An amendment to the rate review final rule made clear that coverage sold to individuals or small groups through an association plan (e.g., where the association is the policyholder) will be subject to the federal rate review beginning Nov. 1, 2011. The Center for Consumer Information and Insurance Oversight (CCIIO) released the list of states that have effective "association" rate review programs. The U.S. Department of Health and Human Services (HHS) also launched the website for public disclosure of rate requests on Oct. 6, 2011.
The rate review final rule, effective Sept. 1, 2011, requires insurers of individuals/small groups and individuals/small group association plans to provide detailed information to the states and/or HHS for any proposed increase equal to or greater than 10 percent (the threshold), along with the reason for the proposed increase. States deemed to have effective rate review programs will be able to set state-specific thresholds beginning Sept 1, 2012.
Currently, 40 states and the District of Columbia have "effective" rate review programs, meaning that these states will conduct the required reviews, not HHS. Two states (Pennsylvania and Virginia) have "effective" rate review programs in the individual market only. Six states (Alabama, Arizona, Louisiana, Missouri, Montana and Wyoming) do not have an "effective" program and will therefore have rate increases that meet or exceed the federal threshold reviewed by HHS.
Which insurance plans are subject to the rate review provisions and what triggers a rate review?
The Final Rule establishes a process for reviewing health insurance rate increases in the individual and small group markets, as required by the health reform legislation. For rate increases (i) filed on or after Sept. 1, 2011 (in states with filing requirements) or (ii) effective on or after Sept. 1, 2011 (in states with no filing requirements), an increase of 10 percent or more (inclusive of any other increases within the preceding 12-month period) would trigger a rate review under the Final Rule. Beginning in September 2012, the 10 percent threshold may be replaced by state-specific thresholds that reflect the insurance and health care cost trends in each respective state.
How are "small group" and "individual plan" defined for purposes of the rate review?
"Small group" and "individual" are as defined under state law. Most states define a "small group" to be 2-50 eligible employees for rating purposes. Where state law does not define "small group" size, the federal standard of 1-50 total employees will apply.
The federal law has changed and the impact is for associations that are treated as large group for rating but are comprised of small groups that would be treated as small group if not part of the association. These groups are now subject to the federal rate review law and rate fillings will be required.
Will health coverage sold to individuals or small groups through an association plan be subject to rate review?
Yes, an amendment to the rate review final rule clarifies that health coverage sold to individuals or small groups through an association plan will be subject to rate review on or after Nov. 1, 2011.
Does the rate review provision apply to grandfathered plans?
The rate review and increase disclosure provision does not apply to grandfathered plans.
How is a rate defined as "unreasonable"?
States with an "effective rate review program" will determine whether a rate increase is "unreasonable" in accordance with state law. For states without an "effective rate review program," HHS will determine a rate increase that meets or exceeds the triggering threshold to be unreasonable if it falls within any of the following three general categories:
Excessive Increases that cause the premium to be unreasonably high in relation to the benefits provided. Numerous factors will be considered, including whether:
The rate results in a projected Medical Loss Ratio below the federal standard.
Any of the assumptions on which the rate increase is based is not supported by substantial evidence.
The underlying assumptions in support of the rate increase are unreasonable.
Unjustified Data submitted is incomplete, inadequate or otherwise does not provide a basis upon which the reasonableness of the increase can be determined.
Unfairly discriminatory Increase results in premium differences between insureds within similar risk categories that are not permissible under state law.
Which states have effective rate review programs?
The Center for Consumer Information and Insurance Oversight (CCIIO) released the list of states that have "effective" rate review programs.
Who maintains the list of those states with an "effective rate review program"?
The CCIIO will maintain a list of those states with an "effective rate review program" that includes certain disclosure and transparency requirements.
What categories are used for the list of those states with an "effective rate review program"?
The list falls into three primary categories:
States with an effective rate review program.
States with an effective rate review program for the individual market only.
States that do not have an effective rate review program.
Who performs the rate review?
Under the Final Rule, states with effective rate review programs (as determined by HHS) will conduct the necessary reviews in accordance with applicable state law; for rate increases meeting the threshold in those states that are deemed not to have an effective rate review program, HHS will conduct the review.
What process is in place for information about a rate review to be shared publicly?
Whether the rate review is performed by states or HHS, information about proposed increases at or above threshold, along with preliminary justifications for those increases and any final determinations as to whether or not the increase was "unreasonable," will be posted on the healthcare.gov website, as further described below.
For any submitted rate increase that meets or exceeds the threshold, a Consumer Disclosure Form will be posted that outlines the proposed increase and reasons for it. Consumers in every state can go to healthcare.gov to view a summary of the key factors driving proposed rate increases above the threshold along with an explanation provided by the insurance company for the proposed increase. Consumers will also have the ability to comment on proposed rate increases. However, these comments will not be displayed publically.
Once the preliminary justification is received, the state or HHS will have up to 60 days to determine whether a proposed rate increase is unreasonable and make a final determination.
HHS will then post this conclusion and an explanation on the healthcare.gov website.
If an insurer moves forward in accordance with state law and implements an increase that has been deemed "unreasonable," the insurer must submit to HHS a final justification of the increase in response to HHS' or the state's "unreasonable" determination.
This final justification will be posted for three years on both the insurer's website (uhc.com) and the healthcare.gov website.
Any increase subject to the rate review procedures requires substantial supporting information, all of which may be publicly disclosed as described above unless deemed to be confidential by HHS. The Final Rule defines in great detail the scope of data and information necessary in an insurer's preliminary justification and other rate filing documentation, including descriptions of the following items (among others):
Applicable rating methodology
Most significant factors causing the rate increase
Historical and projected claims experience
Utilization trend projections
Current and projected loss ratio (including the federal medical loss ratio applicable in the market to which the increase applies)
Per-member, per-month allocation of current and project premium
Three-year history of rate increases for the applicable product