[Federal Register Volume 76, Number 99 (Monday, May 23, 2011)]
[Rules and Regulations]
[Pages 29964-29988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-12631]
[[Page 29963]]
Vol. 76
Monday,
No. 99
May 23, 2011
Part IV
Department of Health and Human Services
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45 CFR Part 154
Rate Increase Disclosure and Review; Final Rule
Federal Register / Vol. 76 , No. 99 / Monday, May 23, 2011 / Rules
and Regulations
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 154
[CMS-9999-FC]
RIN 0938-AQ68
Rate Increase Disclosure and Review
AGENCY: Center for Consumer Information and Insurance Oversight,
Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule with comment period.
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SUMMARY: This final rule with comment period implements requirements
for health insurance issuers regarding disclosure and review of
unreasonable premium increases under section 2794 of the Public Health
Service Act. The final rule establishes a rate review program to ensure
that all rate increases that meet or exceed a specified threshold are
reviewed by a State or CMS to determine whether they are unreasonable
and that certain rate information be made public.
DATES: Effective date. This rule is effective on July 18, 2011.
Comment date. We will consider comments on Sec. 154.102 regarding
the definitions of ``individual market'' and ``small group market''
that are received at one of the addresses provided in the ADDRESSES
section of this rule no later than 5 p.m. EST on July 18, 2011.
ADDRESSES: In commenting please refer to file code CMS-9999-FC. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions under
the ``More Search Options'' tab.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-9999-FC, P.O. Box 8010,
Baltimore, MD 21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-9999-FC, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments only to the following addresses prior to
the close of comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-9994 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will be also available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4:00 p.m. To schedule an appointment to view public comments,
phone (800) 743-3591.
FOR FURTHER INFORMATION CONTACT: Sally McCarty, (301) 492-4489 (or by
e-mail: [email protected]).
SUPPLEMENTARY INFORMATION: Comment Subject Areas: We will consider
comments on how individual and small group coverage sold through
associations should be treated under the rate review process as
discussed in this final rule with comment period that are received by
the date and time indicated in the DATES section of this final rule
with comment period.
I. Background
The Patient Protection and Affordable Care Act (Pub. L. 111-148)
was enacted on March 23, 2010; the Health Care and Education
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. In
this preamble, we refer to the two statutes collectively as the
Affordable Care Act. The Affordable Care Act reorganizes, amends, and
adds to the provisions of Part A of title XXVII of the Public Health
Service Act (PHS Act) relating to group health plans and health
insurance issuers in the group and individual markets.
Section 1003 of the Affordable Care Act adds a new section 2794 of
the PHS Act which directs the Secretary of the Department of Health and
Human Services (the Secretary), in conjunction with the States, to
establish a process for the annual review of ``unreasonable increases
in premiums for health insurance coverage.'' The statute provides that
this process shall require health insurance issuers to submit to the
Secretary and the applicable State justifications for unreasonable
premium increases prior to the implementation of the increases.
On December 23, 2010, we published a proposed rule entitled ``Rate
Increase Disclosure and Review.'' Sixty comments were received by the
end of the comment period. Commenters included several State insurance
regulators; the National Association of Insurance Commissioners
(``NAIC''); many consumer, retiree, and patient organizations; health
care providers; health insurance issuers and related trade associations
(collectively, ``industry''); an organization representing the
actuarial profession; and others.
II. Provisions of the Proposed Rule and Responses to Comments
In this section of the preamble, we summarize each section of the
proposed rule, discuss the public comments received on each section (if
any), and provide responses to the comments.
A. Subpart A--General Provisions
1. Basis and Scope (Sec. 154.101)
Section 154.101 of the proposed rule indicated that this rule would
implement section 2794 of the PHS Act. Specifically, the rule would
establish
[[Page 29965]]
disclosure requirements on health insurance issuers offering health
insurance coverage in the small group or individual markets concerning
rate increases that are above a specific threshold and designated as
subject to review. The rule proposed to establish the process by which
such increases are reviewed to determine whether they are unreasonable.
Comment: One consumer commenter expressed concern that the proposed
rule did not include authority for CMS to require an issuer to rescind
an unreasonable rate or otherwise impose penalties on such issuer for
proposing an unreasonable rate.
Response: Section 2794 of the PHS Act only provides CMS with the
authority to require justification and disclosure of proposed rate
increases. However, if an issuer fails to comply with the requirements
set forth in this final rule, CMS could seek a court order against the
issuer to enforce compliance.
Some States have the authority to deny proposed rate increases, and
the grants awarded under section 2794(b) of the PHS Act provided
supplemental performance funding for States that have or seek such
authority. In addition, States receiving grants under section 2794(b)
of the PHS Act will be required to make recommendations to State
Exchanges regarding whether issuers should be excluded from
participation in the Exchanges based on patterns or practices of
excessive or unjustified premium increases. Section 1311(e)(2) of the
Affordable Care Act requires Exchanges to take the States'
recommendations into consideration when determining whether to make
health plans available through the Exchanges.
2. Definitions (Sec. 154.102)
Certain key definitions in Sec. 154.102 of the proposed rule are
discussed below.
a. Individual Market and Small Group Market. The proposed rule
would have defined ``individual market'' and ``small group market'' as
they are defined under the applicable State rate filing laws, if the
State laws included such definitions. Under the proposed rule, if a
State rate filing law did not include definitions for the individual
market or the small group market, the definitions under the PHS Act
would be used, with the exception that a small group would be defined
to include employers with 50 or fewer employees.
Comment: State regulators, industry, and other commenters agreed
that CMS generally should defer to State rate filing laws concerning
the definitions for the individual market and the small group market.
One State regulator commenter requested clarification as to whether
short-term limited duration coverage was required to be included in the
proposed rule's definition of individual market, if the State excluded
such coverage from its own definition.
Response: The final rule continues to defer to State rate filing
law definitions for individual market and small group market including
in cases in which the State definition of individual market excludes
short-term limited duration coverage. This rule, therefore, does not
require that a State with an Effective Rate Review Program review
proposed rate increases for short-term limited duration coverage if the
State's rate filing law does not consider short-term limited duration
coverage to be individual market coverage.
Comment: Five commenters specifically expressed concern that the
proposed rule, as drafted, would not cover association coverage sold to
individuals and small employers in some States and recommended that the
final rule include them in its scope.
One State regulator commented that a large percentage of small
employers purchase health insurance coverage through associations in
her State. Under that State's law, small employers purchasing through
an association are considered one large group not subject to the
provisions of State law that apply to small group coverage. However,
the commenter noted that rate increases are based on each small
employer's own experience, and not that of the entire association, so
that rate-setting for association coverage sold to small groups is not
the same as that for large employer coverage. She recommended that
association coverage be treated consistently for purposes of section
2794 of the PHS Act and other PHS Act provisions. As CMS Insurance
Standards Bulletin Transmittal Nos. 02-02 and 02-03 makes clear, PHS
Act requirements generally apply to individual market and small group
market coverage sold through associations in the same manner as they
apply to other individual market and small group market coverage sold
directly to consumers and small employers.
Another State regulator voiced similar concerns, noting that his
State had more small employers with association coverage than small
employers with coverage in the traditional small group market. This
State regulator urged that the final rule categorize individual and
small employer coverage based on the purchasers of such coverage.
A major trade association representing issuers found the proposed
rule ambiguous concerning the regulation of product filings in the
individual and small group markets offered through out-of-state
associations and group trusts. The commenter noted that in some cases,
a group policy is issued in one State, with certificates being issued
to individuals or small groups in other States. Since many States only
review rates for policies issued in their States, their rate review
laws would not apply to coverage sold through out-of-state associations
and group trusts.
Similarly, one large issuer noted that CMS's deference to State
rate filing law definitions could result in some individual market
products sold through associations and group trusts not receiving any
review by States or CMS. This commenter recommended that consistent
filing requirements and rate review standards be applied to all
products marketed to individuals, regardless of the technical insurance
arrangement that might be involved, and that CMS review rates for
individual market products sold through associations and group trusts
in cases where States did not. The commenter thought this approach
would ensure uniform consumer protection and advance competition by
subjecting all issuers to the same rules.
Lastly, one consumer commenter stated that all coverage marketed to
individuals and small employers should be subject to the same review,
regardless of whether the coverage was marketed directly to consumers
or through associations.
Response: Given the fact that we did not include a discussion on
the association health plan issue in the proposed rule, we are not
making a determination regarding this issue in this final rule, but
instead are seeking comments and additional data on the definitions of
``individual market'' and ``small group market'' in Sec. 154.102 of
this final rule in relation to whether to provide that individual and
small employer policies sold through associations are to be included in
the rate review process, even if the State excludes such coverage from
its definitions of individual and small group market coverage. Given
the comments received and our policy goals with regard to rate review,
we are inclined to amend the definitions of individual market and small
group market in Sec. 154.102 to include coverage sold to individuals
and small groups through associations in all cases. However, as
indicated above, we are interested in receiving further comments on
Sec. 154.102 for future consideration. If we were to amend the
definitions of ``individual market'' and ``small group market'' in
Sec. 154.102 to
[[Page 29966]]
include individual coverage and small employer coverage sold through
associations in the rate review process, the amendment will only be
applied prospectively.
We recognize that some States may be unable to review proposed rate
increases for coverage sold through associations in circumstances in
which such association coverage is viewed as large group coverage under
State law and State law does not provide for review of rate increases
in the large group market, or the State otherwise lacks legal authority
to review such rates. In that case, CMS could review the proposed
increases for those products. Whether or not a State does or may be
unable to review rate increases for association coverage is not a
criteria for determining whether it has an Effective Rate Review
Program.
In addition, we are seeking comments to address the following
questions:
1. Do States currently review rate increases for association and
out-of-State trust coverage sold to individuals and small groups,
regardless of whether the policies are sitused in or outside of their
States?
2. How many such rate filings do States receive for association and
out-of-State trust coverage?
3. How prevalent are association and out-of-State trust coverage
arrangements? What percentage of individual market and small group
market business is sold through associations and out-of-State trusts?
4. In which States is association and out-of-State trust coverage
commonly purchased by individuals and small groups? Where are out-of-
State trusts typically sitused?
5. Why do some individuals and small employers purchase coverage
through associations and out-of-State trusts rather than the
traditional markets? Are there particular groups of individuals or
types of small employers that typically purchase coverage through
associations and out-of-State trusts? What organizations (other than
issuers) typically sponsor, endorse, or market association and out-of-
State trust arrangements?
6. How do rate increases for association and out-of-State trust
coverage sold to individuals and small groups compare to rate increases
in the traditional market? What explains the differences (if any)
between rate increases for association and out-of-State trust coverage
and traditional market coverage?
Once we receive and review the comments, we will make a
determination on whether to amend Sec. 154.102 of the rule to include
individual and small employer health insurance coverage sold through
associations in the rate review process. Meanwhile, nothing prohibits a
State from reviewing rates of coverage sold through associations if it
already does so or amends its laws in the future to do so.
b. Product. The proposed rule would define ``product'' as a package
of health insurance coverage benefits with a discrete set of rating and
pricing methodologies offered in a State.
Comment: Several industry commenters raised concerns that the
definition of product was not consistent with State definitions and
urged CMS to defer to such State definitions. Some commenters further
contended that it would be administratively cumbersome to develop a new
Federal product classification system that did not align with existing
State classification systems.
Response: While we have not modified the proposed rule's definition
of product in this final rule, we believe that the definition is
sufficiently flexible to accommodate existing State definitions, and
that, as a practical matter, issuers will not have to reclassify their
products to comply with the rate review process. Further, this
definition is intended to track closely with the definition of health
insurance product for purposes of the web portal, 45 CFR 159.110. We
expect that in most cases issuers will be able to use their existing
identification numbers for health insurance products under the Health
Insurance Oversight System (HIOS) for reporting rate increases to CMS.
c. Rate Increase. The proposed rule would define ``rate increase''
as an increase in the rates of a specific product in the individual or
small group market.
Comment: Several industry commenters supported CMS' decision to
base the threshold standards on rates, rather than premiums. They noted
that the distinction between premiums and rates was explained in the
proposed rule's preamble and recommended that this discussion be
incorporated into the final rule itself.
Response: We do not believe it is necessary to repeat the
discussion in the proposed rule, as we are adopting the proposal
described in that discussion, and that discussion applies to this final
rule.
d. State. The proposed rule would define ``State'' using the
definition provided in section 2791(d)(14) of the PHS Act.
Note: We note that the definition in 2791(d)(14) of the PHS Act
includes the States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, American Samoa, and Northern Mariana Islands.
3. Applicability (Sec. 154.103)
The proposed rule generally would be applicable to all health
insurance issuers offering coverage in the small group or individual
markets in a State. The proposed rule would not apply to grandfathered
health plan coverage, as defined in 45 CFR 147.140, and to insurance
coverage that meets the ``excepted benefits'' definition set forth in
section 2791(c) of the PHS Act.
Comment: State regulators, industry, and employers generally agreed
that the large group market should not be subject to the final rule,
noting that large employers are sophisticated purchasers, that rates
generally are based on each large employer's own experience, and that
the proposed rule's filing requirements were not aligned with State
large group market practices. In contrast, some provider commenters and
a labor organization recommended that the large group market be subject
to the final rule, noting the rate increases that large groups have
faced and the consolidation that has occurred in the health insurance
industry. Lastly, one State regulator noted that rates for mid-sized
employers (that is, those with 51 to 99 employees) are only partially
experience-rated and that a rate review process could be warranted for
them, as well.
Response: We understand that many employer groups at the smaller
end of the large group spectrum are only partially experience-rated,
but we have not included them in the scope of the final rule because
few States review rates for large groups. However, we will monitor rate
increases in that market segment using a variety of sources including
data from the rate review grant program and assess whether future
amendments to the final rule may be warranted.
Comment: One commenter suggested that grandfathered plans be
included within the scope of the final rule.
Response: Section 1251 of the Affordable Care Act provides that
section 2794 of the PHS Act does not apply to coverage that was in
effect on March 23, 2011 and retains grandfather status. If coverage
loses its grandfather status, then PHS Act section 2794 of the PHS Act
will apply.
Comment: One provider commenter recommended that dental and vision
plans be included within the scope of the final rule. The commenter
stated that rates for these products have increased significantly due
to lack of
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regulation and noted the importance of such coverage to children.
Response: We have maintained the exclusion for excepted benefits
(including limited scope dental and vision benefits) as defined under
section 2791(c) of the PHS Act because we believe Federal and State
resources are most effectively focused on increases that affect the
affordability of basic medical coverage. We do not believe that rate
increases for excepted benefit plans such as limited scope dental and
vision benefits have the same impact on individuals and small employers
as rate increases for basic medical coverage that includes benefits for
hospital and physician services. States may review these rates if
permitted under State law.
Comment: One commenter recommended that retiree-only plans be
included within the scope of the final rule when current or former
employees pay for substantial portions of the premium increases.
Response: While it is possible that some State filing laws may
apply to such coverage, we have not required that health insurance
coverage provided to retiree-only plans be subject to this rule. We
note that many retiree-only plans are self-funded and thus would not
constitute health insurance coverage subject to section 2794 of the PHS
Act.
B. Subpart B--Disclosure and Review Provisions
1. Rate Increases Subject to Review (Sec. 154.200)
Under the proposed rule, CMS or the applicable State would review
those rate increases that meet or exceed specified thresholds to
determine if they are unreasonable. (We understand that many States
review all rate increases in the applicable markets; nothing in this
rule affects State laws or practices with respect to rate increases
below the relevant threshold.) Rate increases would be subject to
review if they are 10 percent or more and either: (1) are filed in a
State on or after July 1, 2011; or (2) are in a State that does not
require rate increases to be filed, and are effective on or after July
1, 2011. For rate increases filed in a State during calendar year 2012
and thereafter, or effective in calendar year 2012 and thereafter in a
State that does not require rate increases to be filed, rate increases
that meet or exceed State-specific thresholds determined by the
Secretary for the applicable calendar year (or 10 percent if applicable
State-specified thresholds are not determined by the Secretary) would
be subject to review. The State-specific thresholds would be published
in the Federal Register no later than the September 15th prior to each
calendar year to which they apply.
