[Federal Register Volume 77, Number 227 (Monday, November 26, 2012)]
[Proposed Rules]
[Pages 70583-70617]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28428]
[[Page 70583]]
Vol. 77
Monday,
No. 227
November 26, 2012
Part III
Department of Health and Human Services
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45 CFR Parts 144, 147, 150, et al.
Patient Protection and Affordable Care Act; Health Insurance Market
Rules; Rate Review; Proposed Rule
Federal Register / Vol. 77 , No. 227 / Monday, November 26, 2012 /
Proposed Rules
[[Page 70584]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Parts 144, 147, 150, 154 and 156
[CMS-9972-P]
RIN 0938-AR40
Patient Protection and Affordable Care Act; Health Insurance
Market Rules; Rate Review
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement the Affordable Care Act's
policies related to fair health insurance premiums, guaranteed
availability, guaranteed renewability, risk pools, and catastrophic
plans. The proposed rule would clarify the approach used to enforce the
applicable requirements of the Affordable Care Act with respect to
health insurance issuers and group health plans that are non-federal
governmental plans. This proposed rule would also amend the standards
for health insurance issuers and states regarding reporting,
utilization, and collection of data under section 2794 of the Public
Health Service Act (PHS Act). It also revises the timeline for states
to propose state-specific thresholds for review and approval by CMS.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on December 26,
2012.
ADDRESSES: In commenting, please refer to file code CMS-9972-P. 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 ``Submit a
comment'' instructions.
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-9972-P, P.O. Box 8012,
Baltimore, MD 21244-1850.
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-9972-P, 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 the 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,
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.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Jacob Ackerman, (410) 786-1565,
concerning the health insurance market rules; Douglas Pennington, (410)
786-1553 (or by email: ratereview@hhs.gov), concerning rate review.
SUPPLEMENTARY INFORMATION: 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://www.regulations.gov. Follow the search instructions on
that Web site to view public comments.
Comments received timely will also be 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 p.m. To schedule an appointment to view public comments,
phone (800) 743-3951.
I. Executive Summary
A. Purpose of the Proposed Regulatory Action
1. Need for the Proposed Regulatory Action
Today, consumers with current or past medical problems can be
denied health insurance coverage in the vast majority of individual
(nongroup) markets (45 states). Similarly, individuals and small
employers often find that they have few protections in terms of the
premiums that issuers can charge them. For example, in the individual
market, 43 states allow health status rating and 48 states allow age
rating (often unlimited). While 37 states explicitly allow gender
rating, three states that prohibit gender rating do not require
maternity coverage in all individual market policies, meaning that,
since maternity coverage requires additional premium in those states, a
total of 40 states allow some form of gender rating in practice. In the
small group market, 38 states allow health status rating, 48 states
allow age rating (often unlimited), 35 states allow gender rating, and
37 states allow industry rating.\1\
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\1\ Ctr. on Health Ins. Reforms, Georgetown Univ. Health Policy
Inst., Individual Market Guaranteed Issue, Individual Health
Insurance Market Rate Restrictions, and Small Group Health Insurance
Market Rate Restrictions, available at http://statehealthfacts.org;
Nat'l Women's Law Center, Turning to Fairness: Insurance
Discrimination Against Women Today and the Affordable Care Act
(2012).
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Sections 2701, 2702, and 2703 of the Public Health Service Act (PHS
Act), as added and amended by the Patient Protection and Affordable
Care Act (Affordable Care Act), and section 1312(c) of the Affordable
Care Act address these problems by extending guaranteed availability
(also known as guaranteed issue) protections so that individuals and
employers will be able to obtain coverage when it currently can be
denied, by continuing current guaranteed renewability protections, by
prohibiting the use of factors such as health status, medical history,
gender, and industry of employment to set premium rates, by limiting
age rating, and by prohibiting issuers from dividing up their insurance
pools. These reforms are effective for plan years (group
[[Page 70585]]
market) and policy years (individual market) starting on or after
January 1, 2014.
The implementation of these proposed rules will ensure that every
American, for the first time, will have access to affordable health
insurance coverage notwithstanding any health problems they may have.
In addition, also for the first time throughout the nation, health
insurance issuers will be prevented from charging individuals and small
employers higher premiums due to enrollees' health status or gender.
CMS is issuing these proposed regulations to provide the necessary
guidance to implement these important consumer protections included in
sections 2701, 2702, and 2703 of the PHS Act and section 1312(c) of the
Affordable Care Act.
In addition, PHS Act section 2723 provides CMS with enforcement
authority with respect to health insurance issuers (in certain
instances) and group health plans that are non-federal governmental
plans in connection with the various health insurance and group health
plan standards added by the Affordable Care Act. The proposed rules
would make non-substantive changes that clarify the processes that CMS
currently uses to enforce such standards. These technical changes seek
to eliminate confusion among states, issuers, non-federal governmental
group health plans, consumers, and others concerning CMS's enforcement
processes.
The proposed rule would also include proposed policy for enrollment
in catastrophic plans that are available for young adults and people
who would otherwise find health insurance unaffordable.
