increases.

Applies to nongrandfathered coverage offered by issuers in the individual and small group markets; issuers offering such coverage must report information concerning rate increases subject to review.

Issuers must submit a preliminary justification to HHS and the applicable State for proposed rate increases of 10 percent or higher (threshold for filings on/after July 1, 2011).

If a rate increase is determined to be unreasonable, the issuer must file a final justification and disclose information about the proposed increase on its website as required by the rule.

inv-06: Administrative criteria for rate review reporting and responsibility — reporting and review criteria in this excerpt

Reporting and review criteria in this excerpt include:

Threshold for submission: issuers must submit a preliminary justification to the Secretary and applicable State prior to implementing any proposed rate increase of 10 percent or greater (per §154.200).

Review responsibility

If State has an effective rate review program for the market: State reviews and reports final determination to HHS.
If State lacks an effective program for the market: HHS will review rate increases meeting or exceeding the threshold and make its own determinations.

inv-07: Rate review criteria and process — Rate increases subject to review and processes for determination of unreasonableness defined in subparts of 45 CFR Part 154.

Rate increases subject to review and processes for determination of unreasonableness are defined in subparts of 45 CFR Part 154.

Threshold criterion: default federal threshold is a weighted-average increase of 10% or more for filings on or after July 1, 2011; Secretary may establish State-specific thresholds for later years (§154.200).

Market segment criterion: applies to individual and small group markets; does not apply to large group market under the proposed rule.

Determination authority

HHS when State lacks an effective rate review program for the market.
State with an effective rate review program, whose determinations HHS will adopt.

Reporting requirement: issuers must submit rate justification reports for increases subject to review and provide required documentation and explanations as specified in subparts (parts 1–3 of preliminary justification and final justification/posting requirements).

inv-08: Rate review and unreasonable increase criteria — Rate increases subject to review and standards for being deemed unreasonable.

Rate increases subject to review and standards for being deemed unreasonable:

Threshold and aggregation: a weighted-average increase meeting or exceeding 10% (or a Secretary-determined State-specific threshold for 2012 and after) is subject to review; increases that when combined with prior increases within the preceding 12 months meet or exceed the threshold are also subject to review (§154.200).

Definition of unreasonable when HHS reviews: a rate increase is 'unreasonable' if it is excessive, unjustified, or unfairly discriminatory (§154.205).

Excessive increase: causes premium to be unreasonably high relative to benefits; HHS will consider projected medical loss ratio relative to Federal MLR, whether assumptions lack substantial evidence, and whether chosen assumptions are unreasonable.

Unjustified increase: issuer provides incomplete, inadequate, or insufficient data or documentation such that reasonableness cannot be determined.

Unfairly discriminatory increase: results in premium differences between insureds within similar risk categories that are impermissible under State law or not reasonably related to expected cost differences.

Evidence factors and submission elements: HHS will consider projected/current loss ratios, support for assumptions, and reasonableness of assumptions; issuers must submit specified summary, written description, and rate filing documentation elements and HHS will post preliminary justifications and final determinations as required.

Codes, Thresholds, and Regulatory Citations

Financial benchmarksmixed

MLR benchmark

Consideration of projected future loss ratio relative to Federal MLR (e.g., 80% for individual market) when assessing excessive increases

Preliminary justification componentsmixed

Preliminary justification parts one (Excel spreadsheet rate increase summary), two (3-5 page written narrative justifying the rate increase), and three (rate filing documentation required when HHS reviews)

Not applicable / no billing codes referencedmixed

No billing or clinical billing codes are referenced in this regulation; applies to administrative rate filing and review procedures for issuers

Regulatory citationmixed

45 CFR Part 154

New part establishing rate review requirements under section 2794 of the PHS Act

Administrative filing contentmixed

Preliminary justification content: rate increase summary (historical/projected claims, trend projections, claims assumptions, allocation to claims/non-claims, per-enrollee premium, current and projected loss ratios, 3-year history, compensation data), written description (rating methodology, significant factors, overall experience), and rate filing documentation (policy description, scope, premiums before/after, past experience, assumptions, cumulative/projected/lifetime loss ratios, Federal MLR standard and justification)

inv-14: National filing threshold — 10% average weighted increase and state-specific threshold note