To determine whether the specified threshold is met or exceeded,
the weighted average increase for all enrollees subject to the rate
increase would be used. Rate increases during the 12 month period that
precedes the date on which a rate increase is effective are aggregated
to determine whether the specified threshold is met or exceeded.
Comment: Some State regulator and industry commenters believed that
the proposed rule underestimated the number of rate increases that
would be above the 10 percent threshold, with some commenters claiming
that virtually all proposed rate increases would be captured under that
threshold. Industry commenters contended that the 10 percent threshold
did not represent a fair balance of capturing a reasonable number of
proposed rate increases and did not track with recent rate increase
trends. Some State regulator and industry commenters noted that section
2794 of the PHS Act called for the review of ``unreasonable''
increases, and that increases above 10 percent are not necessarily
unreasonable. Other industry commenters asserted that the threshold was
arbitrary and low. They claimed this threshold would stigmatize
actuarially appropriate rates, bias State review, deluge consumers with
confusing information, and place significant administrative burdens on
issuers. Industry commenters recommended that the threshold be based on
a broader range of factors including medical cost inflation, adverse
selection, deductible leveraging, and required benefit changes, among
others.
Consumer, provider, and some State regulator commenters, in
contrast, argued that the 10 percent threshold was too high. Commenters
listed numerous concerns including: (1) The threshold did not consider
the cumulative impact of increases from multiple years and could
encourage issuers to target just below the threshold; (2) many rate
increases below 10 percent could be problematic from an actuarial
perspective; and (3) a threshold designed to be above medical trend
would not pressure issuers into taking steps to moderate growth in
medical costs. In addition, some commenters recommended that all
proposed increases be subject to review.
Response: We believe that 10 percent continues to be an appropriate
initial threshold for determining which rates will be subject to review
based on the analysis of the trend in health care costs and rate
increases provided in the preamble to the proposed rule. The 10 percent
transitional threshold balances the need to provide more disclosure to
consumers while avoiding undue administrative burdens on other
stakeholders. This threshold should not cause consumers to be
overwhelmed with information since they likely will only review rate
information concerning their current plans or those which they are
considering buying. With respect to the commenter focusing on the word
``unreasonable'' in section 2794, we believe that to identify and
review unreasonable rates prior to implementation, it is necessary to
review potentially unreasonable rates to assess their reasonableness.
Lastly, we note that the 10 percent threshold is intended to be
transitional, until State-specific thresholds are put in place.
Comment: Several commenters suggested that the proposed July 1,
2011 effective date for the rate review program did not provide States
and health insurance issuers with adequate time to come into compliance
with a final rule. Many State regulator commenters suggested that the
proposed effective date be delayed until January 1, 2012 and noted that
later effective dates would allow the rate review program to begin with
State-specific thresholds rather than the 10 percent threshold. One
State regulator commenter suggested that the effective date be 6 months
after promulgation of the final rule. One industry commenter proposed
that the effective date be July 1, 2012, expressing concern that there
would not be enough time between issuance of the final rule and a July
1, 2011 effective date for issuers to develop and implement necessary
system changes. Several industry commenters stated that they currently
are in the process of developing rates for July 1, 2011 effective dates
and recommended that the proposed rule not apply to those rates in
States without current rate filing requirements.
Response: In response to these comments, we have moved the
effective date in this final rule from July 1, 2011 to September 1,
2011 and maintained the initial, transitional 10 percent threshold.
This effective date is intended to ensure that proposed 2012 rate
increases meeting or exceeding the 10 percent threshold will be
reviewed by either CMS or the applicable State. Further delay could
mean that many rate increases for 2012 will not be subject to review.
We do not deem further delay in starting the rate review program to be
desirable given that stakeholders now have been able to provide us with
valuable feedback concerning the program's design and we
[[Page 29968]]
are prepared to initiate the program. We note that issuers will not be
required to provide data beyond what the majority of States already
require to be filed in support of proposed rate increases. We will be
offering further guidance and training to assist issuers in complying
with their obligations under the program.
Comment: State regulator and industry commenters generally
expressed support for State-specific thresholds. Some consumer
commenters expressed concern that use of State-specific thresholds
would reward inefficient insurance markets with higher thresholds. They
recommended either the use of a national threshold or the lower of a
national or State-specific threshold. Alternatively, some consumer
commenters recommended that CMS apply downward adjustments to State-
specific thresholds in inefficient insurance markets. State regulator
commenters recommended that States be able to establish their own
review thresholds, or that, at a minimum, CMS consult with States in
developing the State-specific thresholds. State regulator commenters
also recommended that the final rule provide more detail on CMS's
process for determining State-specific thresholds and include a process
by which States could ask CMS to reconsider State-specific thresholds
they considered inappropriate. Industry commenters generally were
supportive of more State involvement in developing State-specific
thresholds.
Many commenters provided recommendations on the methodology for
establishing the State-specific thresholds applicable to 2012. Industry
commenters raised concerns that a threshold tracking loosely with
medical trend, but not other factors, would not sufficiently account
for expected rate increases and emphasized that the threshold's
underlying factors should have an appropriate actuarial basis.
Additionally, some industry commenters said that the threshold should
take into account possible impacts from the Affordable Care Act on
proposed increases. As noted, many consumer and provider commenters
stated that the 10 percent threshold was too high and recommended that
CMS use lower thresholds in 2012. Some consumer commenters stated that
the threshold should be based solely on medical trends, while others
recommended that it be based on multiple factors, including adjustments
for inefficient insurance markets and issuers' medical loss ratios.
Many commenters urged CMS to act quickly to develop the State-
specific thresholds for 2012, noting that health insurance issuers were
already developing their proposed rates and that even if the State-
specific thresholds were released by September 15, 2011, most of the
2012 increases would be missed. Several commenters noted the need to
monitor State-specific thresholds closely on an ongoing basis to keep
up with market trends and address potentially unintended consequences
(for example, under- or over-inclusive thresholds).
Response: As noted earlier, the 10 percent threshold is intended to
be transitional and we believe that this initial phase of the rate
review program will enable CMS and the States to gather information
that will be helpful in developing the State-specific thresholds. CMS
will immediately begin work with the States and the NAIC to develop a
process and identify data and methodologies for setting State-specific
thresholds, so that the first State-specific thresholds can be
effective for the twelve-month period beginning on September 1, 2012.
We plan to update the State-specific thresholds annually, although the
10 percent threshold will apply in a State if a State-specific
threshold has not been established for that State. We will publish a
notice concerning the applicable thresholds no later than June 1 of
each year beginning in 2012.
Comment: Commenters offered various interpretations concerning how
rate increases should be calculated and how the weighting concept
should work under the proposed rule, while others asked for
clarification on these issues. Specifically, one commenter understood
the proposed rule to mean that rate increases would be calculated as
the overall average percentage increase between the old premium and the
new premium, while another believed that rate increases would be
calculated as the percentage change between the old revenue and the new
projected revenue. With respect to weighting, some commenters
interpreted the proposed rule to mean that the increase percentage be
weighted by the number of policies, arguing that a subgroup with a
lower premium should not be treated the same as another subgroup with a
larger premium but an equal percentage increase.
Response: We have modified the final rule to clarify the issues
raised by these comments. We believe that the rule's method for
calculating a rate increase (that is, the average increase over all
policies weighted by premium volume) is arithmetically identical to
calculating the rate increase as the overall average percentage
increase between the old premium and the new premium. In addition, the
rule's method for calculating a rate increase could be applied such
that it is the same as calculating the rate increase as the percentage
change between the old revenue and the new projected revenue. With
respect to weighting, we note that weighting should not be done based
on the number of policies; rather, premium volume is the appropriate
weighting factor.
2. Unreasonable Rate Increase (Sec. 154.205)
The proposed rule would set three criteria that CMS would use in
determining whether a rate increase is excessive, unjustified, or
unfairly discriminatory, and, therefore, unreasonable. First, an
increase would be considered excessive if it causes the premium to be
unreasonably high in relation to benefits. In making this
determination, CMS would consider whether: (1) The rate increase would
result in a projected medical loss ratio below the applicable Federal
standard; (2) one or more of the assumptions is not supported by
substantial evidence; and (3) the choice of assumptions (or combination
thereof) is unreasonable. Second, an increase would be considered
unjustified if the issuer provides data or documentation that is
incomplete, inadequate, or otherwise does not provide a basis to
determine whether the increase is reasonable. Third, an increase would
be considered unfairly discriminatory if it results in premium
differences between insureds with similar risks that are not permitted
under State law or, if there is no applicable State law, does not
reasonably correspond to expected differences in costs.
Comment: Commenters representing State regulators, industry, and a
professional association expressed concern that the definition of
``unreasonable rate increase'' in the proposed rule did not include a
prong related to the adequacy of the proposed rates.
Response: We acknowledge that inadequate rate increases can be
problematic. For example, inadequate rate increases can lead to larger
increases for consumers in subsequent years or even have a negative
impact on an issuer's overall financial condition. Section 2794 of the
PHS Act is not primarily concerned with rate increases that are too low
and does not identify adequacy among the criteria to be considered when
determining unreasonableness. Therefore, we did not include adequacy as
a prong of the unreasonableness test that we will use when reviewing
rates under the final
[[Page 29969]]
rule. We note that many States do explicitly consider the adequacy of
rates during their reviews, and nothing in this regulation prevents or
prohibits a State from continuing to consider this factor in their
review in the future.
3. Review of Rate Increases Subject to Review by CMS or by a State
(Sec. 154.210)
The proposed rule sets forth the factors that would be used by CMS
to determine whether CMS would review rate increases subject to review
or whether CMS would adopt the determinations made by a State. To the
extent that a State had an Effective Rate Review Program in a given
market, as determined by CMS, and provided to CMS its final
determinations whether an increase is unreasonable, CMS would adopt
that State's determinations. A State's final determination would need
to include an explanation of its analysis and be provided to CMS within
five business days following its determination. In all other
situations, CMS would review rate increases subject to review.
Comment: One commenter argued that since section 2794 of the PHS
Act requires CMS to establish a rate review process ``in conjunction
with States,'' CMS lacked authority to review rates in those States
that did not have Effective Rate Review Programs. In contrast, a
commenter representing business groups expressed support for the
proposed rule's approach to CMS establishing a rate review program in
conjunction with the States.
Response: We interpret the requirement that the rate review program
be established ``in conjunction with States'' as requiring that it
defer to rate review in the States to the extent consistent with the
goals of the Affordable Care Act. The rate review program established
by this rule defers to State law and provides that, for States with
Effective Rate Review Programs, CMS will adopt their determinations as
to whether rate increases are unreasonable. We do not view this
requirement as barring CMS from reviewing rates or collecting any
information in those States that do not have Effective Rate Review
Programs.
4. Submission of Disclosure to CMS for Rate Increases Subject to Review
(Sec. 154.215)
The proposed rule would require health insurance issuers to submit
a ``Preliminary Justification'' for all rate increases subject to
review. Parts I (rate increase summary) and II (written description
justifying the rate increase) would be provided to CMS and the
applicable State (if the State receives such submissions). In addition,
Part III (rate filing documentation) would be provided to CMS when it
is reviewing the rate increase. Health insurance issuers may submit a
combined Preliminary Justification for rate increases affecting
multiple products if their claims experience is aggregated and the rate
increases are the same across all of the aggregated products.
Part I of the Preliminary Justification would be required to
include: (1) Historical and projected claims experience; (2) trend
projections related to utilization and service or unit cost; (3) any
claims assumptions related to benefit changes; (4) allocation of the
overall rate increase to claims and non-claims costs; (5) per enrollee
per month allocation of current and projected premium; (6) current loss
ratio and projected loss ratio; (7) three-year history of rate
increases for the product associated with the rate increase; and (8)
employee and executive compensation data from the health insurance
issuer's annual financial statements.
Part II would include a simple, brief narrative describing the data
and assumptions used to develop the rate increase, including the rating
methodology, the most significant factors causing the increase, and a
brief description of the policies' overall experience.
Part III, submitted in cases where CMS is reviewing a rate
increase, would be required to include the following elements: (1)
Description of the type of policy, benefits, renewability, general
marketing method, and issue age limits; (2) scope and reason for the
rate increase; (3) average annual premium per policy, before and after
the rate increase; (4) past experience and any other alternative or
additional data used; (5) a description of how the rate increase was
determined, including the general description and source of each
assumption used; (6) the cumulative loss ratio and a description of how
it was calculated; (7) the projected future loss ratio and a
description of how it was calculated; (8) the projected lifetime loss
ratio that combines cumulative and future experience and a description
of how it was calculated; (9) the Federal medical loss ratio standard
in the applicable market to which the rate increase applies, accounting
for any adjustments allowable under Federal law; and (10) if the
projected future loss ratio is less than the applicable Federal medical
loss ratio, a justification for this outcome. CMS would accept a copy
of a rate filing submitted to a State that included each of these
elements. CMS would request additional information from health
insurance issuers if their Part III submissions lacked sufficient
information for CMS to determine whether rate increases were
unreasonable. Issuers would have five business days to supply the
additional information. The data which issuers are required to provide
in the Preliminary Justification contains less detail and therefore
will be less burdensome for issuers than what is called for in the NAIC
Model for Individual Health Insurance Rate Filings. This data is
readily available to issuers and is generally included in rate filings
which they make today.
CMS would promptly make Parts I and II of the Preliminary
Justifications available through the healthcare.gov Web site. In
addition, in cases where CMS receives Part III, CMS would post on the
CCIIO Web site any information not designated as ``confidential,'' as
defined under CMS's Freedom of Information Act regulations, 45 CFR
5.65. CMS would review information designated as ``confidential'' and
would post it only if CMS determined that such information was, in
fact, subject to disclosure under 45 CFR 5.65. Lastly, the
healthcare.gov Web site would include a prominent disclaimer that
stated: ``The Preliminary Justification is the initial summary
information regarding the rate increase subject to review and does not
represent a determination that the rate increase subject to review is
an unreasonable rate increase.''
Comment: Consumer commenters recommended strengthening the proposed
rule's disclosure requirements by requiring additional information in
Part I, II, and III of the Preliminary Justifications concerning
average rate increases, historical rate increases, medical price and
utilization changes, provider reimbursement and contracts,
administrative costs (including costs related to medical management,
marketing, lobbying, travel and association dues), and transfers of
funds to affiliated companies. Provider commenters recommended similar
disclosures concerning rate increases and administrative costs. One
consumer commenter also suggested that sample rates be provided for
persons with the same ages and family composition so that consumers
could see how rate increases compared between health insurance issuers.
Some State regulator commenters recommended that certain elements of
the Preliminary Justification be revised or omitted to conform more
closely to current reporting requirements imposed on issuers. One State
regulator commenter recommended that executive compensation information
not be
[[Page 29970]]
included in the Preliminary Justification, or, alternatively, that CMS
explain how this information would help States evaluate a proposed
increase.
Many industry commenters argued that much of the information
required in the Preliminary Justification would not be useful to
consumers and could cause them unfairly to view the proposed rates as
unreasonable. For example, they asserted that rate increase history and
employee compensation generally were not taken into account during
actuarial reviews. They also expressed concern that a large proportion
of consumers would receive a confusing deluge of information concerning
rates subject to review, given their estimates on the volume of
proposed increases that would exceed the thresholds.