The proposed rule would also revise the timing of the submission of
requests for state-specific thresholds and the effective dates of such
thresholds; require that health insurance issuers submit data on
proposed rate increases in a form and manner to be determined by CMS,
and amend the requirements for a state to have an Effective Rate Review
Program. We are proposing these changes to align with the timing of
rate submissions of qualified health plans (QHPs), as defined under
section 1301 of the Affordable Care Act, in the Exchanges, and to
adjust rate review to meet its additional purpose of helping to promote
fair market competition beginning in 2014. The law requires that,
beginning in 2014, the Secretary of the Department of Health and Human
Services (the Secretary), in conjunction with states, monitor premium
increases of health insurance coverage offered through an Exchange and
outside of an Exchange. The Secretary will monitor these increases to
identify patterns that could signal market disruption and assist in
oversight of the new market-wide rating reforms created by the
Affordable Care Act, which are effective on January 1, 2014.
2. Legal Authority
The substantive authority for these proposed rules is generally
sections 2701, 2702, 2703, 2723 and 2794 of the PHS Act and sections
1302(e), 1312(c), and 1560(c) of the Affordable Care Act. PHS Act
section 2792 authorizes us to promulgate regulations that are necessary
or appropriate to carry out sections 2701, 2702, 2703, 2723, and 2794.
Section 1321(a) of the Affordable Care Act authorizes rulemaking with
respect to sections 1302(e), 1312(c), and 1560(c).
B. Summary of the Major Provisions of This Proposed Regulatory Action
Proposed 45 CFR 147.102 would require issuers offering non-
grandfathered health insurance coverage in the individual and small
group markets starting in 2014, and the large group market if such
coverage is available through an Affordable Insurance Exchange
(Exchange) starting in 2017, to limit any variation in premiums with
respect to a particular plan or coverage to age and tobacco use within
limits, family size, and geography.
Proposed Sec. 147.104 would require issuers offering non-
grandfathered health insurance coverage to accept every individual or
employer who applies for coverage in the individual or group market, as
applicable, subject to certain exceptions (for example, limits on
network capacity).
Proposed Sec. 147.106 would require issuers to renew all coverage
in the individual and group markets, subject to certain exceptions (for
example, non-payment of premiums or fraud).
The proposed revisions in 45 CFR part 154 would make three changes
to the existing rate review program. Proposed revisions in Sec.
154.200 would require states seeking state-specific thresholds to
submit proposals for such thresholds by August 1 of each year and
require CMS to review the proposals by September 1 of each year. If
approved, a state-specific threshold would be effective January 1 of
the following year. Proposed revisions in Sec. 154.215 and Sec.
154.220 would require health insurance issuers to submit, in a
standardized format to be specified by the Secretary, data relating to
proposed rate increases that are filed in a state on or after April 1,
2013, or effective on or after January 1, 2014 in a state that does not
require the rate increases to be filed. Proposed revisions in Sec.
154.301 would add criteria and factors for a state to have an Effective
Rate Review Program, including that the state receives from all issuers
proposing rate increases data and documentation about the rate
increases in the standardized form specified by the Secretary; reviews
the information for proposed rate increases greater than or equal to
the review threshold; and makes information publicly available through
its Web site.
Proposed Sec. 156.80 generally would require health insurance
issuers to treat all of their non-grandfathered business in the
individual market and small group market, respectively, as a single
risk pool. A state would have the authority to choose to direct issuers
to merge their non-grandfathered individual and small group pools into
a combined pool.
Proposed Sec. 156.155 generally would codify section 1302(e) of
the Affordable Care Act regarding catastrophic plans.
The proposed revisions in 45 CFR part 150 would clarify that CMS
uses the same enforcement processes with respect to the requirements of
45 CFR part 147, which implements provisions added by the Affordable
Care Act, as it does with respect to the requirements of 45 CFR parts
146 and 148, which pre-date the Affordable Care Act. Additional
revisions would conform certain sections in 45 CFR part 144 to the
clarification concerning the scope of 45 CFR part 150.
C. Costs and Benefits
The provisions of this proposed rule, combined with other
provisions in the Affordable Care Act, will improve the individual
health insurance market by making insurance affordable and accessible
to millions of Americans who currently do not have affordable options
available to them. The shortcomings of the individual market today have
been widely documented.\2\ Between 50 and 129 million Americans, if
they tried to purchase coverage in the individual market, would be
denied coverage entirely or would have their premiums ``rated up,'' and
would likely have coverage for certain medical conditions
[[Page 70586]]
excluded.\3\ In addition, people previously enrolled in individual
insurance with high health risks or costs are often further blocked
from access to the market as they are put into ``closed blocks'' of
business that are not open to new enrollees, and subject to large
premium increases each year. Relatively healthy subscribers can switch
into lower-priced, open blocks of coverage, while those who are sick
only have the choice of paying the large premium increases or dropping
coverage altogether.
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\2\ Michelle M. Doty et al., Failure to Protect: Why the
Individual Insurance Market Is Not a Viable Option for Most U.S.
Families: Findings from the Commonwealth Fund Biennial Health
Insurance Survey, 2007, The Commonwealth Fund, July 2009; Sara R.