National filing threshold (effective July 1, 2011)Average weighted increase of 10% or more in a rate filing (alone or combined with prior increases within preceding 12 months)

Applies to marketsIndividual and small group markets for filings on or after July 1, 2011 (or effective July 1, 2011 where State does not require filing)

Aggregation ruleWeighted average across enrollees within a product; cumulative increases in prior 12 months are combined to determine threshold

inv-15: Default threshold for review (2011) — 10%

Default review threshold (2011)10%

Calculation basisApplies to a single increase or to multiple increases totaling 10% or more within the preceding 12 months

ScopeTriggers preliminary justification submission to HHS and applicable State prior to implementation

inv-16: State-specific threshold (future years) — Secretary may establish state-specific thresholds

Secretary may set State-specific thresholdsSecretary may establish State-specific thresholds for future calendar years by September 15 of the preceding year based on State-specific data

Fallback if not establishedIf Secretary does not publish a State-specific threshold, the 10% default applies

Data sources for State thresholdsBased on State-submitted data and data from States receiving premium review grants

inv-17: Review threshold example — 10% example

Example threshold triggering reviewAn increase of 10% or more is an example of an increase subject to review

Action when threshold metIssuer must submit a preliminary justification (parts 1 and 2) to HHS and applicable State

TransparencyPreliminary justification parts 1 and 2 are posted on HHS website (with disclaimer) when submitted

inv-18: Review threshold — reference to §154.200 threshold

Reference to regulatory sectionThreshold for rate increases subject to review is defined in §154.200

Weighted average rule§154.200(b) defines meeting/exceeding threshold by weighted average increase for all enrollees subject to the rate increase

12-month aggregation§154.200(c) requires combining prior increases within the preceding 12 months when calculating whether threshold is met

inv-19: Rate review threshold — 10% proposed rate increase

Rate review triggerProposed rate increase of 10% (or weighted average meeting 10%) triggers requirement to submit preliminary justification to HHS and State

Who is affectedIssuers offering nongrandfathered coverage in individual and small group markets

Timing of submissionSubmit parts 1 and 2 prior to implementation or on date of State filing where required

inv-20: Rate increase threshold for review/reporting — 10%

Reporting/filing threshold10% — issuers must submit a preliminary justification for any proposed rate increase of 10% or greater

Submission requirementsParts 1 (spreadsheet) and 2 (3–5 page narrative) submitted to HHS and applicable State; part 3 submitted when HHS reviews

Estimated burdenHHS estimates 6–16 hours per justification report; ongoing costs estimated in preamble

inv-21: Federal review threshold — 10% unless State-specific threshold set by Secretary

Federal review threshold10% by default; HHS will review increases meeting or exceeding 10% in markets where State does not have an effective rate review program

State role preservedHHS will adopt State determinations if the State has an effective rate review program per §154.301(a)

State-specific threshold optionSecretary may publish State-specific thresholds for later years; otherwise 10% applies

inv-22: Review threshold (default) — 10% weighted average increase from July 1, 2011

Default (initial) review threshold10 percent weighted average increase for filings on or after July 1, 2011

Weighted average calculationWeighted by number of enrollees affected in each subcategory as described in §154.200(b)

Combination with prior increasesIncludes prior increases implemented during the preceding 12-month period when calculating weighted average

inv-23: State-specific thresholds (2012 and after) — published by Secretary or default 10%

State-specific thresholds (2012 and after)Secretary will publish State-specific thresholds no later than September 15 of the year preceding the calendar year to which they apply, based on State-specific data

Fallback provisionIf Secretary does not establish a State-specific threshold, the 10% default continues to apply

Basis for State thresholdsDeveloped using State trend data, data from premium review grants, and State-submitted information

Issuer Filing, Posting, and Response Requirements

Prior Authorization

Submission and review of rate increases

Issuers must submit justifications for proposed rate increases that meet or exceed the statutory review threshold (generally 10%). The required submission is a preliminary justification completed on the form and in the manner prescribed by the Secretary. The preliminary justification consists of three parts: (1) a rate increase summary, (2) a written description justifying the rate increase, and (3) when HHS is reviewing the rate increase, rate filing documentation sufficient to permit a comprehensive actuarial review. Issuers must complete and submit parts one and two to HHS and, if the State accepts such submissions, to the applicable State for every rate increase subject to review. When HHS (rather than the State) is conducting the review for an individual or small group market increase, the issuer must also submit part three to HHS.