Response: We generally believe that Parts I and II of the
Preliminary Justification will provide consumers with sufficient detail
concerning the factors influencing proposed rate increases, without
being unduly confusing to consumers. Accordingly, the final rule
continues to provide that Part I and II will be publicly posted. We
have modified or eliminated certain reporting elements in the final
rule as recommended by State regulator commenters. In Part I, medical
loss ratio data has been removed because it can be computed from
remaining Part I elements and therefore was redundant. (We note that
medical loss ratio data continues to be a distinct reporting
requirement for Part III.) The requirement to report executive and
employee compensation data was also removed because these amounts would
represent only a very small proportion of an overall rate increase when
allocated by product and member month, and, consequently, would not be
helpful to consumers in showing the primary rate increase drivers. We
also added the phrase ``as determined by the Secretary'' in Sec.
154.215(e) to allow HHS discretion in the future to respond to changes
in the market and input from stakeholders as to what elements in Part I
are most helpful to consumers. Finally, we removed the explanation of
the rating methodology from Part II in order to keep Part II brief,
non-technical, and understandable to consumers.
Comment: Some industry commenters recommended that CMS allow
issuers to aggregate and report multiple products at the same level of
aggregation as permitted under State law, without requiring that the
same rate increase be applied to all of the aggregated products. These
commenters stated it would be administratively burdensome for CMS to
adopt an aggregation standard that differed from current State
requirements. Many consumer and provider commenters expressed concern
that allowing aggregated filings for products would mask rate increase
variations between different products.
Response: Our understanding is that some States review rate filings
at a product level, while other States review rate filings on an
aggregated product basis, particularly in community-rated environments.
The final rule maintains the proposed rule's standard, which
accommodates both State approaches. Where filings are made on an
aggregated product basis, the same claim experience must have been used
to develop the increases and the proposed increases must be the same
for each of the different products to ensure that issuers cannot mask
high increases for certain products within the combined filings. To the
extent that this approach represents a change for some issuers, the
burden should be minimal since the rule merely requires that they
report existing information in a different fashion. We believe that
this aggregation standard appropriately balances the need for increased
transparency with current State rate filing requirements and actuarial
practices.
Comment: Many consumer commenters urged that Part III of the
Preliminary Justification not be given confidential treatment,
reasoning that the public's right to information concerning rate
increases outweighed issuers' proprietary interests in such
information. One commenter noted that, for example, issuers potentially
could designate actuarial memoranda and risk-based capital information
as confidential, thereby leaving consumers without important
information needed to scrutinize proposed rate increases. Another
consumer commenter recommended that issuers be required to submit data
on provider reimbursement and contracts and that issuers not be
permitted to designate such data as confidential. While provider
commenters generally recommended that as much information as possible
from the Preliminary Justification be publicly released, they expressed
concern about maintaining the confidentiality of provider reimbursement
rates. Industry commenters were concerned about the impact of
disclosing market sensitive information and generally recommended that
the information in Part III be kept confidential and not disclosed.
Industry commenters requested that CMS provide additional information
on how the ``confidential'' information exemption under the Freedom of
Information Act (FOIA), 5 U.S.C. section 552, would apply so that they
could designate information in Part III of the Preliminary
Justification appropriately. They also requested more guidance on CMS's
review and appeal process for FOIA requests and disclosures.
Response: The final rule essentially adopts the confidentiality
approach taken in the proposed rule; that is, information contained in
Part III of a Preliminary Justification will be posted on our Web site
unless the FOIA exemption for trade secrets and confidential commercial
or financial information applies. As a Federal agency, we generally are
required to utilize the FOIA standard in determining confidentiality.
As discussed in more detail in the preamble to the proposed rule, CMS's
FOIA rule, 45 CFR Part 5, establishes the process and standards that
generally apply to determining whether information designated as
confidential is subject to disclosure. Issuers will be able to
designate the information that they believe is protected by the
exemption and we will determine whether the exemption applies.
We reviewed the approaches currently taken by States concerning the
public disclosure of rate filings. Some States make all parts of a rate
filing public; some States provide standards for which parts of a rate
filing will be made public; and other States follow a freedom of
information process and standard under State law that is similar to
FOIA. Based on a review of State filing guidelines and State Web sites,
it appears at least 12 states do not redact any information when making
rate filings available to the public. Given that Part III is based on
State rate filing requirements, this means that many States do not
regard the types of information found in Part III to be confidential or
protected from disclosure. Based on the fact that the information
contained in Part III appears to be widely available across the country
and that many States already are making this information available, it
may be difficult for an issuer to assert that the information in Part
III is confidential or protected from disclosure under Federal law.
Comment: Industry commenters recommended that issuers be provided
additional time beyond five business days to respond to an inquiry from
CMS regarding an incomplete Part III of the Preliminary Justification.
Commenters noted that, for example, a more complex request might
require an issuer to gather and organize information from different
internal departments, which could take longer than five business days.
[[Page 29971]]
Response: We have modified the final rule so that, after receiving
a request from CMS, an issuer will have 10 business days to respond to
provide additional Part III information.
Comment: Several State regulator, consumer, and industry commenters
expressed concerns that the proposed rule's disclaimer language would
be misleading to consumers and that a clearer description of both the
purpose of the Preliminary Justification and the rate review process
was needed. State regulator and industry commenters requested an
explicit statement that rates subject to review had not yet been
determined to be unreasonable by a State or CMS. Commenters also
recommended including statements regarding: (1) The availability of
additional information if a rate was determined to be unreasonable; (2)
the actuarial factors that impact the reasonableness of rates; (3) the
possibility that a proposed increase might change prior to
implementation; and (4) whether a product was available for purchase
notwithstanding review of its proposed rates.
Response: We have modified the final rule to state more generally
that a disclaimer will accompany the Preliminary Justifications posted
on our Web site. Guidance concerning this disclaimer will be provided
at a later date and the commenters' concerns will be considered when
that guidance is developed.
5. Timing of Preliminary Justification (Sec. 154.220)
The proposed rule provides that if a State requires a proposed rate
increase to be filed with the State prior to implementation of the
increase, the health insurance issuer must send CMS and the applicable
State the Preliminary Justification on the date the issuer submits the
proposed increase to the State. For all other States, the health
insurance issuer must send CMS and the applicable State the Preliminary
Justification prior to the implementation of the rate increase.
Comment: A few State regulator commenters suggested that
Preliminary Justifications should not be posted unless a rate was found
to be unreasonable. These commenters expressed concern that posting
Preliminary Justifications prior to the proposed increases' evaluation
would cause consumer confusion, lead to unsuitable replacements of
coverage, and provide opportunities for misuse of information. In
addition, commenters noted that some States did not allow disclosures
concerning rate filing information until rates are approved. In
contrast, other State regulator commenters supported the requirement
that the Preliminary Justification be posted immediately upon receipt.
Several consumer commenters recommended that policyholders and the
public be given adequate notice of proposed rate increases prior to
increases going into effect. These commenters generally suggested that
issuers file proposed rates with the States and give consumers notice
of the proposed increases 60 or 90 days before they go into effect. One
commenter suggested that patient advocacy groups be given specific
notice concerning proposed increases that were higher than medical
inflation.
Response: Section 2794 of the Act requires that issuers submit to
the Secretary and the relevant State a justification for an
unreasonable rate increase before the rate is implemented. We
considered two alternatives to implement that provision. The first
would be to establish a federal regulatory requirement that a rate
cannot go into effect until it has been reviewed and determined to be
reasonable or unreasonable. At that point, justifications could be
submitted only for those rates that were determined to be unreasonable,
prior to their being implemented. Such a federal requirement would be
inconsistent with the ``file and use'' laws in many States, which
provide that a rate may go into effect as soon as it is filed. We
concluded that overriding State law in this respect was not the best
approach.
Alternatively, the approach taken in the proposed rule, which
requires a Preliminary Justification to be submitted at the time a rate
increase subject to review is filed, assures that there will be a
justification for increases for all rate increases that ultimately are
determined to be unreasonable, without requiring any change in current
State law or practice for reviewing rates. We believe that requiring
the posting of the Preliminary Justification before a final
determination is made both satisfies the requirements of the Affordable
Care Act and assures that consumers will better understand why their
issuers are proposing rate increases that meet or exceed the subject to
review threshold.
In addition, the disclaimer language on our Web site will be
modified to better inform consumers of the purpose of the Preliminary
Justification and to make clear that its posting is not a determination
that the proposed rate increase is unreasonable.
6. Determination by CMS or a State of an Unreasonable Rate Increase
(Sec. 154.225)
When CMS reviews a rate increase subject to review, it will post on
its Web site a final determination and a brief explanation of its
analysis within five business days following the determination. If the
rate increase is determined to be unreasonable, CMS will also provide
this information to the health insurance issuer.
When a State reviews an increase subject to review, CMS will adopt
the State's final determination and post it on the CMS Web site. If a
State determines that the rate increase is unreasonable, but the health
insurance issuer is legally permitted to implement the increase under
State law, CMS will provide the State's final determination and
explanation to the issuer within five business days of CMS receiving
the information from the State.
Comment: One State commenter suggested that States with Effective
Rate Review Programs not be required to post brief explanations and
analyses that were more in-depth than those posted by CMS in cases
where it reviews rates.
Response: We have modified the final rule to clarify that the brief
explanations and analyses posted by CMS and States are intended to be
consistent in format and content.
Comment: Numerous industry commenters suggested that CMS establish
safe harbors or expedited rate review procedures. For example, some
commenters suggested that if a health insurance issuer's proposed rate
increases were expected to satisfy the Federal medical loss ratio
standard, the increases should be exempt from review. Another commenter
suggested that proposed rates in insurance markets that were determined
to be competitive should either be exempt from review or subject to an
expedited process. One commenter stated generally that the review
process applied should vary based on the circumstances of the proposed
increase.
Response: We have not modified the final rule to provide safe
harbors or expedited rate review procedures given that many factors are
relevant in determining whether a particular proposed rate increase is
unreasonable, thus supporting the need for a more detailed review
process.
7. Submission and Posting of Final Justifications for Unreasonable Rate
Increases (Sec. 154.230)
If a health insurance issuer declines to implement a rate increase
that has been determined to be unreasonable, or
[[Page 29972]]
chooses to implement a lower increase, under the proposed rule, the
issuer would be required to provide CMS timely notice of its decision.
A lower increase that meets or exceeds the applicable thresholds for
review would require a new Preliminary Justification. However, if an
issuer chooses to lower its request for a proposed increase while the
increase is under review and before a determination or unreasonableness
has been made, the issuer can do so by filing a modification to the
filing under review. If the revised rate falls below the review
threshold, the review will cease and the revised rate will be displayed
on the posting.
If a health insurance issuer implements an unreasonable rate
increase, it must, within 10 days of the later of implementing the
increase or receiving the final determination, provide CMS with a
``Final Justification'' responding to CMS's or the State's
determination, using information consistent with that provided by the
issuer in the Preliminary Justification. The health insurance issuer
must prominently post on its Web site: (1) the portions of the
Preliminary Justification posted on the CMS Web site; (2) CMS's or the
State's final determination; and (3) the issuer's Final Justification.
This information must be made available on the issuer's Web site for at
least three years. In addition, CMS will make an issuer's Final
Justification available through the healthcare.gov Web site for three
years.
Note: We did not receive any major comments on this section.
C. Subpart C--Effective Rate Review Programs
CMS's Determination of Effective Rate Review Programs (Sec. 154.301)
Under the proposed rule, CMS would apply the following criteria in
evaluating whether a State has an Effective Rate Review Program for the
individual market and small group market, including different types of
products within those markets. CMS will examine information publicly
available concerning each States' authority to receive the data needed
in order to review a proposed rate increase. This includes State
statutes, regulations, bulletins, filing guidance, and so forth. CMS
will also review available information that describes each State's
practices in conducting rate reviews. This information primarily
consists of State applications for rate review grants, quarterly
reports of activity undertaken with grant funds, and conversations
between CMS staff and state regulators relating to grant activities.
CMS will then conduct a phone call with each State insurance
regulator to confirm the information CMS has gathered and to ask for
any additional information the State believes is relevant to the
determination of whether it has an Effective Rate Review Program.
CMS will notify States of its determinations by July 1, 2011, two
months in advance of the date filings are first due pursuant to this
regulation. States will have the right to bring any new information
bearing on this decision to CMS at any time, and CMS will consider
whether based on this new information the State should be determined to
have an Effective Rate Review Program. CMS will also monitor States
that have determined to be effective in order to ascertain that their
processes continue to satisfy the requirements of the regulation.
CMS would consider whether the State receives data and
documentation from issuers concerning rate increases sufficient to
conduct an examination of the reasonableness of the assumptions used to
develop proposed rate increases, the validity of the historical data
underlying the assumptions, and the issuers' data related to past
projections and actual experience. CMS also would consider whether the
State conducts effective and timely reviews of the information
submitted by issuers in support of proposed rate increases. The
examination would need to include an analysis of: (1) Medical trend
changes by major service categories; (2) utilization changes by major
service categories; (3) cost-sharing changes by major service
categories; (4) benefit changes; (5) changes in enrollee risk profile;
(6) impact of over- or under-estimate of medical trend in previous
years on the current rate; (7) reserve needs; (8) administrative costs
related to programs that improve health care quality; (9) other
administrative costs; (10) applicable taxes and licensing or regulatory
fees; (11) medical loss ratio; and (12) the health insurance issuer's
risk-based capital status relative to national standards. Finally, the
State's determination whether a rate increase is unreasonable would
need to be made under a standard set forth in State statute or
regulation.
CMS would determine whether a State has an Effective Rate Review
Program for each market based on documentation and information received
by CMS from the State or any other information otherwise available to
CMS indicating that its rate review program meets these criteria. CMS
would reserve the right to determine that a State no longer had an
Effective Rate Review Program if it no longer met these criteria. The
NAIC individual rate filing guidelines--the basis of many states
current rate review practices--require the collection and review of a
larger, more detailed set of data than the review criteria provided in
the rule. Thus, the review criteria provided in the rule incorporates
practices that are already in place in many states.
Comment: The NAIC recommended that the final rule allow flexibility
for States to conduct rate reviews within their statutory frameworks.
One State regulator commenter recommended that the final rule defer to
State law on what constitutes an Effective Rate Review Program and not
require States to conform to any Federal definition of an Effective
Rate Review Program. In the alternative, the commenter suggested that
the NAIC establish rate review standards that could be required for
State accreditation. In addition, some commenters including State
regulators and an organization representing the actuarial profession
generally recommended that reviews conducted by CMS and the States
should be subject to the same standards under the final rule. For
example, the commenter believed that the lists of informational
elements required under Sec. 154.215(g)(1) and Sec. 154.301(a)(3)
should be the same. Industry commenters argued that review standards in
the proposed rule did not reflect the variation that currently exists
among the States and the rule could drive States towards a national
standard. Industry commenters also expressed concern that the criteria
were overly prescriptive and that their application could be unduly
subjective. Consumer and provider commenters expressed concern that the
proposed rule's standards overall were too low and that States with
limited review capabilities could be designated as having effective
programs. Commenters also noted that the effectiveness of State review
processes in practice, in addition to a State's statutory authority,
was relevant to determining if an Effective Rate Review Program existed
in a State.
Response: We believe it is necessary for the rule to set forth
minimum review standards so that CMS can determine which States meet
those standards and subsequently defer to their determinations
concerning whether proposed rate increases are unreasonable. We agree
with commenters that the minimum standards for reviews for CMS and the
States should be consistent. Therefore, we have modified the proposed
rule in this final rule so that the information that CMS will review in
Part III of the Preliminary Justification will be the same information
that will be reviewed
[[Page 29973]]
as part of a State Effective Rate Review Program under Sec.
154.301(a)(3) and (4). In addition, we have modified Sec.