Collins, Invited Testimony: Premium Tax Credits Under The Affordable
Care Act: How They Will Help Millions Of Uninsured And Underinsured
Americans Gain Affordable, Comprehensive Health Insurance, The
Commonwealth Fund, October 27, 2011.
\3\ ASPE, At Risk: Preexisting Conditions Could Affect 1 in 2
Americans: 129 Million People Could Be Denied Affordable Coverage
Without Health Reform, November 2011.
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These limitations of the individual market are made evident by how
few people actually purchase coverage in the individual market. In
2011, approximately 48.6 million people were uninsured in the United
States,\4\ while only around 10.8 million were enrolled in the
individual market.\5\ The relatively small fraction of the target
market that actually purchases coverage in the individual market in
part reflects how expensive the product is relative to its value,
people's resources, and how difficult it is for many people to access
coverage.
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\4\ Source: U.S. Census Bureau, Current Population Survey, 2012
Annual Social and Economic Supplement, Table HI01. Health Insurance
Coverage Status and Type of Coverage by Selected Characteristics:
2011.
\5\ Source: CMS analysis of June 2012 Medical Loss Ratio Annual
Reporting data for 2011 MLR reporting year, available at http://cciio.cms.gov/resources/data/mlr.html.
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The provisions of this proposed rule, combined with other
provisions in the Affordable Care Act, will improve the functioning of
both the individual and the small group markets. The provision for
guaranteed availability will ensure that individuals with health
problems who were previously unable to obtain coverage in the
individual market will have access to coverage. The provision requiring
that age, tobacco use, family size, and geography are the only
permissible rating factors, within limits, will ensure that people with
greater than average health needs are not priced out of the market. The
provision requiring a single risk pool in each market will ensure that
rate increases for healthy and less healthy people will be equal over
time. Elimination of rating based on gender will mean lower premium
rates for women, and the 3:1 limit on the rates charged to older
subscribers will result in lower premium rates for older subscribers
without shifting significant risk to younger subscribers as would
happen under pure community rating. While eliminating gender rating and
the limitations on age ratios could affect premium rates for some in
some markets, this will be largely mitigated for most people by the
availability of premium tax credits, by increased efficiencies and
greater competition in the individual market, by measures such as the
transitional reinsurance program and temporary risk corridors program
to stabilize premiums, and by expected improvements in the overall
health status of the risk pool. The availability of premium tax credits
through Exchanges starting in 2014 will result in lower net premium
rates for most people currently purchasing coverage in the individual
market, and will encourage younger and healthier enrollees to enter the
market, improving the risk pool and leading to reductions in premium
rates for current policyholders.\6\ Additionally, young adults and
people for whom coverage would otherwise be unaffordable will have
access to a catastrophic plan that will have a lower premium, protect
against high out-of-pocket costs, and cover recommended preventive
services without cost sharing. Similarly, the minimum coverage
provision will lead to expansion in the number of purchasers and
improvements in the health of the risk pool. Further, premium rates are
expected to decline as a result of the administrative efficiencies from
eliminating underwriting, and, more importantly, due to the effects of
greater competition in the individual market created by Exchanges.
Lower premium rates are expected to lead to further increases in
purchase, and a further improvement in the risk pool.
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\6\ Congressional Budget Office, Letter to Honorable Evan Bayh,
providing an Analysis of Health Insurance Premiums Under the Patient
Protection and Affordable Care Act, November 30, 2009; Sara R.
Collins, Invited Testimony: Premium Tax Credits Under The Affordable
Care Act: How They Will Help Millions Of Uninsured And Underinsured
Americans Gain Affordable, Comprehensive Health Insurance, The
Commonwealth Fund, October 27, 2011; Fredric Blavin et al., The
Coverage and Cost Effects of Implementation of the Affordable Care
Act in New York State, Urban Institute, March 2012.
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We solicit comments on additional strategies consistent with the
Affordable Care Act that CMS or states might deploy to avoid or
minimize disruption of rates in the current market and encourage timely
enrollment in coverage in 2014. For example, these strategies could
include instituting the same enrollment periods inside and outside of
Exchanges (as proposed in this rule) or a phase-in or transition period
for certain policies. Additionally, we are examining ways in which
states could continue their high risk pools beyond 2014 as a means of
easing the transition. Ensuring premiums are affordable is a priority
for the Administration as well as states, consumers, and insurers, so
we welcome suggestions for the final rule on ways to achieve this goal
while implementing these essential consumer protections.
Issuers may incur some one-time fixed costs in order to comply with
the provisions of the final rule, including administrative and
marketing costs. Administrative costs are, however, expected to
decrease as a result of the elimination of medical underwriting to
determine premium amounts. Issuer revenues and expenditures are also
expected to increase substantially as a result of the expected increase
in the number of people purchasing individual market coverage, which is
projected to exceed 50 percent of current enrollment.\7\ We are
soliciting information on the nature and magnitude of these costs and
benefits to issuers, and the potential effect of the provisions of this
rule on premium rates and financial performance.
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\7\ Congressional Budget Office, http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf
(Table 3).
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In addition, states may incur costs if they choose to establish
their own, new geographic rating areas and age rating curves. We are
also requesting information on such costs.