Preliminary justification parts 1 & 2 required for all rate increases subject to review.
Part 3 (detailed rate filing documentation) required only when HHS is reviewing under §154.210(a).
Issuers may submit a combined preliminary justification for multiple products if claims experience and rate increases are aggregated and identical.

Documentation Required

Issuer web posting obligations

Parts one and two of the preliminary justification (summary and written narrative) will be posted promptly to the HHS Web site to inform consumers of proposed increases and the issuer's stated drivers of the increase. HHS will post information from part three that is not designated confidential unless exemption criteria apply under FOIA rules; HHS will decide whether designated confidential information is disclosable under 45 CFR §5.65 before posting. HHS will also post final determinations (State or HHS) and, when applicable, the issuer's final justification. Issuers that implement an increase determined to be unreasonable by HHS or an adopted State determination must prominently post on their own Web site the information specified by the Secretary: the public information from §154.215(i) (the rate increase summary elements), HHS's or the State's final determination and brief explanation, and the issuer's final justification. Issuers need not post information for increases that were not determined to be unreasonable or that were not implemented.

HHS posts parts one and two promptly; posts part three only if not confidential or after FOIA review.
HHS posts final determinations and issuer final justifications for implemented unreasonable increases.
Issuers must prominently post the preliminary justification, HHS/State final determination, and their final justification on their Web site if they implement an increase determined to be unreasonable.
Issuers may download an electronic file from HHS to minimize posting burden; required postings remain available for at least three years.

Billing Rule

Preliminary justification and filing requirement for >=10% rate increases

Issuers offering individual or small group coverage must submit a preliminary justification to the Secretary and the applicable State prior to implementation for any proposed rate increase of 10 percent or greater. The preliminary justification form includes: an Excel-based rate increase summary (part one), a three- to five-page written narrative explaining methodology (part two), and, when HHS is reviewing, supplemental rate filing documentation (part three). These requirements implement the §154.200–§154.225 disclosure and review provisions and apply beginning with rate increases filed or effective on or after July 1, 2011.

Threshold for submission: 10 percent (rate increases subject to review).
Parts one and two must be submitted to HHS and the applicable State prior to implementation.
Part three required when HHS reviews the increase in individual or small group markets.
Requirements generally effective for filings on or after July 1, 2011.

Note

Prior notification/reporting requirement

Timing rules depend on whether the State requires pre-implementation filings. If a State requires filing of a proposed rate prior to implementation, the issuer must submit the completed preliminary justification to HHS and the State on the same date it files the proposed rate with the State. For States that do not require pre-implementation filings (and where HHS is expected to review), issuers must submit the preliminary justification to HHS and the State prior to implementation; absent contrary State law, issuers may optionally complete the preliminary justification at implementation or earlier. If HHS requests additional information to complete a review, issuers must provide the requested information within five business days of the request.

If State requires pre-implementation filing: submit preliminary justification at State filing date.
If State does not require filing: submit preliminary justification prior to implementation (or at implementation where allowed).
Respond to HHS requests for additional information within 5 business days.

Denial Risk

Actions after unreasonable determination

If HHS (or an adopting State) determines a rate increase is unreasonable and the issuer chooses not to implement the increase or implements a lower increase, the issuer must notify HHS of that decision within 10 days. If the issuer implements the unreasonable increase, the issuer must submit a final justification to HHS consistent with the preliminary justification and post the required information on its Web site. The issuer must submit the final justification or final notification to HHS by the later of 10 days after implementation or 10 days after receipt of HHS's final determination. If the issuer implements a lower increase that still meets or exceeds the review threshold, the issuer must submit a new preliminary justification for the lower increase. All final justifications will be posted by HHS and remain available for three years.