154.301(a)(4) to clarify that CMS and States with Effective Rate Review
Programs will have to take into consideration the various factors
listed in paragraph (4) to the extent applicable to the filing under
review. This change is meant to reflect that reviewers for CMS or the
State will have flexibility to use their expert judgment in evaluating
the relevance of the different factors in the context of a particular
rate filing.
Comment: Many consumer commenters urged that public hearings and
comment periods be required as part of an Effective Rate Review
Program. One commenter recommended that excessive or frequent increases
give rise to public hearings. Another commenter suggested that the
public hearings be held at the health insurance issuer's expense if the
proposed increase exceeded medical inflation. Lastly, one commenter
suggested that issuers be required to mail information to consumers
concerning proposed rate increases and their opportunities to
participate in the rate review process.
Response: We did not include public hearings as a required element
for Effective Rate Review Programs in deference to the fact that most
States today do not hold public hearings as part of the rate review
process. However, in response to the comments urging a greater
opportunity for input from the public, we modified the final rule to
require that in order to be deemed to have an Effective Rate Review
Program, a State must: (1) Provide access on a State Web site to Parts
I and II of the Preliminary Justifications for those proposed rate
increases that meet or exceed the threshold, and (2) have a mechanism
for receiving public comments on those proposed rate increases. For
example, a State could provide Web site access either by directly
posting the relevant Parts I and II on its own Web site or by posting a
regularly-updated list of the relevant Parts I and II with a link to
the CMS Web site where they can be found. States could choose to accept
public comments through the mail, their Web sites, public hearings, or
other means. We believe that posting the Parts I and II of the
Preliminary Justifications and allowing public input will encourage
public participation in the rate review process, but be less burdensome
than requiring all States with Effective Rate Review Programs to hold
public hearings. In addition, we added a parallel requirement in Sec.
154.215 that we accept public comments on the proposed rate increases
we review. We note that CMS has encouraged States to undertake efforts
to increase the transparency of their rate review programs under the
grants authorized by PHS Act section 2794 and that many States are
responding with innovative programs to increase public input. We also
note that this is a criteria for States with Effective Rate Review
Programs and not a requirement for a health insurance issuer filing for
a rate increase.
Comment: Several consumer commenters stated that States should be
required to have prior approval authority over proposed rate increases
in order to qualify as having Effective Rate Review Programs.
Response: Prior approval authority over proposed rate increases can
be an important part of a State's rate review program. States that have
or propose this authority qualify for a supplemental performance grant
under the grants provided under section 2794(b) of the PHS Act. Section
2794 of the PHS Act requires CMS to establish a process for reviewing
unreasonable rates; it does not provide CMS with prior approval
authority. We therefore did not think it would be appropriate for CMS
to mandate that States have prior approval authority in order to
qualify as having Effective Rate Review Programs.
Comment: Several State regulator and industry commenters asked for
clarification concerning the role of medical loss ratios in the rate
review process.
Response: Both Federal and State medical loss ratios are relevant
to the rate review process. We recognize that aggregation standards and
relevant time periods differ between this rule and the Federal medical
loss ratio interim final rule, 45 CFR part 158. For purposes of this
rule, when CMS is reviewing rates, we will consider whether a product,
along with the other products in the same market with which it will be
aggregated for purposes of the Federal medical loss ratio, will be
reasonably likely to satisfy the Federal medical loss ratio standards
on a projected basis. We note that an issuer's explanation with regard
to its projected medical loss ratio in a Part III submission has no
bearing on its obligations under section 2718 of the PHS Act (for
example, medical loss ratio rebates). In addition, CMS will consider
whether a product satisfies the applicable State medical loss ratio
standards in those States in which it reviews rates. In the absence of
a State standard for the individual market, CMS will apply NAIC Model
134-1, ``Guidelines for Filing of Rates for Individual Health Insurance
Forms.'' In the absence of a State standard for the small group market,
CMS will apply NAIC Model 134-1 until it releases its own guidelines
for the small group market. The CMS guidelines will be released in
future guidance and will be developed following a review of current
State requirements and practices, medical loss ratio data, and other
relevant information concerning the small group market.
Comment: Some State regulator and industry commenters recommended
that CMS not mandate that risk-based capital information be reviewed as
part of the rate review process, stating that use of such information
is not part of most State rate review processes. Consumer commenters
emphasized that the overall financial condition of an issuer is
relevant and should be taken into account.
Response: We understand that few States specifically consider risk-
based capital information as part of the rate review process, although
many States do consider more general information concerning issuers'
capital and surplus. Therefore, we deleted risk-based capital as a
factor in the final rule and have replaced it with capital and surplus.
We believe that information concerning an issuer's capital and surplus
may be useful in certain instances (for example, where an issuer has
low surplus levels and needs to build reserves, or conversely where an
issuer might be able to moderate a rate increase without causing
solvency concerns). In addition, we note that capital and surplus
information is only one of several items that would be taken into
account as part of the rate review process, many of which will be of
greater importance than capital and surplus information in making a
determination of whether a proposed rate is unreasonable.
Comment: Several commenters suggested different ways to use the
Rate Review Grant Program to support State efforts to conduct effective
rate reviews. Some consumer groups urged that the grant program be used
to award funds, either directly or through States, to voluntary health
agencies and other groups to educate the public about the rate review
process and to assist them in selecting coverage appropriate to their
individual circumstances. One consumer group commenter suggested that
grant funds be used to develop rate review models that include
financial incentives for issuers that meet predetermined goals and that
implement cost containment, quality improvement, and clinical
effectiveness measures. Another consumer group commenter recommended
that the grant program should be used to encourage states to enact
legislation necessary to
[[Page 29974]]
secure rate review and prior approval authority.
Response: Grants awarded during Cycle I of the Rate Review Grant
Program are being used to improve State rate review programs in a
number of ways. Grant funds are being used to hire actuaries, improve
information technology systems, and expand State rate review authority.
Transparency is another goal of the rate review grant program and many
States submitted work plans to improve public engagement in the rate
review process. Cycle II grants, to be awarded in the Fall of 2011,
will be awarded to States that have developed, or are in the process of
developing, Effective Rate Review Programs. In Cycle II, CMS also will
offer supplemental awards to States that have or obtain prior approval
authority during the three-year grant period. Improving quality,
implementing cost containment, and clinical effectiveness measures,
while laudable goals, are outside the scope of the rate review rule.
III. Provisions of the Final Rule
For the most part, this final rule incorporates the provisions of
the proposed rule. Those provisions of this final rule that differ from
the proposed rule are as follows:
Applicability (Sec. 154.103). We deleted extraneous
language.
Rate increases subject to review (Sec. 154.200). We
streamlined language concerning when the 10 percent or State-specific
threshold will be applicable, provided additional information on State-
specific thresholds, and clarified the rate increase calculation
formula. In addition, we changed the program's effective date from July
1, 2011 to September 1, 2011. We also changed the date of the
publication of state specific threshold to no later than June 1 of each
year for the 12 month period that begins on September 1.
Review of rate increases subject to review by CMS or by a
State (Sec. 154.210). We clarified that CMS and the States will
provide similar explanations on final determinations concerning
unreasonable rates.
Submission of disclosure to CMS for rate increases subject
to review (Sec. 154.215). We replaced or deleted certain elements
required for Parts I and II of the Preliminary Justification. In
addition, we conformed the information requirements for Part III of the
Preliminary Justification submitted to CMS to be the same as the
information requirements for an Effective Rate Review Program
maintained by a State; clarified that further instructions for Part III
will be provided in guidance; and provided issuers with 10 business
days (instead of 5 business days) to respond to a request for more
information from CMS concerning a Part III submission. We shortened the
language describing how CMS will treat confidential information in Part
III under FOIA. We stated that the disclaimer that will accompany the
Preliminary Justifications will be provided in guidance. Lastly, we
added a requirement that CMS accept public comments on the proposed
rate increases it reviews.
Timing of Providing the Preliminary Justification (Sec.
154.220). We clarified the section's title and changed the program's
effective date from July 1, 2011 to September 1, 2011.
Determination by CMS or a State of an unreasonable rate
increase (Sec. 154.225). We clarified that CMS will make timely
determinations whether proposed rate increases are unreasonable and
that CMS and the States will provide similar explanations on final
determinations concerning unreasonable rates. In addition, we made a
technical correction to clarify that CMS will provide a State's final
determination to an issuer within five business days (rather than five
days) of receipt.
Submission and posting of Final Justifications for
unreasonable rate increases (Sec. 154.230). We made a technical
correction to clarify that issuers have 10 business days (rather than
10 days) to submit a Final Justification.
CMS's determinations of Effective Rate Review Programs
(Sec. 154.301). We clarified that States will need to take into
account the listed factors in conducting their rate reviews. We
replaced the risk-based capital factor with a capital and surplus
factor. We required that States provide access to Parts I and II of the
Preliminary Justifications through their Web sites and accept public
comments on them. Lastly, we clarified that CMS will determine whether
a State had an Effective Rate Review Program based on the information
available to CMS and that CMS will revisit these determinations in
light of changed circumstances.
IV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We requested comments on these requirements in the proposed rule.
In addition, on March 1, 2011, CMS published a draft version of the
Preliminary Justification in the Federal Register and requested public
comments as required under the Paperwork Reduction Act (PRA). The
public comment period closed on May 2, 2011, and 9 comments were
submitted from consumer advocacy organizations, health insurance
issuers, a state regulatory organization, and an actuarial professional
association.
CMS has reviewed all of the comments and will release as soon as
possible but no later than 7-10 days after publication of this final
rule an updated version of the preliminary justification that
incorporates the feedback received through the PRA comment process. The
description of the preliminary justification in the final rule outlines
the overall structure of the updated preliminary justification that is
still pending release.
A description of the information collection requests is given in
the following paragraphs with an estimate of the annual burden, and
summarized in table A. Included in the estimate is the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing each
collection of information. Because we have not yet made a determination
on the comments received pertaining to the draft forms published on
March 1, 2011, these estimates are not final and are subject to change.
Further, the information collection requirements associated with this
final rule will not become effective until approved by OMB. HHS will
issue a notice in the Federal Register announcing OMB approval once it
is obtained.
A. Background
Section 2794 requires the Secretary to develop, in conjunction with
the States, a process for the annual review of unreasonable rate
increases. The
[[Page 29975]]
regulation establishes a rate review program to ensure that all rate
increases that meet or exceed an established threshold are reviewed by
a State or CMS to determine whether the rate increases are
unreasonable. Under the regulation, if CMS determines that a State has
an Effective Rate Review Program in a given market, using the criteria
set forth in the rule, CMS will adopt that State's determinations
regarding whether rate increases in that market are unreasonable,
provided that the State reports its final determinations to CMS, and
explains the bases of its determinations. For all other States or
markets, CMS will conduct its own review of rates that meet or exceed
the applicable threshold to determine whether they are unreasonable.
Section 2794 directs the Secretary to ensure the public disclosure
of information on unreasonable rate increases and justification for
those increases. The regulation therefore develops a process to ensure
the public disclosure of information on unreasonable rate increases and
justifications for those increases. Section 2794 also requires that
health insurance issuers submit a justification for an unreasonable
rate increase to CMS and the relevant State prior to its
implementation. The regulation therefore establishes various reporting
requirements for health insurance issuers, including a Preliminary
Justification for a proposed rate increase, a Final Justification for
any rate increase determined by a State or CMS to be unreasonable, and
a notification requirement for unreasonable rate increases which the
issuer will not implement.
B. Information Collection Requirements (ICRs) Regarding the Rate Review
Preliminary Justification Form (Sec. Sec. 154.215 and 154.220)
This final rule describes the Preliminary Justification that each
health insurance issuer would be required to submit to both CMS and
States, if it is seeking to implement a rate increase that meets or
exceeds the threshold described in Sec. 154.200. The Preliminary
Justification includes data supporting the potential rate increase as
well as a written explanation of the rate increase. For those rates CMS
will be reviewing, issuers' submissions must also include supplemental
data and information that CMS will need to make a valid actuarial
determination regarding whether a rate increase is unreasonable.
Each health insurance issuer seeking to implement a rate increase
that meets or exceeds the established threshold would be required to
complete a Preliminary Justification. The Preliminary Justification
consists of three Parts. Part I consists of a document (Excel
spreadsheet) to be completed by issuers for all proposed rate increases
that meet or exceed the threshold. Part II of the Preliminary
Justification is a brief written narrative explaining the methodology
used to derive the rate increase. Issuers would be required to submit
to both CMS and the applicable State Parts I and II prior to
implementation of a rate increase, regardless of whether CMS is
reviewing the rate increase or adopting the State's review. Issuers
typically calculate these figures in order to develop their rates and
submit a rate filing to State regulators. The data elements and
methodologies are commonly calculated by issuers and are often required
by States that review rates.
Issuers will be required to complete Part III of the Preliminary
Justification only when CMS rather than the State is reviewing a rate
increase to determine whether it is unreasonable or not, and submit
Part III to CMS only (and not to the applicable State). Part III of the
Preliminary Justification defines an additional set of information that
issuers must submit only when CMS is reviewing a rate increase. The
information provided under Part III will allow CMS to make a valid
actuarial determination as to whether the rate increase is unreasonable
or not. If an issuer completes and submits Part III of the Preliminary
Justification, but does not provide sufficient information for CMS to
conduct its review, CMS will request the additional information
necessary to make its determination. Issuers have 10 business days to
respond to any request for outstanding information from CMS.
Using 2010 data, CMS estimates the number of rate filings in 2010
that would have been subject to the rule had it been in force to be
between 4,580 and 5,059 in the individual and small group markets
nationwide. CMS estimates that the total number of rate filings is
expected to increase slightly in 2011, due in part to an increased
number of issuers required to file based on those factors discussed in
the impact analysis section.
Therefore, CMS estimates that, in 2011, there would be 6,733 rate
filings subject to the rule. As discussed in the impact analysis
section, CMS estimates that approximately 974 of these rate filings
will require review under the rule because they meet or exceed the
established threshold. CMS estimates the total number of burden hours
to be 10,714.
C. ICRs Regarding State Determinations (Sec. 154.210 and Sec.
154.225)
Under the final rule, if CMS determines that a State has satisfied
specific criteria for an Effective Rate Review Program under Sec.
154.301, CMS would adopt the State's determinations regarding whether a
rate increase that meets or exceeds the established threshold is
unreasonable, providing the State reports its final determinations to
CMS and explains the basis of its determination as required under Sec.
154.210(b)(2). As discussed in the impact analysis section, since many
States are already performing these functions, the cost burden to
States would be small and would largely be offset by rate review grants
provided by CMS to help States improve their rate review processes. In
those cases where a State does not have an Effective Rate Review
Program, CMS will make its own determinations regarding whether a rate
increase that meets or exceeds the established threshold is
unreasonable.
CMS and the States would post on their Web sites the information
contained in each Preliminary Justification for each rate increase
subject to review under Sec. 154.200. For consumer clarity, CMS will
also post on its Web site the final disposition of each rate increase
reviewed by either CMS or a State. Therefore, either a State or CMS
would make a final disposition for all rate increases reviewed under
the rule, similar to current rate filing practices under the NAIC
System for Electronic Rate and Form Filing (``SERFF'') or similar
State-based filing systems.
As explained in the impact analysis section, CMS estimates that 974
rates would be reviewed under the rule because they meet or exceed the
established threshold and that 25 to 35 States, in whole or in part
based on market segment, would be reporting to CMS and posting
dispositions on approximately two-thirds of these rates (or 649
filings) for at least one market. The RIA also estimates that reporting
information from the State to CMS will require approximately 20 minutes
per filing. Thus the annual burden for this requirement is
approximately 214 hours. CMS believes that posting the final
disposition would not pose any additional burden on States.