The proposed amendments to the rate review program would help
issuers to avoid significant duplication of effort for filings subject
to review by using the same standardized template for both non-QHPs and
QHPs. Additionally, the collection of rate information below the rate
review threshold and use of a standardized data template would provide
the Department of Health and Human Services (HHS) and state departments
of insurance with the ability to conduct the review and approval of
products sold inside and outside an Exchange and ensure market
stability. Health insurance issuers would incur administrative costs to
prepare and submit the data.
In accordance with Executive Orders 12866 and 13563, we believe
that the benefits of this regulatory action would justify the costs.
II. Background
The Patient Protection and Affordable Care Act, Public Law 111-148,
was enacted on March 23, 2010. The Health Care and Education
Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010.
These laws are
[[Page 70587]]
collectively referred to as the Affordable Care Act.
A. Legislative Overview Prior to the Affordable Care Act
The current individual and small group health insurance markets
generally are viewed as dysfunctional, placing consumers at a
disadvantage due to the high cost of health insurance coverage,
resulting from factors such as lack of competition, adverse selection,
and limited transparency. In the past ten years, average total premiums
for group and individual health insurance coverage have increased
substantially.\8\ Similarly, the share of premium paid by employees in
the group market has increased, as well as the amounts that employees
pay in out-of-pocket costs.\9\
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\8\ Schoen, C., et al., State Trends in Premiums and
Deductibles, 2003-2010: The Need for Action to Address Rising Costs,
Realizing Health Reform's Potential, p. 5 (Nov. 2011).
\9\ Claxton,G., et al., Health Benefits in 2010: Premiums Rise
Modestly, Workers Pay More Toward Coverage, Health Affairs, 29,
no.10 (2010):1942-1950.
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In 2007, 62 percent of personal bankruptcies were attributable to
medical expenses. Many of these individuals and families either had
health insurance that did not provide adequate coverage for their
medical expenses or lost medical coverage due to illness.\10\
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\10\ Himmelstein, D., et al., Medical Bankruptcy in the United
States, 2007: Results of a National Study, The American Journal of
Medicine, Vol. 122, No. 8, 741-746.
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In addition to affordability concerns, many people have difficulty
finding and enrolling in coverage options. If employer-based coverage
is not available, a person may find that affordable individual market
coverage is not available due to medical underwriting. Research has
shown that individuals could be denied coverage based even on common
medical conditions such as asthma, depression, hypertension, and knee
injuries.\11\ Even if a person is accepted for coverage in the
individual market, that coverage may be conditioned on paying higher
premiums, preexisting condition exclusion waiting periods, and even
permanent exclusions of coverage for certain medical conditions. One
study found that 38 percent of persons seeking individual market
coverage reported it very difficult or impossible to find the coverage
they needed.\12\ Uninsured individuals are more likely to report not
having routine medical check-ups, not receiving recommended medical
treatments, and not refilling prescriptions.\13\
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\11\ Pollitz, K., How Accessible is Individual Health Insurance
for Consumers in Less-Than-Perfect Health (2001).
\12\ Collins, S., et al., Gaps in Health Insurance: Why So Many
Americans Experience Breaks in Coverage and How the Affordable Care
Act Will Help (April 2011).
\13\ Doty, M., et al., When Unemployed Means Uninsured: The Toll
of Job Loss on Health Coverage, and How the Affordable Care Act Will
Help, Realizing Health Reform's Potential, p. 3 (Aug. 2011).
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Among other policies, the Affordable Care Act expands affordable
coverage to uninsured Americans through the private health insurance
market. When fully implemented, its reforms will make health insurance
coverage more affordable and accessible for individuals and families,
many of whom could not previously get or afford coverage. The insurance
market reforms will help ensure that no individual or small employer is
denied insurance coverage, and that, once issued, coverage cannot be
non-renewed due to health factors. Premiums charged by health insurance
issuers may only vary by certain factors. Further, each issuer will
have a single risk pool for its business in the individual market and a
single risk pool for its business in the small group market (unless a
state decides to merge the markets). This risk pool provision will
spread risk more evenly among consumers, which will help keep premiums
more affordable.
Prior to the Affordable Care Act, title XXVII of the PHS Act
included certain insurance market protections for individuals and
employers that were added by the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). HIPAA provided guaranteed
renewability of coverage to individuals and employers, broad guaranteed
availability rights to small employers, and narrower guaranteed
availability rights in the individual market for certain individuals
leaving group coverage. In practice, relatively few individuals
exercise their HIPAA rights to individual market guaranteed
availability due to the high costs of such coverage in many states and
the requirement that they first exhaust any available continuation
coverage, such as COBRA, which is often unaffordable.\14\ HIPAA did not
include any protections to ensure that all persons could obtain
affordable coverage in the individual market. Thus, most individuals
could be medically underwritten and denied coverage by issuers in the
vast majority of states. HIPAA also did not include any limits on
premium variation or requirements regarding risk pooling that would
have made health insurance coverage more affordable for individuals and
small employers. HIPAA included enforcement provisions allowing CMS to
enforce these and other requirements of title XXVII of the PHS Act with
respect to health insurance issuers (in some instances) and group
health plans that are non-federal governmental plans.