If issuer declines to implement or implements a lower increase below the threshold: notify HHS within 10 days.
If issuer implements the unreasonable increase: submit final justification to HHS within the later of 10 days after implementation or 10 days after receipt of HHS final determination.
Final justification must be consistent with information in the preliminary justification and cannot introduce new information.
If a lower implemented increase remains above the threshold, submit a new preliminary justification.

Key Terms and Definitions

inv-37: Premium definition and focus of review

Premium definitionPremium is the final amount charged to a specific insured; review focuses on the underlying rates, methods, actuarial estimates, and assumptions

Focus of reviewActuarial review examines estimates of future claims and non-claims expenses (administration, profits) and methodologies used to derive rates

Product-level analysisRates are determined for specific insurance products; the review considers the product's actuarial experience and assumptions

inv-38: Subject to review — proposed increase meeting or exceeding threshold

Subject to review — triggerA proposed rate increase that equals or exceeds the applicable threshold (e.g., 10% default) is considered subject to review but is not pre-determined unreasonable

Determination follows reviewMeeting the threshold requires submission of a preliminary justification and triggers review to determine unreasonableness

Aggregation ruleSingle increases and cumulative increases in prior 12 months are aggregated at product level using a weighted average

inv-39: Unreasonable rate increase — definition when HHS-reviewed; States may vary

Unreasonable rate increase — HHS definitionWhen HHS reviews, an increase is 'unreasonable' if it is excessive, unjustified, or unfairly discriminatory as described in §154.205

State determinationsStates may apply their own standards under State law; HHS will adopt State determinations from effective State programs

Scope of HHS standardHHS's standards apply only to increases reviewed by HHS and do not create a Federal standard for States

inv-40: Individual and small group market — definitions using State law or defaults

Individual and small group market definitionsUse definitions under the applicable State's rate filing laws; if State law does not define them, PHS Act definitions apply (small group substituted to 1–50 employees for rate review purposes)

State deferenceHHS defers to State rate filing law definitions (e.g., some States define small group as 2–25) when determining market applicability

Product vs. optionsProduct defined as package of benefits with discrete rating/pricing; variable options are not separate products for aggregation

inv-41: Product level and weighted average threshold calculation — aggregation and weighted average methodology

Aggregation levelThreshold determination occurs at the product level; issuers may combine multiple products into a single submission if experience is aggregated and increases are the same across products

Weighted average calculationWeighted average increase = sum(number of enrollees × respective increase) divided by total enrollees

12-month cumulative ruleA rate increase is subject to review if it meets/exceeds threshold when combined with previous increases in the preceding 12 months

inv-42: Unreasonable rate increase — HHS determination criteria (excessive, unjustified, unfairly discriminatory)

HHS determination criteria for 'unreasonable'HHS determines an increase is unreasonable if it is excessive, unjustified, or unfairly discriminatory (see §154.205 for factors)

Excessive considerationsIncludes whether projected future loss ratio falls below Federal MLR standard and whether premiums are unreasonably high relative to benefits

Unfair discriminationOccurs when premium differences within similar risk categories are not permissible under State law or do not correspond to expected cost differences

inv-43: Effective rate review program — State program criteria per §154.301(a)

Effective rate review program criteriaState program must meet §154.301(a) requirements, including legal authority to obtain sufficient data, ability to effectively review submissions, and examination of assumptions and historical actuarial experience across specified areas

Analytic areasIncludes analysis of trend, utilization, cost-sharing, benefit changes, reserves, administrative costs, taxes/fees, MLR, and risk-based capital

Outcome of effectivenessIf State program is effective, HHS will adopt the State's determination; HHS evaluates effectiveness using the specified criteria

inv-44: Preliminary justification structure — parts 1 (spreadsheet), 2 (3-5 page narrative), 3 (additional data when HHS reviews)

Preliminary justification structure — Part 1Excel spreadsheet data (part one) containing required data elements to be submitted to HHS and State

Part 2Three- to five-page written narrative explaining the methodology used to derive the rate increase (submit to HHS and State)

Part 3Additional data and rate filing documentation required when HHS is conducting the review (submitted to HHS)

inv-45: Confidential designation — FOIA/regulatory confidentiality note

Confidential designation and FOIAInformation designated 'confidential' under 45 CFR 5.65 will not be posted by HHS unless HHS determines it is subject to disclosure under those regulations