D. ICRs Regarding the Final Justification and Final Notification (Sec.
154.230)
The final rule requires health insurance issuers to submit to CMS
and the relevant State a Final Justification for any unreasonable rate
increase that would be implemented and to display this information on
their Web sites. If an
[[Page 29976]]
issuer is legally permitted to implement an unreasonable rate increase
and declines to implement the increase, the issuer will provide notice
to CMS that it will not implement the increase. As discussed in the
impact analysis section, CMS estimates that 417 issuers will submit an
estimated 468 to 1,723 rates for review and that it will take between 6
to 16 hours to complete the entire justification process. CMS estimates
that 974 rates will meet or exceed the threshold and for the purposes
of providing an upper bound of the potential number of final
notifications further assumes issuers will implement 100 percent of
rates found unreasonable.
E. ICRs Regarding CMS' Determinations of Effective Rate Review Programs
(Sec. 154.301)
As discussed earlier in the preamble, CMS will determine whether a
State's rate review program meets the requirements of an Effective Rate
Review Program set forth in Sec. 154.301(a) based on information
received from the State through the grant process, through review of
applicable State law, and through any other information otherwise
available to CMS. The information collection for the ``Grants to States
for Health Insurance Premium Review'' is approved under OMB Control
number 0938-1121. Since CMS does not believe additional data from
States are necessary to make these determinations, we assume the
additional burden from this provision is zero.
Table A--Estimated Annual Burden
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Hourly
Burden per Total labor cost Total labor Total capital/
Regulation section(s) OMB control No. Number of Number of response annual of cost of maintenance Total cost
respondents responses (hours) burden reporting reporting costs ($) ($)
(hours) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 154.210 ICRs Regarding State 0938-New........................ 35 649 .33 214 200 42,800 0 42,800
Determinations.
Sec. Sec. 154.215, and 154.220, ICRs 0938-New........................ 417 974 11 10,714 200 2,142,800 0 2,142,800
Regarding the Rate Review Preliminary
Justification Form.
Sec. 154.230, ICRs Regarding the Final 0938-New........................ 417 974 .5 487 200 97,400 0 97,400
Justification.
Sec. 154.230, ICRs Regarding the Final 0938-New........................ 417 974 .5 487 200 97,400 0 97,400
Notification.
-----------------------------------------------------------------------------------------------------------------------------------------------
Total....................................... ................................ 452 3,571 ........... 11,902 ........... 2,380,400 .............. 2,380,400
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
We initiated an information collection request under a separate
notice and comment period from that associated with the proposed rule
that was published on December 23, 2010 (75 FR 81004). Specifically,
the 60-day Federal Register notice soliciting public comment on the
aforementioned information collection requirements was published on
March 1, 2011 (76 FR 11248) and the comment period closed on May 2,
2011. We plan to publish the requisite 30-day Federal Register notice
to announce the formal submission of the information collection request
to OMB and to announce another opportunity for the public to submit
comments in the near future.
V. Response to Comments
Because of the large number of public comments we receive on
Federal Register documents, we are not able to acknowledge or respond
to them individually. A discussion of the comments we received is
included in the preamble of this document.
VI. Regulatory Impact Analysis
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
A. Summary
As stated earlier in the preamble, this final rule implements
section 2794 of the PHS Act (as added by Section 1003 of the Affordable
Care Act), which requires the Secretary, in conjunction with the
States, to establish a process for the annual review of unreasonable
increases in health insurance premiums (referred to in the rule as
``rates''). This final rule outlines the methodology by which CMS would
review proposed rate increases. This regulation implements statutory
provisions designed to help make private health insurance more
affordable, and to increase the transparency of the process by which
health insurance issuers calculate premiums. CMS has quantified costs
where possible and provided a qualitative discussion of the benefits
and of the transfers and costs that may stem from this regulation.
In the preamble to this regulation, we solicit comments on whether
we should amend the final rule to include individual and small employer
coverage sold through associations in the rate review process. This
final regulation does not specifically include such coverage in the
rate review process unless the State reviews it as either individual
coverage or small employer coverage. Many States currently consider
coverage sold through associations as large group coverage, in which
case it would not be subject to the rate review process of this
regulation. Since we did not specifically require in this regulation
that coverage sold through associations be included in the rate review
process, we did not include in this RIA an estimate of the additional
burden of including association coverage in the rate review process. We
do, however, include below a separate estimate of the burden associated
with including association coverage in the rate review process for the
purpose of soliciting comments on the burden estimate.
In the proposed rule we requested comments on the burden and cost
estimates in the RIA but did not receive any such comments.
B. Executive Order 13563 and 12866
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has been designated a ``significant regulatory
action'' although not economically significant, under section 3(f) of
Executive Order 12866.
[[Page 29977]]
Accordingly, the rule has been reviewed by the Office of Management and
Budget.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any one
year); and a ``significant'' regulatory action is subject to review by
the Office of Management and Budget (OMB). As discussed below, CMS has
concluded that this final rule would likely not have economic impacts
of $100 million or more in any one year, nor would it adversely or
materially affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local or
tribal governments or communities. This assessment is based primarily
on the administrative costs to issuers of completing the Preliminary
Justification form they are required to submit when proposing rate
increases of 10 percent or greater, and on the costs to States and the
Federal government of reviewing these justifications. As discussed
below, CMS is not able to quantify the effect of this final rule on
rates charged by issuers, and it is possible that the effect on rates
will be large enough to cause the final rule to be considered a major
rule. CMS solicited comments on this issue in the proposed rule but did
not receive any response.
Nevertheless, CMS opted to provide an assessment of the potential
costs, benefits, and transfers associated with this final rule.
1. Need for Regulatory Action
Consistent with the provisions in section 2794 of the PHS Act, this
final rule requires health insurance issuers offering non-grandfathered
coverage in the individual and small group markets to report
information concerning rate increases to CMS and the applicable State
if the proposed increase is 10 percent or higher. Section 2794(a) of
the PHS Act requires the Secretary to ``establish a process for the
annual review of unreasonable increases in premiums for health
insurance coverage.'' The section further provides that issuers
``submit to the Secretary and the relevant State a justification for an
unreasonable premium increase prior to the implementation of the
increase.''
Many States currently review rate filings in all or some portion of
the insurance market, therefore, the burden of implementing this final
rule on States will be small. In the States that do not currently
conduct effective rate review, CMS will initially review those rate
filings that meet or exceed the 10 percent threshold. CMS anticipates
that those States will use the rate review grants described in the
preamble to enhance their capacity for review. Moreover, CMS
anticipates gradually transitioning rate review responsibilities to
these States as they build their capacity and as a result, reducing
Federal costs over time.
In addition, this final rule requires issuers proposing rate
increases 10 percent and above to provide a Preliminary Justification
for the proposed increase. That Preliminary Justification will use data
typically assembled by the issuers in computing their rate request.
Because the Preliminary Justification requires the restating of
existing data rather than the generation of new information, CMS
expects the burden on issuers in filing the justification will be
relatively small.
2. Summary of Impacts
In accordance with OMB Circular A-4, Table 1 below depicts an
accounting statement summarizing CMS' assessment of the benefits,
costs, and transfers associated with this regulatory action. CMS
limited the period covered by the regulatory impact analysis (RIA) to
2011 through 2013. Estimates are not provided for subsequent years
because there will be significant changes in the marketplace in 2014
related to the offering of new individual and small group plans through
the health insurance Exchanges, and the wide ranging scope of these
changes makes it difficult to project results for 2014 and beyond.
As described in this RIA, CMS estimates that this regulatory action
will result in better information for consumers about their health
insurance premiums and is likely to lower premiums. The final rule also
imposes costs on insurers associated with preparing and filing proposed
rate increases, and imposes costs on State and Federal governments
associated with reviewing proposed rate increases. In accordance with
Executive Order 12866, CMS believes that the benefits of this
regulatory action justify the costs.
Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Benefits:
----------------------------------------------------------------------------------------------------------------
Qualitative:
* Increased transparency in health insurance markets, promoting competition
* To the extent that unreasonable rate increases are prevented as a result of this rule, reduction in the
deadweight loss to the economy from the exercise of monopolistic power by issuers
----------------------------------------------------------------------------------------------------------------
Costs: Low Mid-range High Year Discount Period
estimate estimate estimate dollar rate covered
percent
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/ 11 15 20 2010 ........... 2011-2013
year)
----------------------------------------------------------------------------------------------------------------
10 14 19 2010 ........... 2011-2013
----------------------------------------------------------------------------------------------------------------
One-time costs to create systems to report data, and annual costs related to reporting data to the Secretary,
providing rate increase justifications, and costs to the States and Federal government of reviewing the
justifications
----------------------------------------------------------------------------------------------------------------
Transfers:
----------------------------------------------------------------------------------------------------------------
Qualitative:
----------------------------------------------------------------------------------------------------------------
* To the extent that rate increases are reduced as a result of this rule, money will be transferred from
issuers/shareholders to consumers.
----------------------------------------------------------------------------------------------------------------
[[Page 29978]]
3. Qualitative Discussion of Anticipated Benefits, Costs and Transfers
a. Benefits
Reliable information on prices is a prerequisite for well-
functioning competitive markets. Consumers in the individual and small-
group health insurance markets, which are highly concentrated, may have
difficulty knowing whether an increase in their premium is actuarially
justifiable--for example, because it is due to a change in the scope of
covered services--or whether it is the result of insurers exercising
market power to set rates above the level that is actuarially
justifiable.
The final rule subjects proposed rate increases of 10 percent or
more to additional scrutiny in order to safeguard against this exercise
of market power by insurers. The final rule's reporting requirements
should result in better information for consumers about prices,
promoting competition and potentially increasing the volume of trade,
thereby yielding a net benefit to society.
b. Costs
CMS has identified the primary sources of costs that will be
associated with this final rule as the costs to issuers associated with
reporting, recordkeeping, notifications, and the costs to State and
Federal governments of conducting reviews of the justifications filed
by issuers.
CMS estimates that issuers will incur approximately $10 million to
$15 million in one-time administrative costs, and $0.6 million to $5.5
million in annual ongoing administrative costs related to complying
with the requirements of this final rule from 2011 through 2013. In
addition, States will incur very small additional costs for reporting
the results of their reviews to the Federal government, and the Federal
government will incur approximately $0.7 million to $5.9 million in
annual costs to conduct reviews of justifications filed by issuers in
States that do not perform effective reviews. Additional details
relating to these costs are discussed later in this regulatory impact
analysis.
C. Estimated Number of Affected Entities and Number of Rate Filings
Meeting or Exceeding the Threshold and Subject to Review
Section 2794 of the PHS Act specifies that the rate review
provisions apply to health insurance issuers offering individual or
group health insurance coverage, not including grandfathered health
plans. As discussed earlier in the preamble, in this context, the term
``issuer'' has the same meaning provided in 45 CFR 144.103, which
states that an issuer is ``an insurance company, insurance service, or
insurance organization (including an HMO) that is required to be
licensed to engage in the business of insurance in a State and that is
subject to State law that regulates insurance (within the meaning of
section 514(b)(2) of ERISA).'' As discussed in the preamble, the rate
review provisions in this final rule apply to issuers that offer
individual and small group coverage, and these issuers will be required
to submit a Preliminary Justification for rate increases meeting or
exceeding the rate review threshold of 10 percent, to file with the
Secretary and the applicable State a Final Justification for those rate
increases found unreasonable, and disclose information about the
proposed increase, if implemented, on their Web sites. The following
sections summarize CMS' estimates of the number of entities and rate
filings that would be affected by the requirements being implemented in
this final rule.
D. Estimated Number of Affected Entities
The rate review provisions will apply to all health insurance
issuers offering coverage in the individual and small group markets
except for grandfathered plans. The number of issuers is 311 in the
individual market and 342 in the small group market, for a total of 417
(unduplicated) issuers, as determined for the interim final rule for
implementing the medical loss ratio requirements under the Affordable
Care Act (Federal Register, December 1, 2010).
Table 2 shows the estimated distribution of the 417 issuers
offering coverage in the individual and small group markets for the
analytic sample used in this RIA.\1\ Approximately 75 percent (311) of
these issuers offer coverage in the individual market and 82 percent
(342) offer coverage in the small group market. Additionally, CMS
estimates that there are 34.8 million enrollees in coverage that will
be subject to the requirements being proposed in this final rule,
including approximately 10.6 million enrollees in individual market
coverage and 24.2 million enrollees in small group coverage (estimated
based on ``life years'' for 2009 NAIC Health and Life Blank filers,
which excludes data for companies that are not required to file annual
statements with NAIC).\2\
---------------------------------------------------------------------------
\1\ The analytic sample excludes companies that are regulated by
the Department of Managed Health Care in California, as well as
small, single-State insurers that are not required by State
regulators to submit NAIC annual financial statements. The excluded
companies are estimated to account for approximately 9 percent of
the comprehensive major medical fully insured market. In addition,
among the 579 companies that filed with the NAIC, 137 were excluded
because of data anomalies. These 137 excluded companies are
estimated to account for approximately 5 percent of the individual
market and less than one percent of the group market.
\2\ As noted above, issuers that are regulated by the Department
of Managed Health Care in California are not required to file annual
statements with the NAIC, and are not included in the estimates
provided here.
Table 2--Estimated Number of Issuers Subject to the Rate Review Requirements by Market
----------------------------------------------------------------------------------------------------------------
Issuers Enrollees \2\
(companies) -----------------
offering
Description coverage 1 3 % of total Number (in % of total
----------------- thousands)
Number
----------------------------------------------------------------------------------------------------------------
Total (Unduplicated)........................ 417 100.0 34,792 100.0
Number Offering Coverage In: ............... ............... ............... ...............
Individual Market....................... 311 74.6 10,603 30.5
Small Group Market \4\.................. 342 82.0 24,189 69.5
----------------------------------------------------------------------------------------------------------------
\1\ Issuers represents companies (for example, NAIC company codes).
\2\ Enrollment represents ``life years'' (total member months divided by 12).
\3\ Total issuers represents 2009 NAIC Health and Life Blank filers with valid data, which excludes
approximately 8 percent of comprehensive major medical premium among NAIC filers. Also excludes data for
companies that are regulated by the California Department of Managed Health Care.
\4\ Small group is defined based on the current definition (for example, 2 to 50 employees).
[[Page 29979]]
E. Estimated Number of Rate Filings
This section of the regulatory impact assessment provides estimates
of the number of filings that would be subject to review under this
final rule.
1. Estimation Methods and Sources of Uncertainty
In the proposed rule, CMS estimated the total number of rate
filings using data on the number of filings in 2010 made through the
NAIC System for Electronic Rate and Form Filing (``SERFF''). However,
not all issuers are required to file through SERFF, and CMS is required
to make assumptions about the total number of filings in 2010, as well
as the expected change in the number of filings between 2010 and 2011.
For the proposed rule, CMS conducted research to compile
information regarding the regulatory structure in place by State and
market. CMS analyzed information provided by States in their
applications for rate review grants, analyzed State Department of
Insurance Web sites, and surveyed State Insurance Department staff via
telephone to obtain information regarding the number of licensed
issuers and filings in the individual and small group markets. In its
original estimate for the number of filings, CMS used ten
representative States with relatively complete data to estimate the
average number of filings that could be expected per State and by
market. Those average values were used for all States to estimate the
total number of filings in the individual and small group markets.
CMS also gathered information from State Insurance Departments to
obtain data for 2008 through 2010 on the estimated number of filings
processed, by market, and approval/rejection rate, stratified by the
magnitude of the increase. Separately CMS received from the NAIC an
extract showing the final disposition for all comprehensive major
medical filings in SERFF for the first three quarters of calendar year
2010, by market type. This information was used to estimate the total
number of filings in 2010 received and processed by the 49 States and
the District of Columbia which use SERFF.