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\14\ COBRA continuation coverage permits some employees and
their dependents, in some circumstances, to remain temporarily
covered under an employer's group health plan after coverage would
otherwise end. But because a former employee must usually pay the
entire premium amount (including both the amount paid as an active
employee and the amount previously contributed by the employer),
plus a 2-percent administrative fee, COBRA coverage may be
unaffordable for many people.
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Both before and after HIPAA, a number of states enacted limited,
incremental reforms to improve access and increase affordability in
their individual and group insurance markets. HIPAA explicitly
recognized the role of the states as the primary insurance regulators
where their standards were at least as protective as HIPAA. Although
the level of activity varies by state, most states have adopted
guaranteed availability and renewability reforms consistent with HIPAA,
and several states have adopted rating standards. For example, one
recent survey of state insurance market rules found that all states
require guaranteed availability in the small employer market.\15\ The
same survey found that 41 states had implemented ``alternative
mechanisms'' for guaranteed availability for HIPAA-eligible
individuals, while the remaining states used the federal fallback
mechanism.\16\ However, only five states (Maine, Massachusetts, New
Jersey, New York, and Vermont) went beyond HIPAA to require that all
issuers accept all applicants in the individual market, with limited
exceptions.\17\ With respect to guaranteed renewability, one survey
reported that 48 states require it in the small group market \18\ and
another survey reported that all 50 states require it in the individual
market.\19\ While HIPAA did not include any provisions addressing
rating or pooling, 47 states have one or more requirements in the small
group market and 18 states have
[[Page 70588]]
one or more requirements in the individual market.\20\
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\15\ Ctr. on Health Ins. Reforms, Georgetown Univ. Health Policy
Inst., Small Group Health Insurance Market Guaranteed Issue and
Individual Market Guarantee Issue, available at http://statehealthfacts.org.
\16\ Ctr. on Health Ins. Reforms, Georgetown Univ. Health Policy
Inst., Small Group Health Insurance Market Guaranteed Issue and
Individual Market Guarantee Issue, available at http://statehealthfacts.org.
\17\ Ctr. on Health Ins. Reforms, Georgetown Univ. Health Policy
Inst., HIPAA Rules, available at http://statehealthfacts.org.
\18\ Pollitz, K., et al., Early Experience with the ``New
Federalism'' in Health Insurance Regulation, Health Affairs, 19,
no.4 (2000):7-22.
\19\ Fuchs, B., Expanding the Individual Health Insurance
Market: Lessons from the State Reforms of the 1990s (2004) at p. 7.
\20\ Ctr. on Health Ins. Reforms, Georgetown Univ. Health Policy
Inst., Small Group Health Insurance Market Rate Restrictions and
Individual Market Rate Restrictions, available at http://statehealthfacts.org.
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Despite the advances in some states, only five states (Maine,
Massachusetts, New Jersey, New York, and Vermont) have adopted a
comprehensive set of guaranteed availability and community rating
reforms in both their individual and small group markets that meet or
exceed those in the Affordable Care Act. Only Massachusetts, which
enacted a landmark health reform law in 2006 that coupled insurance
market reforms with an insurance exchange, premium subsidies, and a
minimum coverage provision, has succeeded in covering nearly all
residents of the state. In 2011, only 3.4 percent of Massachusetts
residents were uninsured, compared to 15.7 percent nationally.\21\ In
contrast, individuals with medical conditions in the 45 states without
guaranteed availability and rating reforms often find themselves with
few--or even no--coverage options at affordable prices.
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\21\ Source: U.S. Census Bureau, Current Population Survey, 2012
Annual Social and Economic Supplement, Table HI06. Health Insurance
Coverage Status by State for All People: 2011.
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B. Overview of the Changes in the Affordable Care Act
Subtitles A and C of title I of the Affordable Care Act
reorganized, amended, and added provisions to part A of title XXVII of
the PHS Act relating to health insurance issuers in the group and
individual markets and group health plans that are non-federal
governmental plans.\22\ As relevant here, these provisions include PHS
Act sections 2701 (fair health insurance premiums), 2702 (guaranteed
availability of coverage), and 2703 (guaranteed renewability of
coverage), which apply to health insurance coverage offered by health
insurance issuers.\23\ These provisions will establish a federal floor
that ensures all individuals and employers have certain basic
protections with respect to the availability of the health insurance
coverage in all states.
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\22\ The Affordable Care Act also added section 715(a)(1) to the
Employee Retirement Income Security Act (ERISA) and section
9815(a)(1) to the Internal Revenue Code (the Code) to incorporate
the provisions of part A of title XXVII of the PHS Act into ERISA
and the Code, and to make them applicable to group health plans
other than non-federal governmental group health plans. The market
requirements discussed in this proposed rule apply to health
insurance issuers offering health insurance coverage.
\23\ Under the HIPAA enforcement structure, the states (or, if
they lack authority or fail to substantially enforce, CMS) take
enforcement actions against health insurance issuers that fail to
comply with the requirements of PHS Act sections 2701-2703. See Code
Sec. 4980D(d); ERISA Sec. 502(b)(3); PHS Act Sec. 2723.