Posting policy for part 3HHS will post part three information promptly unless designated confidential and determined not subject to disclosure

Disclaimer on postingsHHS will prominently state that preliminary justification postings do not represent determinations that the rate increase is unreasonable

inv-46: Issuer — definition of insurance company/organization required to be licensed

Issuer definitionAn insurance company, insurance service, or insurance organization (including an HMO) required to be licensed to engage in the business of insurance in a State and subject to State insurance law (per 45 CFR 144.103)

ApplicabilityIssuers offering individual or small group nongrandfathered coverage must submit preliminary justifications when threshold met

Regulatory citationsReferenced definitions appear in §154.102 and related sections

inv-47: Small group — defined as 2 to 50 employees

Small group definitionDefined under applicable State rate filing laws; if State law does not define, for this regulation small group = 1 to 50 employees (substituting 50 for 100)

State variationsSome States define small group as 2 to 25 for rating purposes; HHS defers to State law for rate review applicability

ContextDefinition used only for determining which market segment an increase falls into for rate review purposes

inv-48: Preliminary justification (term) — report submitted to Secretary and State describing reasons for proposed increase meeting threshold prior to implementation

Preliminary justification (term)A report (parts 1–3) submitted to the Secretary and applicable State describing reasons and supporting information for a proposed rate increase meeting or exceeding the threshold prior to implementation

Parts required for all submissionsParts 1 (spreadsheet) and 2 (narrative) must be submitted to both HHS and the State prior to implementation

Additional data for HHS reviewPart 3 (rate filing documentation and supplemental data) is required when HHS conducts the review

inv-49: Effective rate review program (term) — State program meeting §154.301(a) requirements

Effective rate review program (term)A State program that HHS has determined meets the requirements set forth in §154.301(a) for the relevant market segment in the State

Consequence of designationHHS will adopt the State's determination of unreasonableness if the State's program is effective

Evaluation criteriaIncludes legal authority to obtain data, effective review capacity, and examination of assumptions and past actuarial experience

inv-50: Rate increase (term) — increase of rates for a specific product

Rate increase (term)An increase of the rates for a specific product offered in the individual or small group market

Product-level focusRate increases are assessed at the product level and by weighted average across enrollees to determine threshold applicability

Includes cumulative increasesSingle or cumulative increases within the preceding 12 months are considered for determining whether an increase is subject to review

inv-51: When reviewed by HHS — criteria for unreasonable determination or adoption of State determination

When HHS reviews — adoption/criteriaHHS will determine a rate increase unreasonable if excessive, unjustified, or unfairly discriminatory, or it may adopt a State determination if State has effective program

Standards described in §154.205Factors making an increase excessive, unjustified, or unfairly discriminatory are described in §154.205 and are considered in HHS determinations

State determinations retainedWhen adopting a State determination, HHS recognizes State statutory/regulatory standards for unreasonableness

inv-52: Unreasonable rate increase — when HHS (or adopting State) determines excessive, unjustified, or unfairly discriminatory

Unreasonable rate increase (term)An increase that HHS (or an adopting State) determines is excessive, unjustified, or unfairly discriminatory

Excessive definitionCauses premium to be unreasonably high relative to benefits; includes consideration of projected MLR vs Federal standard

Unfair discrimination definitionPremium differences within similar risk categories not permissible under State law or not corresponding to expected cost differences

inv-53: Product — defined as package of coverage benefits with discrete rating/pricing methodologies

Product (term)A package of health insurance coverage benefits with a discrete set of rating and pricing methodologies offered in a State

Filed as productMost States require each product to be submitted as a separate form filing; product may include variable options that are not separate products

Aggregation for thresholdRate increases are evaluated at the product level for threshold determination; multiple products may be combined under conditions

inv-54: Market definitions — individual and small group market meanings per State law or PHS Act references

Market definitions'Individual market' and 'Small group market' use the applicable State's rate filing laws; if State law lacks definitions, PHS Act definitions apply (small group = 1–50 employees for this rule)

State law precedenceHHS defers to State rate filing law definitions to maintain consistency with State practices

Applicability noteRule applies to individual and small group markets; large group generally not covered by this proposed rule