Another SERFF extract provided the number of comprehensive major
medical filings filed for 2009 by 31 States. All 19 States that did not
use the field ``market type'' were excluded from the extract. Using the
data pertaining to the 31 States included in the 2009 data, CMS
estimated the proportion of filings submitted by quarter, and used that
distribution, along with the 2010 data, to project the number of
filings for all States using SERFF for the 4th quarter of 2010. The
increase in the number of number of filings from 2009 to 2010, by State
and market, was added to the 2010 estimates to trend the number of
filings forward to 2011. CMS has determined that there is insufficient
data to estimate the number of rate filings beyond 2011.
For this final rule, in addition to reviewing the 2010 SERFF data,
CMS reviewed data on the number of rate filings included in the grant
reports submitted by the States to CMS for the 4th quarter of 2010.
Since this is data directly reported by the States to CMS, we believe
that this is more reliable than what is reported in SERFF, which
contains data from the health insurance issuers. There were 26 States
for which both SERFF and the grant reports contained the number of rate
filings for the fourth quarter of 2010. In comparing the numbers, the
numbers of rate filings in the grant reports were higher than the SERFF
numbers by 26 percent. Although we did not have the numbers for all the
States, the data for the 26 States is a sufficient representative
sample because it is statistically significant and it reflects a
representative cross-section of the set of different types of State
filing authority. Accordingly, based on the grant reports data, we
increased the rate filing estimates of the proposed rule by 26 percent
for this final rule.
Although there is some uncertainty concerning the number of filings
in 2011, a much larger source of uncertainty is uncertainty about the
number of filings that will have proposed rate increases greater than
or equal to 10 percent. Data on rate requests made by issuers are
available from a handful of States, and CMS has used these data to
estimate the proportion of rate filings with requested rate increases
of 10 percent or greater. However, given the small number of States for
which data is available, there is substantial uncertainty about the
number of filings in 2010 with proposed rate increases that are greater
than or equal to 10 percent. Further, even if CMS had precise data on
the distribution of rate increase requests in 2010, it is unclear to
what extent that distribution might change in 2011 as a result of this
final rule. Given the combination of data imperfections and limitations
and behavioral uncertainties, CMS has chosen to provide a range of
estimates, based on a range of assumptions.
2. Estimated Number of Rate Filings Meeting or Exceeding the Threshold
and Subject to Review
Twenty-five States require issuers to use the NAIC System for
Electronic Rate and Form Filing (SERFF) and many issuers also use SERFF
for filings in States that have no SERFF requirement. Based on the
number of SERFF filings from 31 States for the first three quarters of
2010 and the 2010 4th quarter number of rate filings in both SERFF and
the grant reports, CMS estimates a range of rate filings from 4,580 to
5,059 in the individual and small group markets for all States for all
of 2010.
The total number of filings in 2011 is expected to be larger than
the number of filings in 2010 in part due to an increased number of
issuers required to file and additional filings to meet the
justification requirements.\3\ Based on actuarial estimates using data
from 2009 and 2010, CMS estimates that the number of 2011 rate filings
will be in the range of 6,121 to 7,343 (see Table 3).
---------------------------------------------------------------------------
\3\ According to the Kaiser Family Foundation, a number of
States have already enhanced their rate review and filing process
under their current authority and several other States will seek
additional authority to review rates from their legislature. See
Rate Review: Spotlight on State Efforts to Make Health Insurance
More Affordable, Kaiser Family Foundation, December 2010.
---------------------------------------------------------------------------
Issuers are not required to submit Preliminary Justifications for
their grandfathered enrollees. The percentage of individuals covered
under policies that will lose grandfathered status in the individual
market is estimated to be 40 to 67 percent, according to Grandfathered
Health Plan Regulation (Federal Register, June 17, 2010). The
percentage of small group plans relinquishing their grandfathered
status in the small group market is estimated to be 20 to 42 percent in
2011. CMS uses 40 percent, 54 percent, and 67 percent for the low, mid,
and high estimates of the percentage of non-grandfathered rate filings
in the individual market and 20 percent, 30 percent and 42 percent in
the small group market.
An issuer will be required to submit a Preliminary Justification
report to the Secretary and the applicable State if the rate increase
is 10 percent or higher. The estimates in this regulatory impact
analysis are based on this provision of the final rule.
Data from a small group of States for their individual market show
the percentage of rate requests at or above 10 percent ranged from 50
percent to 72 percent during the time period 2008 to
[[Page 29980]]
2010.\4\ The fraction of enrollees in plans requesting an increase of
10 percent or greater ranged from 34 percent to 77 percent. CMS uses 50
percent, 60 percent, and 70 percent as the low, mid, and high estimates
for the percentage of rate requests at or above the rate review
threshold of 10 percent in the individual market, and 35 percent, 50
percent, and 75 percent for the percentage of enrollees affected.
---------------------------------------------------------------------------
\4\ The sources for the rate increases in the individual market
are: Iowa list of proposed rate increases as of October 25, 2010,
http://www.iid.state.ia.us/docs/0_Multi-year%20A&H%20Rate%20Increase_PPACA%20Types.pdf; Illinois list of
proposed rate increases as of September 2010, http://www.insurance.illinois.gov/Reports/special_reports/IMMHPRFR.pdf;
North Carolina rate filings, http://infoportal.ncdoi.net/filelookup.jsp?divtype=3; Oregon list of proposed rate increases as
of November 30, 2010, http://www.oregoninsurance.org/insurer/rates_forms/health_rate_filings/health-rate-filing-search.html;
Pennsylvania announcement of each proposed rate increases, http://www.pabulletin.com/secure/search.html; and Washington list of
proposed rate increases from the State.
---------------------------------------------------------------------------
Data on rate requests in the small group market are available from
three States (Colorado and Oregon, data for 2009 and 2010, and
Minnesota, 2007 through 2010).\5\ On average, approximately 35 percent
of rate requests were for 10 percent or greater, and with one
exception, in each State and year combination, between 20 percent and
40 percent of rate requests were above that threshold. CMS uses 20
percent, 30 percent, and 40 percent for the low, medium, and high-range
estimates of the percentage of rate requests at or above the rate
review threshold of 10 percent in the small group market. For the
percentage of enrollees affected in the small group market, CMS
estimates 15 percent, 30 percent, and 50 percent.\6\
---------------------------------------------------------------------------
\5\ The sources for the rate increases in the small group market
are: Colorado list of rate increases, http://www.dora.state.co.us/pls/real/Ins_RAF_Report.main; Minnesota list of final rate
increases from the State; and Oregon list of proposed rate
increases, http://www.oregoninsurance.org/insurer/rates_forms/health_rate_filings/health-rate-filing-search.html.
\6\ Rate filings in which each of the products covered in the
filing are grandfathered plans will not be subject to the provisions
of this final rule. However, in the small group market, CMS believes
that most filings are made for products which are still being
actively marketed. To the extent that there are filings in the
individual market that include no products which are being actively
marketed, the estimates provided here of the number of filings that
will be subject to review are overestimates of the true burden that
will be imposed by this final rule.
---------------------------------------------------------------------------
The following table (Table 3) shows the low, mid and high range
estimates (468, 974, and 1,723) of the number of filings that will be
subject to review and require the submission of a justification report
because the proposed rate increase is 10 percent or greater.
Table 3--Estimated Number of Filings Subject to Review
----------------------------------------------------------------------------------------------------------------
Individual Small group Total
----------------------------------------------------------------------------------------------------------------
Estimated number of filings for 2011:
Low Range................................................... 1,395 4,726 6,121
Mid Range................................................... 1,571 5,162 6,733
High Range.................................................. 1,746 5,597 7,343
Percent of filings subject to review (non-grandfathered):
Low Range................................................... 40% 20% ..............
Mid Range................................................... 54% 30% ..............
High Range.................................................. 67% 42% ..............
Number of filings subject to review:
Low Range................................................... 558 945 1,503
Mid Range................................................... 848 1,549 2,397
High Range.................................................. 1,170 2,351 3,521
Estimated percentage of filings meeting or exceeding threshold:
Low Range................................................... 50% 20% ..............
Mid Range................................................... 60% 30% ..............
High Range.................................................. 70% 40% ..............
Estimated number of filings meeting or exceeding threshold:
Low Range................................................... 279 189 468
Mid Range................................................... 509 465 974
High Range.................................................. 819 940 1,759
----------------------------------------------------------------------------------------------------------------
3. Estimated Number of Additional Filings Subject to Review if Coverage
Sold Through Associations Are Subject to the Rate Review Process
In this preamble, we discuss a proposal to amend the definitions of
individual and small group markets in order for individual and small
group coverage sold through associations to be subject to the rate
review process. While we did not make this change in the final rule, we
solicit comments in the preamble on this issue and indicate that we may
amend the final rule after the comment period to include individual and
small group coverage sold through associations in the rate review
process. Although we did not estimate the burden of including coverage
sold through associations for the PRA package or for this RIA, an
estimate is provided below for purposes of soliciting comments on the
potential burden of including individual and small group coverage sold
through associations in the rate review process.
In reviewing data submitted by health insurance issuers to the
NAIC, it is estimated that there would be 986 filings annually that
would have to be submitted for individual or small group coverage sold
through associations.\7\ In applying the factors for non-grandfathered
coverage (.42) and filings above the 10% threshold (.45), both of which
are discussed above, this results in a total of 186 additional filings
that would be subject to rate review. We further estimate that 34
percent of these filings would occur in States that require prior
approval before a rate increase can be implemented, in which case the
rate filings are already subject to review by a State. Accordingly, 123
additional filings above the 10% threshold would occur if coverage sold
through associations were subject to the rate review process, all of
which would be reviewed by CMS.
---------------------------------------------------------------------------
\7\ The data on which this estimate is based may exclude some
issuers selling association coverage in States that do not require
issuers to include data on this coverage in their annual financial
reports submitted to the NAIC. In addition, this estimate did not
take into account data for companies that are regulated by the
California Department of Managed Health Care.
---------------------------------------------------------------------------
[[Page 29981]]
We welcome comments on any aspect of this burden estimate. We also
welcome any additional data on the additional number of rate filings
that would occur if individual and small group coverage sold through
associations is subject to the rate review process.
F. Estimated Administrative Costs Related to Rate Review Provisions
As stated earlier in this preamble, this final rule will implement
the reporting requirements of section 2794, describing the type of
information that will be included in the Preliminary Justification to
the Secretary and the applicable State and the disclosure that will be
made available to consumers on the issuer's Web site if the rate
increase is found to be unreasonable. CMS has quantified the primary
sources of start-up costs that issuers in the individual and small
group market will incur to bring themselves into compliance with this
final rule, as well as the ongoing annual costs that they will incur
related to these requirements. These costs and the methodology used to
estimate them are discussed below.
In order to assess the potential administrative effect of the
requirements in this final rule, CMS consulted with the NAIC and
industry experts to gain insight into the tasks and level of effort
required. Based on these discussions, CMS estimates that issuers will
incur one-time start-up costs associated with developing teams to
review the requirements in this final rule, and developing processes
for capturing the necessary data (for example, automating systems). CMS
estimates that issuers will also incur ongoing annual costs relating to
data collection, completing the justification reports, conducting a
final internal review, submitting the reports to the Secretary and
applicable State, record retention, and Web site notifications.
1. One-Time Start-Up Costs
Based on discussions with NAIC and industry experts, start-up costs
are estimated at $25,000 to $35,000 per issuer, calculated from
assumptions of 125 to 175 hours at $200 per hour (senior actuary fee)
to review the requirements for this final rule and developing processes
for data collection.
2. Ongoing Costs Related to Rate Review Reporting
For each rate review reporting year, issuers offering coverage in
the individual and small group markets will be required to submit a
Preliminary Justification to the Secretary and applicable State prior
to the implementation of a rate increase for each proposed rate
increase of 10 percent or greater.
Ongoing annual costs are estimated at 6 to 16 hours per
justification report at $200 per hour or $1,200 to $3,200 per report.
Most of the hours are for populating the justification reports with an
additional hour for record retention and Web site notification.
CMS estimates that the one-time costs relating to the rate review
reporting requirements in this final rule will range from $10 million
to $15 million, and that annual costs will be between $0.6 million and
$5.5 million per year (Table 4).
Table 4--Estimated Costs for Reporting, Record Retention, and Website Notification
[Actual dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated
Total Total Estimated average Estimated average average
Description number of number of total hours cost per total cost cost per cost per
issuers reports (1) hour (2) issuer report
--------------------------------------------------------------------------------------------------------------------------------------------------------
LOW RANGE ASSUMPTIONS:
One-Time Costs.......................................... 417 468 52,125 $200 $10,425,000 $25,000 $22,276
Ongoing Costs........................................... 417 468 2,808 200 561,600 1,347 1,200
-------------------------------------------------------------------------------------------
Total Year One Costs................................ 417 468 54,933 200 10,986,600 26,347 23,476
MID RANGE ASSUMPTIONS
One-Time Costs.......................................... 417 974 62,550 200 12,510,000 30,000 12,844
Ongoing Costs........................................... 417 974 10,714 200 2,142,800 5,139 2,200
-------------------------------------------------------------------------------------------
Total Year One Costs................................ 417 974 73,264 200 14,652,800 35,139 15,044
HIGH RANGE ASSUMPTIONS
One-Time Costs.......................................... 417 1,759 72,975 200 14,595,000 35,000 8,471
Ongoing Costs........................................... 417 1,759 27,568 200 5,513,600 13,222 3,200
-------------------------------------------------------------------------------------------
Total Year One Costs................................ 417 1,759 100,543 200 20,108,600 48,222 11,671
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Estimated costs are stated in 2010 dollars.
(1) Estimated number of one-time start up hours and annual ongoing hours.
(2) Actuary salary/fee.
3. Estimated Costs to the States and Federal Government Related to Rate
Review Provisions
Section 2794 directs the Secretary, in conjunction with the States,
to establish a process for the annual review of unreasonable increases
in premiums for health insurance coverage. In doing so, both the
Federal Government and States will incur certain administrative costs.
However, CMS estimates that the additional costs to the States will be
negligible given that the majority already conducts some level of rate
review, and the costs to the Federal Government and States will be
extremely small.
4. Estimated Costs to the Federal Government
States currently have primary responsibility for the review of rate
increases and will continue to under this final rule. If a State does
not have an Effective Rate Review Program in place for all or some
markets within the State, CMS will review rate increases that meet or
exceed the 10 percent threshold and make its own determinations of
whether the rate increases were excessive, unjustified, or unfairly
discriminatory, or otherwise unreasonable, within those markets. This
activity could be conducted with in-house resources and/or with the use
of contracted services. Given the fact that, as noted above, some
States do not have review authority in either the
[[Page 29982]]
small group or individual markets, and assuming filings are evenly
distributed across markets, CMS estimates a range between 28 percent
and 36 percent of the rate filings requiring review in 2011 will fall
under CMS's review responsibility. Based on these filing estimates and
the necessary actuarial expertise, this rate review process would range
in cost from $0.7 million to $5.9 million.
Table 5 describes the assumptions used in the estimates for the
administrative costs to the Federal Government associated with its rate
review activities.
Table 5--Estimated Actuarial Rates
----------------------------------------------------------------------------------------------------------------
Estimated actuarial rates Low Mid High
----------------------------------------------------------------------------------------------------------------
Principal Actuaries............................................. $340.00 $350.00 $360.00
Support Actuaries............................................... 200.00 234.00 275.00
Actuarial Analyst............................................... 120.00 150.00 180.00
Administrative Support.......................................... 80.00 100.00 120.00
----------------------------------------------------------------------------------------------------------------
Estimated time to complete average review Average time required
----------------------------------------------------------------------------------------------------------------
Principal Actuaries............................................. 4.25 5.50 6.75
Support Actuaries............................................... 8.50 9.50 11.00
Actuarial Analyst............................................... 12.00 14.00 15.00
Administrative Support.......................................... 9.00 9.50 12.00
Actuarial Staff Hours........................................... 24.75 29.00 32.75
-----------------------------------------------
Total Staff Hours........................................... 33.75 38.5 44.75
----------------------------------------------------------------------------------------------------------------
Low Mid High
----------------------------------------------------------------------------------------------------------------
Estimated Cost per Review....................................... $5,305 $7,198 $9,595
Number of Rate Reviews.......................................... 131 321 620
-----------------------------------------------
Total Expected Contracting Cost............................. $695,167 $2,313,581 $5,948,900
----------------------------------------------------------------------------------------------------------------
In addition to the costs to the Federal government of conducting
rate reviews in States that do not conduct effective reviews, there
will be a small, largely one-time cost to the Federal government to
determine whether States are conducting effective reviews.