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Section 2701 regarding fair premiums applies to the individual and
small group markets generally, and to the large group market if a state
permits large employers to purchase coverage through an Exchange.\24\
Pursuant to section 1312(f)(2)(B) of the Affordable Care Act, a state
may permit large employers to purchase through an Exchange starting in
2017. Sections 2702 and 2703 apply to the individual and group (small
and large) markets. These provisions apply to health insurance coverage
in the respective markets regardless of whether such coverage is a QHP
offered on Exchanges. Section 1255 of the Affordable Care Act provides
that PHS Act sections 2701, 2702, and 2703 are effective for plan years
(in the individual market, policy years) beginning on or after January
1, 2014.\25\ Section 1251(a)(2) of the Affordable Care Act specifies
that grandfathered health insurance coverage is not subject to sections
2701, 2702, and 2703 of the PHS Act. In addition, the Affordable Care
Act amended the HIPAA enforcement provision that previously was
applicable to group health insurance coverage and non-federal
governmental group health plans by expanding its scope to include
individual health insurance coverage and by renumbering the provision
as PHS Act section 2723.
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\24\ The applicable definitions for individual market, small
group market, and large group market are found in PHS Act section
2791(e) and section 1304(a) of the Affordable Care Act.
\25\ ``Plan year'' and ``policy year,'' for purposes of these
proposed rules, are defined at 45 CFR 144.103. These terms are
defined differently than ``plan year'' and ``benefit year'' as used
in connection with QHPs (45 CFR 155.20).
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The preemption provisions of PHS Act section 2724(a)(1) apply so
that the requirements of the Affordable Care Act are not to be
``construed to supersede any provision of state law which establishes,
implements, or continues in effect any standard or requirement solely
relating to health insurance issuers in connection with individual or
group health insurance coverage except to the extent that such standard
or requirement prevents the application of a requirement'' of the
Affordable Care Act. Section 1321(d) of the Affordable Care Act applies
the same preemption principle to requirements of title I of the
Affordable Care Act. As mentioned, state laws that impose stricter
requirements on health insurance issuers than those imposed by the
Affordable Care Act will not be superseded by the Affordable Care
Act.\26\
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\26\ In addition, although not the subject of this proposed
rule, section 1252 of the Affordable Care Act generally provides
that any standard or requirement adopted by a state pursuant to
title I of the Affordable Care Act (or an amendment made by title I)
shall be applied uniformly to all health plans in each insurance
market to which the standard and requirements apply. Sections
1302(e) and 1312(c) of the Affordable Care Act and the amendments to
PHS Act sections 2701, 2702, and 2703 are all found in title I of
the Affordable Care Act.
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Section 1312(c) of the Affordable Care Act creates a single risk
pool standard, applicable to both QHPs and non-QHPs, in the individual
and small group markets; in addition, states may choose to have a
merged individual and small group market pool. Although the Affordable
Care Act does not provide an explicit effective date for section
1312(c), we interpret it to be effective for plan years (in the
individual market, policy years) beginning on or after January 1, 2014,
given its dependence on and interaction with the new market reforms, as
well as its explicit reference to the establishment of the Exchanges in
2014. Section 1312(c) does not apply to grandfathered health plans.
Lastly, section 1302 of the Affordable Care Act specifies levels of
cost-sharing protections that health plans will offer, including in
subsection (e) a catastrophic plan for young adults and people who
cannot otherwise afford health insurance.
C. Rate Increase Disclosure and Review
Section 1003 of the Affordable Care Act adds a new section 2794 of
the PHS Act, which 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.'' The statute
provides that health insurance issuers must submit to the Secretary and
the applicable state justifications for unreasonable premium increases
prior to the implementation of the increases. Section 2794 also
specifies that beginning with plan years beginning in 2014, the
Secretary, in conjunction with the states, shall monitor premium
increases of health insurance coverage offered through an Exchange and
outside of an Exchange. Section 2794 of the PHS Act does not apply to
grandfathered health insurance coverage, nor does it apply to self-
funded plans.\27\
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\27\ In addition, through regulation, section 2794 does not
apply to health insurance issuers offering health insurance coverage
in the large group market.
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On May 23, 2011, CMS published a final rule with comment period (76
FR 29964), to implement the annual review
[[Page 70589]]
of unreasonable increases in premiums for health insurance coverage
called for by section 2794. Among other things, CMS established a
process by which all proposed rate increases above a defined threshold
in the individual and small group markets would be reviewed by a state
or by CMS to determine whether or not the rate increases are
unreasonable. These rates would be reviewed by the state in states with
Effective Rate Review Programs and by CMS in states without Effective
Rate Review Programs. For 2011, the review threshold was a rate
increase of 10 percent or more. CMS also established a process for a
state to set a state-specific threshold for future calendar years.
We are proposing revisions to the rate review program that would
standardize and streamline data submission, fulfill the new requirement
beginning in 2014 that the Secretary monitor premium increases of
health insurance coverage offered through an Exchange and outside of an
Exchange, and establish new standards that incorporate the effect of
the market reform provisions that take effect in 2014.
III. Provisions of the Proposed Regulations
Collectively, the proposed regulations regarding modified community
rating, guaranteed availability, guaranteed renewability, and risk
pooling create the foundation for a competitive and accessible health
insurance market starting in 2014. The Affordable Care Act allows
individuals and employers to obtain and renew health insurance coverage
without regard to enrollees' health status. Health insurance premiums
will no longer be based on enrollees' pre-existing conditions or
gender, and health insurance issuers no longer will be able to divide
up their risk pools (also known as blocks of business) in order to
discriminate against less healthy individuals. These proposed rules
would clarify health insurance issuers' obligations under these
reforms.
These proposed rules regarding insurance market reforms are
inextricably linked to several other reforms in the Affordable Care Act
that function to expand access to and affordability of coverage. For
example, subtitle D of title I of the Affordable Care Act authorizes
the establishment of Exchanges where individuals and small employers
can enroll in QHPs and creates certain premium stabilization programs
for the reformed marketplace. Further, Code section 36B provides for
premium tax credits for eligible individuals who enroll in QHPs through
Exchanges. Similarly, Code section 45R provides for small business tax
credits for eligible employers who enroll in health insurance coverage
through the Small Business Health Options Program (SHOP). Although
these other reforms are not the subjects of this proposed rule, they do
influence the options available for implementing this proposed rule.
As noted, the proposed rule would make technical changes to clarify
the processes that CMS uses to enforce Affordable Care Act reforms with
respect to issuers and non-federal governmental group health plans. The
proposed rule also would codify the policies related to catastrophic
plans.
A. Fair Health Insurance Premiums (Proposed Sec. 147.102)
PHS Act section 2701 provides that health insurance issuers may
vary premium rates for health insurance coverage in the individual and
small group markets \28\ based on a limited set of specified factors.
The factors are, with respect to a particular plan or coverage: (1)
Whether the plan or coverage applies to an individual or family; (2)
rating area; (3) age, limited to a variation of 3:1 for adults; and (4)
tobacco use, limited to a variation of 1.5:1.\29\ All other rating
factors are prohibited. Thus, PHS Act section 2701 effectively
prohibits several factors currently in use today, such as health
status, claims experience, gender, industry, occupation, and duration
of coverage, among others. Other factors that might be considered for
rating purposes, such as eligibility for tax credits, prior source of
coverage, and credit worthiness, also are prohibited. The practice of
``re-underwriting'' also is prohibited. Re-underwriting refers to
issuers increasing premiums at renewal for existing customers because
they incurred claims or experienced worsening health during a policy
year.\30\
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\28\ Consistent with our later discussion of the single risk
pool provision, all non-grandfathered health insurance coverage
offered through associations and multiple employer welfare
arrangements (MEWAs) is subject to the modified community rating
rules applicable to the appropriate market, as defined by PHS Act
section 2791(e)(1), (3), and (5) (definitions of individual market,
large group market, and small group market, respectively).
\29\ The age, tobacco use, and geographic factors are
multiplicative. For example, the maximum variation for both age (for
adults) and tobacco use is 4.5:1 (3 times 1.5:1), putting aside the
issue of wellness discounts, which are discussed later in this
preamble. The family rate calculation could be additive or
multiplicative, depending on whether a per-member or family tier
rating methodology is used, as explained later in this preamble.
\30\ In addition, health insurance issuers currently are
prohibited from requiring any individual to pay a premium greater
than that for another similarly situated individual enrolled in
group health insurance coverage on the basis of a health factor.
Further, issuers currently are prohibited from charging persons
enrolled in group or individual health insurance coverage higher
premiums due to genetic information. PHS Act sections 2702, as in
effect when the Affordable Care Act was enacted (group market), and
2753 (individual market). In addition to these requirements,
starting in policy years beginning on or after January 1, 2014,
issuers will be prohibited from requiring any individual enrolled in
non-grandfathered individual market coverage to pay a premium
greater than that for another similarly situated individual on the
basis of a health factor. PHS Act section 2705.
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For purposes of family coverage, any premium variation for age and
tobacco use must be applied to the portion of premium attributable to
each family member. PHS Act section 2701(a)(2)(A) specifies that states
can establish one or more rating areas. PHS Act section 2702(a)(2)(B)
provides that CMS may establish rating areas if a state does not
establish them. CMS, in consultation with the NAIC, will define
permissible age bands. All non-grandfathered health insurance coverage
in the individual and small group markets is subject to the
requirements in this section.\31\ In addition, health insurance
coverage in the large group market is subject to these requirements,
inside and outside an Exchange, if a state permits such coverage to be
offered through an Exchange starting in 2017.\32\ As discussed earlier,
we welcome comments on whether and how this proposed rule could be
modified to simultaneously secure the protections required by law and
keep premiums affordable for individuals and small employers purchasing
non-grandfathered health insurance coverage in these markets.
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\31\ By law, issuers must transition all non-grandfathered small
group and individual market coverage issued prior to January 1,
2014, to these adjusted community rating rules in the first plan
year (small group market) or the first policy year (individual
market) beginning on or after January 1, 2014, even if the issuers
previously used other rating rules for products in these markets.
\32\ These requirements apply to health insurance coverage and
therefore are not applicable to self-insured plans.