5. Estimated Costs to States
CMS recognizes that States have significant experience reviewing
rate increases. As discussed earlier in this preamble, most States have
existing Effective Rate Review Programs that will meet the requirements
of this regulation in substituting for CMS' review of rate filings that
meet or exceed the threshold. Rate review grants provided by CMS are
expected to increase the effectiveness of State rate review processes,
but are not a direct measure of the cost of this regulation.
CMS estimates that the cost burden on States will be small because
most States currently conduct rate review. For these States the
incremental costs and requirements of this regulation will be minimal.
Some States do not already have a rate review process or have a process
that applies to only a portion of the individual and small group
markets that this regulation addresses. In these States, the
implementation costs to develop effective rate review processes at the
State level will be offset by the rate review grants provided by CMS.
However, from a Federal budget perspective, these Federal costs from
grants will be largely balanced by a decrease in the Federal cost of
performing reviews directly. For States not currently conducting
effective rate review, there are likely a variety of factors affecting
the decision to institute an effective rate review process, including
the need for resources, as well as potential legislative hurdles. The
rate review grants are expected to help States overcome some of these
hurdles.
States with Effective Rate Review Programs will be required to
report on their rate review activities to the Secretary. CMS believes
that this reporting requirement will involve minimal cost. CMS
estimates that reporting information from the State to CMS will require
approximately 20 minutes per filing. Based on an actuary's fee of $200
per hour, CMS estimates an average cost per filing of $66.60. The
estimated cost of reporting the two-thirds of filings meeting or
exceeding the 10 percent threshold, which are reviewed by States, is
$42,800.
G. Transfers
The final rule will likely result in lower premiums, although the
magnitude of this effect is difficult to predict. To the extent that
premiums are lower as a result of the final rule, this represents a
transfer from insurers/shareholders to consumers. The experience of
States that engage in rate review, summarized in Table 6, suggests that
the review process may result in premium increases that are lower than
they would otherwise be.\8\
---------------------------------------------------------------------------
\8\ Data provided by States on recent rate review actions from
informal discussions between CMS and State Department of Insurance
actuaries.
[[Page 29983]]
Table 6--State Rate Review Actions
[State filings from 2005 to 2010]
----------------------------------------------------------------------------------------------------------------
Number of Range of rate Range of actual Number of rate
State Market filings requests increases reductions
----------------------------------------------------------------------------------------------------------------
A..................... Individual...... 96 7%-40% 0%-21% 15
Small Group..... 21 14%-26% 9%-22% 5
B..................... Individual...... 31 4%-30% 1%-25% 14
Small Group..... 37 1%-17% 1%-17% 5
C..................... Combined........ 34 1%-32% 1%-32% 8
----------------------------------------------------------------------------------------------------------------
It is difficult, however, to draw strong conclusions from this
information about the effects of additional rate review on rates
because we are uncertain about insurers' behavioral response. Further,
a substantial number of States currently operate effective rate review
processes, and it is likely that any potential effect in these States
will be less than in States that have not previously had a strong rate
review process.
Although CMS did not estimate the impact of this proposed
regulation on the reduction in premium rate increases, CMS estimates
that comprehensive major medical premiums are $28 billion in the
individual market and $95 billion in the small group market, for a
total of $123 billion in 2011 (Medical Loss Ratio Regulation Technical
Appendix, December 1, 2010 and National Health Expenditure projection
factors). The percentage of individuals covered under policies that
will lose grandfathered status in the individual market is estimated to
be 40 to 67 percent (Grandfathered Health Plan Regulation, June 17,
2010). The percentage of small group plans relinquishing their
grandfathered status in the small group market is estimated to be 20 to
42 percent in 2011 (Grandfathered Health Plan Regulation, June 17,
2010). Thus, CMS estimates that approximately $30 to $59 billion of
premiums will be written by issuers in the individual and small group
markets to non-grandfathered subscribers. Given the magnitude of the
premiums that may be affected, CMS invited comments in the proposed
rule on how to calculate premium savings so as to determine whether the
$100 million threshold is met but did not receive any responses.
H. Regulatory Alternatives
Under the Executive Order, CMS is required to consider alternatives
to issuing regulations and alternative regulatory approaches. CMS
considers a variety of regulatory alternatives described below.
1. Establish a Lower or Higher Threshold for Rate Increase Review
Section 2794(a) requires the Secretary, in conjunction with the
States to conduct an annual review of unreasonable increases in
premiums. In establishing a threshold for rate increases that would be
subject to review, CMS: (1) Examined national trends in rate increases
and health care costs; and (2) weighed the administrative burden on
issuers and States against the level of protection for consumers.
In the proposed rule, CMS proposed a threshold of 10 percent.
Comments received from issuers indicated that this was too low and that
a 10 percent threshold would virtually capture all proposed rate
increases thereby imposing a large burden on issuers and state
regulators. Consumer advocates, on the other hand, felt that the
threshold was too high since there would be rate increases below 10
percent that will be unreasonable. Consumer advocates also feared that
issuers could game the process by keeping their rate increases at no
higher than 9.9 percent.
If CMS established a threshold lower than 10 percent, this would
impose a larger burden on issuers, States, and CMS, and CMS judged that
it would not yield a substantial benefit for consumers. In addition,
CMS has also taken into consideration the fact that many States, as
discussed below, conduct a rate review process for all rate increases
without regard to the magnitude of the increase, and we expect the
number of States conducting the reviews to increase. Therefore, as a
practical matter, in a growing number of States, the prospect that an
unreasonable increase that is also below the 10 percent threshold would
be implemented without review is mitigated by the State review
processes.
CMS recognizes that there may be rate increases that fall below the
10 percent threshold that are unjustified. However, given the practice
of many States to review all increases, CMS considered the costs and
benefits of the additional Federal resources to potentially catch
unjustified or unreasonable rates versus fairness to consumers and the
additional administrative burden for insurers. CMS decided against
spending additional resources to potentially catch only a small number
of unreasonable rates below the threshold.
CMS also examined establishing a threshold higher than 10 percent
for rate increases that would be subject to review. However, in
attempting to strike the balance discussed above, CMS decided on the 10
percentage point threshold. Specifically, with a threshold higher than
10 percent, consumers would face greater exposure to rate increases
that were either unjustified or excessive with no assurance that those
rates were given a careful review.
2. Establish a Threshold Based on the Market Share of the Insurer
An alternative approach would have established a lower threshold
for insurers with larger market share, with the justification that such
insurers were more likely to be able to exert market power. However,
analysis of data from a limited number of States suggested showed no
evidence that larger insurers proposed higher rates of increase.
Further, to the extent that market power exists in the individual
market because subscribers with health problems are unable to switch to
a competing insurer, this power exists equally for small companies as
for large ones. As a result, CMS decided to utilize a uniform threshold
for all insurers, regardless of their size.
3. Apply Rate Review Standards to the Large Group Market
As discussed in the Preamble, CMS discussed applying this final
rule to the large group market as well as the individual and small
group markets. Comments were received in response to the proposed rule
that supported including the large group market in the rate review
process. However, because of the current rate-setting practices of the
large group market and States' limited authority over this segment of
the market, CMS concluded that this regulation should only apply to the
individual and small group markets.
[[Page 29984]]
4. Including Individual and Small Group Coverage Sold Through
Associations in the Rate Review Process
We generally deferred in the proposed rule to the State definitions
of individual and small group markets. In response to the proposed
rule, we received comments indicating that, in some States, association
coverage is considered to be large group coverage, resulting in
individual and small group coverage sold through associations not being
subject to the rate review process. We considered amending the
definitions of individual market and small group market for the final
rule in order to include all individual and small group coverage in the
rate review process. However, since including all individual and small
group coverage sold through associations in the rate review process
could have a large impact on the markets in some States, we are
incorporating the proposed definitions of individual market and small
group market into the final rule and solicit additional comments on
this issue, with the possibility of amending the final rule after
receiving comments in order to include coverage sold through
associations in the rate review process.
I. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires agencies that issue a
regulation to analyze options for regulatory relief of small businesses
if a final rule has a significant impact on a substantial number of
small entities. The RFA generally defines a ``small entity'' as: (1) A
proprietary firm meeting the size standards of the Small Business
Administration (SBA), (2) a nonprofit organization that is not dominant
in its field, or (3) a small government jurisdiction with a population
of less than 50,000 (States and individuals are not included in the
definition of ``small entity''). CMS uses as its measure of significant
economic impact on a substantial number of small entities a change in
revenues of more than 3 to 5 percent.
The RFA requires agencies to analyze options for regulatory relief
of small businesses, if a final rule has a significant impact on a
substantial number of small entities. For purposes of the RFA, small
entities include small businesses, nonprofit organizations, and small
government jurisdictions. Small businesses are those with sizes below
thresholds established by the Small Business Administration (SBA). We
examined the health insurance industry in depth in the Regulatory
Impact Analysis we prepared for the proposed rule on establishment of
the Medicare Advantage program (69 FR 46866, August 3, 2004). In that
analysis we determined that there were few if any insurance firms
underwriting comprehensive health insurance policies (in contrast, for
example, to travel insurance policies or dental discount policies) that
fell below the size thresholds for ``small'' business established by
the SBA.
Further, the one-time costs of this final rule are approximately
$25,000 per covered entity (regardless of size or non-profit status)
and approximately $4,000 annually in ongoing costs. Numbers of this
magnitude do not remotely approach the amounts necessary to be
considered a ``significant economic impact'' on firms with revenues of
tens of millions of dollars (usually hundreds of millions or billions
of dollars annually). Accordingly, we have determined, and certify,
that this final rule will not have a significant economic impact on a
substantial number of small entities and that a regulatory flexibility
analysis is not required.
In addition, section 1102(b) of the Social Security Act requires us
to prepare a regulatory impact analysis if a final rule may have a
significant economic impact on the operations of a substantial number
of small rural hospitals. This analysis must conform to the provisions
of section 604 of the RFA. This final rule will not affect small rural
hospitals. Therefore, the Secretary has determined that this final rule
will not have a significant impact on the operations of a substantial
number of small rural hospitals.
J. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits before issuing any
final rule that includes a Federal mandate that could result in
expenditure in any one year by State, local or tribal governments, in
the aggregate, or by the private sector, of $100 million in 1995
dollars, updated annually for inflation. In 2011, that threshold level
is approximately $136 million.
UMRA does not address the total cost of a final rule. Rather, it
focuses on certain categories of cost, mainly those ``Federal mandate''
costs resulting from: (1) Imposing enforceable duties on State, local,
or tribal governments, or on the private sector; or (2) increasing the
stringency of conditions in, or decreasing the funding of, State,
local, or tribal governments under entitlement programs.
This final rule includes no mandates on State, local, or tribal
governments. Under the final rule, issuers would be required to submit
rate justification reports for rate increases of 10 percent or greater
directly to CMS. A State may voluntarily choose to use its existing
rate review process, if deemed an Effective Rate Review Program, to
make a determination as to whether a rate increase is unreasonable. If
a State chooses to review the rate increase, the State would be
required to submit to CMS the final determination and an explanation of
its analysis. However, if a State chooses not to do so, CMS would
review a rate increase subject to review to determine whether it is
unreasonable. Thus, the law and this regulation do not impose an
unfunded mandate on States. However, consistent with policy embodied in
UMRA, this final rule has been designed to be the least burdensome
alternative for State, local and tribal governments, and the private
sector while achieving the objectives of the Affordable Care Act.
K. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. In CMS' view, while the requirements proposed in this
final rule would not impose substantial direct costs on State and local
governments, this final rule has federalism implications due to direct
effects on the distribution of power and responsibilities among the
State and Federal governments relating to determining the
reasonableness of rate increases for coverage that State-licensed
health insurance issuers offer in the individual and small group
markets.
CMS recognizes that there are federalism implications with regard
to CMS' evaluation of Effective Rate Review Programs and its subsequent
review of rate increases. Under Subpart C of this final rule, CMS
outlines those criteria that States would have to meet in order to be
deemed to have an Effective Rate Review Program. If CMS determines that
a State does not meet those criteria, then CMS would review a rate
increase subject to review to determine whether it is unreasonable. If
a State does meet the criteria, then CMS would adopt that State's
determination of whether a rate increase is unreasonable.
States would continue to apply State law requirements regarding
rate and policy filings. State rate review processes that are more
stringent than
[[Page 29985]]
the Federal requirements likely would be deemed effective and satisfy
the requirements under this final rule. Accordingly, States have
significant latitude to impose requirements with respect to health
insurance issuers that are more restrictive than the Federal law.
In compliance with the requirement of Executive Order 13132 that
agencies examine closely any policies that may have federalism
implications or limit the policy making discretion of the States, CMS
has engaged in efforts to consult with and work cooperatively with
affected States, including participating in conference calls with and
attending conferences of the National Association of Insurance
Commissioners (NAIC), participating in a NAIC workgroup on rate reviews
and consulting with State insurance officials on an individual basis.
Throughout the process of developing this final rule, CMS has
attempted to balance the States' interests in regulating health
insurance issuers, and Congress' intent to provide uniform protections
to consumers in every State. By doing so, it is CMS' view that it has
complied with the requirements of Executive Order 13132. Under the
requirements set forth in section 8(a) of Executive Order 13132, and by
the signatures affixed to this regulation, CMS certifies that the
Center for Consumer Information and Insurance Oversight has complied
with the requirements of Executive Order 13132 for the attached final
rule in a meaningful and timely manner.
List of Subjects in 45 CFR Part 154
Administrative practice and procedure, Claims, Health care, Health
insurance, Health plans, Penalties, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, the Department of Health
and Human Services amends 45 CFR Subtitle A, Subchapter B, by adding
part 154 to read as follows:
PART 154--HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND
REVIEW REQUIREMENTS
Subpart A--General Provisions
Sec.
154.101 Basis and scope.
154.102 Definitions.
154.103 Applicability.
Subpart B--Disclosure and Review Provisions
154.200 Rate increases subject to review.
154.205 Unreasonable rate increases.
154.210 Review of rate increases subject to review by CMS or by a
State.
154.215 Submission of disclosure to CMS for rate increases subject
to review.
154.220 Timing of providing the Preliminary Justification.
154.225 Determination by CMS or a State of an unreasonable rate
increase.
154.230 Submission and posting of Final Justifications for
unreasonable rate increases.
Subpart C--Effective Rate Review Programs
154.301 CMS's determinations of Effective Rate Review Programs.
Authority: Section 2794 of the Public Health Service Act (42
USC 300gg-94).
Subpart A--General Provisions
Sec. 154.101 Basis and scope.
(a) Basis. This part implements section 2794 of the Public Health
Service (PHS) Act.
(b) Scope. This part establishes the requirements for health
insurance issuers offering health insurance coverage in the small group
or individual markets to report information concerning unreasonable
rate increases to the Centers for Medicare & Medicaid Services (CMS).
This part further establishes the process by which it will be
determined whether the rate increases are unreasonable rate increases
as defined in this part.
Sec. 154.102 Definitions.
As used in this part:
CMS means the Centers for Medicare & Medicaid Services.
Effective Rate Review Program means a State program that CMS has
determined meets the requirements set forth in Sec. 154.301(a) and (b)
for the relevant market segment in the State.
Federal medical loss ratio standard means the applicable medical
loss ratio standard for the State and market segment involved,
determined under subpart B of 45 CFR part 158.
Health insurance coverage has the meaning given the term in section
2791(b)(1) of the PHS Act.
Health insurance issuer has the meaning given the term in section
2791(b)(2) of the PHS Act.
Individual market has the meaning given the term under the
applicable State's rate filing laws, except that where State law does
not define the term, it has the meaning given in section 2791(e)(1)(A)
of the PHS Act.
Product means a package of health insurance coverage benefits with
a discrete set of rating and pricing methodologies that a health
insurance issuer offers in a State.
Rate increase means any increase of the rates for a specific
product offered in the individual or small group market.
Rate increase subject to review means a rate increase that meets
the criteria set forth in Sec. 154.200.
Secretary means the Secretary of the Department of Health and Human
Services.
Small group market has the meaning given under the applicable
State's rate filing laws, except that where State law does not define
the term, it has the meaning given in section 2791(e)(5) of the PHS
Act; provided, however, that for the purpose of this definition, ``50''
employees is substituted for ``100'' employees in the definition of
``small employer'' under section 2791(e)(4).
State has the meaning given the term in section 2791(d)(14) of the
PHS Act.
Unreasonable rate increase means:
(1) When CMS is conducting the review required by this part, a rate
increase that CMS determines under Sec. 154.205 is:
(i) An excessive rate increase;
(ii) An unjustified rate increase; or
(iii) An unfairly discriminatory rate increase.
(2) When CMS adopts the determination of a State that has an
Effective Rate Review Program, a rate increase that the State
determines is excessive, unjustified, unfairly discriminatory, or
otherwise unreasonable as provided under applicable State law.
Sec. 154.103 Applicability.
(a) In general. The requirements of this part apply to health
insurance issuers offering health insurance coverage in the individual
market and small group market.
(b) Exceptions. The requirements of this part do not apply to
grandfathered health plan coverage as defined in 45 CFR Sec. 147.140,
or to excepted benefits as described in section 2791(c) of the PHS Act.
Subpart B--Disclosure and Review Provisions
Sec. 154.200 Rate increases subject to review.
(a) A rate increase filed in a State on or after September 1, 2011,
or effective on or after September 1, 2011, in a State that does not
require a rate increase to be filed, is subject to review if:
(1) The rate increase is 10 percent or more, applicable to a 12-
month period that begins on September 1, as calculated under paragraph
(c) of this section; or
(2) The rate increase meets or exceeds a State-specific threshold
applicable to
[[Page 29986]]
a 12-month period that begins on September 1, as calculated under
paragraph (c) of this section, determined by the Secretary. In
establishing a State-specific threshold, the Secretary shall consult
with the State and may consider relevant information provided by other
interested parties. A State-specific threshold shall be based on
factors impacting rate increases in a State to the extent that data
relating to such State-specific factors is available.
(b) The Secretary will publish a notice no later than June 1 of
each year concerning whether a threshold under paragraph (a)(1) or (2)
of this section applies to a State; except that, with respect to the
12-month period that begins on September 1, 2011, the threshold under
paragraph (a)(1) of this section applies.
(c) A rate increase meets or exceeds the applicable threshold set
forth in paragraph (a) of this section if the average increase for all
enrollees weighted by premium volume meets or exceeds the applicable
threshold.
(d) If a rate increase that does not otherwise meet or exceed the
threshold under paragraph (c) of this section meets or exceeds the
threshold when combined with a previous increase or increases during
the 12-month period preceding the date on which the rate increase would
become effective, then the rate increase must be considered to meet or
exceed the threshold and is subject to review under Sec. 154.210, and
such review shall include a review of the aggregate rate increases
during the applicable 12-month period.
Sec. 154.205 Unreasonable rate increases.
(a) When CMS reviews a rate increase subject to review under Sec.
154.210(a), CMS will determine that the rate increase is an
unreasonable rate increase if the increase is an excessive rate
increase, an unjustified rate increase, or an unfairly discriminatory
rate increase.
(b) The rate increase is an excessive rate increase if the increase
causes the premium charged for the health insurance coverage to be
unreasonably high in relation to the benefits provided under the
coverage. In determining whether the rate increase causes the premium
charged to be unreasonably high in relationship to the benefits
provided, CMS will consider:
(1) Whether the rate increase results in a projected medical loss
ratio below the Federal medical loss ratio standard in the applicable
market to which the rate increase applies, after accounting for any
adjustments allowable under Federal law;
(2) Whether one or more of the assumptions on which the rate
increase is based is not supported by substantial evidence; and
(3) Whether the choice of assumptions or combination of assumptions
on which the rate increase is based is unreasonable.
(c) The rate increase is an unjustified rate increase if the health
insurance issuer provides data or documentation to CMS in connection
with the increase that is incomplete, inadequate or otherwise does not
provide a basis upon which the reasonableness of an increase may be
determined.
(d) The rate increase is an unfairly discriminatory rate increase
if the increase results in premium differences between insureds within
similar risk categories that:
(1) Are not permissible under applicable State law; or
(2) In the absence of an applicable State law, do not reasonably
correspond to differences in expected costs.
Sec. 154.210 Review of rate increases subject to review by CMS or by
a State.
(a) Except as provided in paragraph (b) of this section, CMS will
review a rate increase subject to review to determine whether it is
unreasonable, as required by this part.
(b) CMS will adopt a State's determination of whether a rate
increase is an unreasonable rate increase, if the State:
(1) Has an Effective Rate Review Program as described in Sec.
154.301; and
(2) The State provides to CMS, on a form and in a manner prescribed
by the Secretary, its final determination of whether a rate increase is
unreasonable, which must include a brief explanation of how its
analysis of the relevant factors set forth in Sec. 154.301(a)(3)
caused it to arrive at that determination, within five business days
following the State's final determination.
(c) CMS will post and maintain on its Web site a list of the States
with market segments that meet the requirements of paragraph (b) of
this section.
Sec. 154.215 Submission of disclosure to CMS for rate increases
subject to review.
(a) For each rate increase subject to review, a health insurance
issuer must submit a Preliminary Justification for each product
affected by the increase on a form and in the manner prescribed by the
Secretary.
(b) The Preliminary Justification must consist of the following
Parts:
(1) Rate increase summary (Part I), as described by paragraph (e)
of this section;
(2) Written description justifying the rate increase (Part II), as
described by paragraph (f) of this section; and
(3) When CMS is reviewing the rate increase under Sec. 154.210(a),
rate filing documentation (Part III), as described by paragraph (g) of
this section.
(c) A health insurance issuer must complete and submit Parts I and
II of the Preliminary Justification described in paragraphs (b)(1) and
(2) of this section to CMS and, as long as the applicable State accepts
such submissions, to the applicable State for any rate increase subject
to review. If a rate increase subject to review is for a product
offered in the individual market or small group market and CMS is
reviewing the rate increase under Sec. 154.210(a), then the health
insurance issuer must also complete and submit Part III of the
Preliminary Justification described in paragraph (b)(3) of this section
to CMS only.
(d) The health insurance issuer may submit a single, combined
Preliminary Justification for rate increases subject to review
affecting multiple products, if the claims experience of all products
has been aggregated to calculate the rate increases and the rate
increases are the same across all products.
(e) Content of rate increase summary (Part I): The rate increase
summary must include the following as determined appropriate by the
Secretary:
(1) Historical and projected claims experience;
(2) Trend projections related to utilization, and service or unit
cost:
(3) Any claims assumptions related to benefit changes;
(4) Allocation of the overall rate increase to claims and non-
claims costs;
(5) Per enrollee per month allocation of current and projected
premium; and
(6) Three year history of rate increases for the product associated
with the rate increase.
(f) Content of written description justifying the rate increase
(Part II): The written description of the rate increase must include a
simple and brief narrative describing the data and assumptions that
were used to develop the rate increase and include the following:
(1) Explanation of the most significant factors causing the rate
increase, including a brief description of the relevant claims and non-
claims expense increases reported in the rate increase summary; and
(2) Brief description of the overall experience of the policy,
including historical and projected expenses, and loss ratios.
(g) Content of rate filing documentation (Part III): (1) The rate
filing documentation must be sufficient for CMS to conduct an
examination satisfying the requirements of
[[Page 29987]]
Sec. 154.301(a)(3) and (4) and determine whether the rate increase is
an unreasonable increase. Instructions concerning the requirements for
the rate filing documentation will be provided in guidance issued by
CMS.
(2) If the health insurance issuer is also required to submit a
rate filing to a State in connection with the rate increase under State
law, CMS will accept a copy of the filing provided that the filing
includes all of the information described in paragraph (g)(1) of this
section.
(h) If the level of detail provided by the issuer for the
information under paragraph (g) of this section does not provide
sufficient basis for CMS to determine whether the rate increase is an
unreasonable rate increase, CMS will request the additional information
necessary to make its determination. The health insurance issuer must
provide the requested information to CMS within 10 business days
following its receipt of the request.
(i) Posting of the disclosure on the CMS Web site: (1) CMS promptly
will make available to the public on its Web site the information
contained in Parts I and II of each Preliminary Justification.
(2) CMS will make available to the public on its Web site the
information contained in Part III of each Preliminary Justification
that is not a trade secret or confidential commercial or financial
information as defined in CMS's Freedom of Information Act regulations,
45 CFR 5.65.
(3) CMS will include a disclaimer on its Web site with the
information made available to the public that explains the purpose and
role of the Preliminary Justification.
(j) CMS will include information on its Web site concerning how the
public can submit comments on the proposed rate increases that CMS
reviews.
Sec. 154.220 Timing of providing the Preliminary Justification.
A health insurance issuer must submit a Preliminary Justification
for all rate increases subject to review that are filed in a State on
or after September 1, 2011, or effective on or after September 1, 2011
in a State that does not require the rate increase subject to review to
be filed, as follows:
(a) If a State requires that a proposed rate increase be filed with
the State prior to the implementation of the rate, the health insurance
issuer must submit to CMS and the applicable State the Preliminary
Justification on the date on which the health insurance issuer submits
the proposed rate increase to the State.
(b) For all other States, the health insurance issuer must submit
to CMS and the State the Preliminary Justification prior to the
implementation of the rate increase.
Sec. 154.225 Determination by CMS or a State of an unreasonable rate
increase.
(a) When CMS receives a Preliminary Justification for a rate
increase subject to review and CMS reviews the rate increase under
Sec. 154.210(a), CMS will make a timely determination whether the rate
increase is an unreasonable rate increase.
(1) CMS will post on its Web site its final determination and a
brief explanation of its analysis, consistent with the form and manner
prescribed by the Secretary under Sec. 154.210(b)(2), within five
business days following its final determination.
(2) If CMS determines that the rate increase is an unreasonable
rate increase, CMS will also provide its final determination and brief
explanation to the health insurance issuer within five business days
following its final determination.
(b) If a State conducts a review under Sec. 154.210(b), CMS will
adopt the State's determination of whether a rate increase is
unreasonable and post on the CMS Web site the State's final
determination described in Sec. 154.210(b)(2).
(c) If a State determines that the rate increase is an unreasonable
rate increase and the health insurance issuer is legally permitted to
implement the unreasonable rate increase under applicable State law,
CMS will provide the State's final determination and brief explanation
to the health insurance issuer within five business days following
CMS's receipt thereof.
Sec. 154.230 Submission and posting of Final Justifications for
unreasonable rate increases.
(a) If a health insurance issuer receives from CMS a final
determination by CMS or a State that a rate increase is an unreasonable
rate increase, and the health insurance issuer declines to implement
the rate increase or chooses to implement a lower increase, the health
insurance issuer must submit to CMS timely notice that it will not
implement the rate increase or that it will implement a lower increase
on a form and in the manner prescribed by the Secretary.
(b) If a health insurance issuer implements a lower increase as
described in paragraph (a) of this section and the lower increase does
not meet or exceed the applicable threshold under Sec. 154.200, such
lower increase is not subject to this part. If the lower increase meets
or exceeds the applicable threshold, the health insurance issuer must
submit a new Preliminary Justification under this part.
(c) If a health insurance issuer implements a rate increase
determined by CMS or a State to be unreasonable, within the later of 10
business days after the implementation of such increase or the health
insurance issuer's receipt of CMS's final determination that a rate
increase is an unreasonable rate increase, the health insurance issuer
must:
(1) Submit to CMS a Final Justification in response to CMS's or the
State's final determination, as applicable. The information in the
Final Justification must be consistent with the information submitted
in the Preliminary Justification supporting the rate increase; and
(2) Prominently post on its Web site the following information on a
form and in the manner prescribed by the Secretary:
(i) The information made available to the public by CMS and
described in Sec. 154.215(i);
(ii) CMS's or the State's final determination and brief explanation
described in Sec. 154.225(a) and Sec. 154.210(b)(2), as applicable;
and
(iii) The health insurance issuer's Final Justification for
implementing an increase that has been determined to be unreasonable by
CMS or the State, as applicable.
(3) The health insurance issuer must continue to make this
information available to the public on its Web site for at least three
years.
(d) CMS will post all Final Justifications on the CMS Web site.
This information will remain available to the public on the CMS Web
site for three years.
Subpart C--Effective Rate Review Programs
Sec. 154.301 CMS's determinations of Effective Rate Review Programs.
(a) Effective Rate Review Program. In evaluating whether a State
has an Effective Rate Review Program, CMS will apply the following
criteria for the review of rates for the small group market and the
individual market, and also, as applicable depending on State law, the
review of rates for different types of products within those markets:
(1) The State receives from issuers data and documentation in
connection with rate increases that are sufficient to conduct the
examination described in paragraph (a)(3) of this section.
(2) The State conducts an effective and timely review of the data
and
[[Page 29988]]
documentation submitted by a health insurance issuer in support of a
proposed rate increase.
(3) The State's rate review process includes an examination of:
(i) The reasonableness of the assumptions used by the health
insurance issuer to develop the proposed rate increase and the validity
of the historical data underlying the assumptions; and
(ii) The health insurance issuer's data related to past projections
and actual experience.
(4) The examination must take into consideration the following
factors to the extent applicable to the filing under review:
(i) The impact of medical trend changes by major service
categories;
(ii) The impact of utilization changes by major service categories;
(iii) The impact of cost-sharing changes by major service
categories;
(iv) The impact of benefit changes;
(v) The impact of changes in enrollee risk profile;
(vi) The impact of any overestimate or underestimate of medical
trend for prior year periods related to the rate increase;
(vii) The impact of changes in reserve needs;
(viii) The impact of changes in administrative costs related to
programs that improve health care quality;
(ix) The impact of changes in other administrative costs;
(x) The impact of changes in applicable taxes, licensing or
regulatory fees;
(xi) Medical loss ratio; and
(xii) The health insurance issuer's capital and surplus.
(5) The State's determination of whether a rate increase is
unreasonable is made under a standard that is set forth in State
statute or regulation.
(b) Public disclosure and input. In addition to satisfying the
provisions in paragraph (a) of this section, a State with an Effective
Rate Review Program must provide access from its Web site to the Parts
I and II of the Preliminary Justifications of the proposed rate
increases that it reviews and have a mechanism for receiving public
comments on those proposed rate increases.
(c) CMS will determine whether a State has an Effective Rate Review
Program for each market based on information available to CMS that a
rate review program meets the criteria described in paragraphs (a) and
(b) of this section.
(d) CMS reserves the right to evaluate from time to time whether,
and to what extent, a State's circumstances have changed such that it
has begun to or has ceased to satisfy the criteria set forth in
paragraphs (a) and (b) of this section.
Dated: May 3, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: May 18, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-12631 Filed 5-19-11; 11:15 am]
BILLING CODE 4120-01-P