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1. State and Issuer Flexibility Related to Rating Methodologies
While PHS Act section 2701 limits how issuers may vary premiums,
the statute does not specify detailed rating methodologies. By rating
methodology, we refer to the array of choices made in setting prices--
for example, the age curves an issuer would use to distribute rates
within the 3:1 limit on adult rates as enrollees grow older. The rating
methodology also could include the method for computing rates in the
small group market and the methods for computing family premiums. In
current practice, most aspects of rating
[[Page 70590]]
methodology are left to the discretion of health insurance issuers,
subject to oversight by the states. As discussed later, greater
standardization in rating methodologies starting in 2014 is
advantageous for a number of reasons, including consumer protection,
improved transparency, improved competition, and administrative
simplification. We discuss various types of choices in rating
methodology in more detail in the succeeding sections of this preamble,
and welcome comment on them.
This proposed rule implements our authority under PHS Act section
2701 and would apply to all non-grandfathered health insurance coverage
in the individual and small group markets starting in 2014. This rule
proposes to standardize rating methodologies, particularly with respect
to age rating and certain aspects of family rating, for health
insurance coverage in the individual and small group markets when the
market reforms go into effect in 2014. This proposed rule allows
flexibility for states and issuers in rating methodology when it comes
to certain aspects of family, tobacco, age, geography, and small group
rating.
More standardization with respect to rating methodologies is
advantageous in many respects. First, the risk adjustment methodology
under section 1343 of the Affordable Care Act will need to accommodate
permissible rating factors under PHS Act section 2701.\33\ A
standardized rating methodology for all plans within a state would
enhance the transparency, predictability, and accuracy of risk
adjustment because the risk adjustment methodology would account for
rating as it is applied by issuers. For example, without a specified
age curve, the risk adjustment methodology would have to rely upon an
estimate of a state-level average age curve. This estimate, when
applied to specific issuers, could lead to a loss of accuracy in the
calculation of a plan's average actuarial risk to the extent the
issuer's rating curve varies from the estimated average curve. To the
extent there is decreased accuracy in the risk adjustment methodology
as a result of such an approximation, its goals of promoting
competition based on service and effective care, rather than risk
selection, may be undermined and consumers and issuers would be
negatively affected.
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\33\ For additional background, see CCIIO, Risk Adjustment
Implementation Issues (2011), pp. 17-23, available at: http://cciio.cms.gov/resources/files/riskadjustment_whitepaper_web.pdf.
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Furthermore, some core functions of the Exchange, such as
calculating rates for QHPs and determining the benchmark plan for
purposes of the premium tax credit under Code section 36B, would be
simplified if issuers used the same age curves, age bands, and family
rating methods. The second lowest cost silver plan is the benchmark
plan that will be used to determine the maximum amount an applicant can
receive for premium tax credits. If issuers choose their own age
curves, age bands, and family rating methods, the definition of the
second lowest cost silver plan would likely vary by applicant. In
contrast, standardizing rating methodologies will result in all
applicants having the same plan from the same issuer as the second
lowest cost silver plan, regardless of the applicant's age and family
composition, in a given rating area. This will improve price
transparency for consumers by facilitating their ability to identify
the second lowest cost silver plan. Lastly, allowing differences in
rating methodologies between issuers in the same market in a state
could provide an avenue for adverse selection.
The following sections discuss the proposed rating methodology. We
welcome comments on the areas where and the extent to which state and
issuer flexibility in rating methodologies versus a more standardized
approach is desirable.
2. Small Group Market Rating
Two rating methods are used currently in the marketplace to
generate small group market rates. The first method, known as composite
rating, uses the rating characteristics of an entire small group, such
as the average employee health risk,\34\ average employee age,
geography, group size, and industrial code, to determine an average
per-employee rate (along with corresponding average family tier rates)
for the small group. We understand that a few states require this
approach. In states without such requirements, issuers generally use
this approach for groups with, for example, more than ten employees. In
contrast, under the second method, the issuer calculates a separate
rate for each employee's coverage based on the allowable rating factors
for that employee and then sums each individual rate to determine the
total group premium. This approach is often used for very small groups
(for example, those with ten or fewer employees).
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\34\ The HIPAA non-discrimination provisions currently prohibit
individual employees enrolled in a group health plan from being
required to pay higher premiums or make higher contributions based
on their health status (26 CFR 54.9802-1; 29 CFR 2590.702; 45 CFR
146.121).
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Given that PHS Act section 2701 does not distinguish between
individual and small group market rating, we propose that issuers would
calculate rates for employee and dependent coverage in the small group
market on a per-member basis, in the same manner that they would
calculate rates for persons in the individual market, as discussed
below, and then calculate the group premium by totaling the premiums
attributable to each covered individual. Per-member rating is required
by PHS Act section 2701(a)(4), which specifies that the age and tobacco
use factors be apportioned to each family member. However, as discussed
below, this proposed rule does not preclude the possibility that
employees and their dependents would be charged amounts based on their
group's average, rather than amounts based on their own specific
factors, notwithstanding that issuers must base the total premium for a
group on its actual current enrollment. We propose that states which
anticipate requiring premiums to be based on average enrollee amounts
submit information to CMS not later than 30 days after the publication
of the final rule to support the accuracy of the risk adjustment
methodology.
In the group context, the allowable rating factors, including
tobacco use, would be appropriately associated with specific employees
and dependents. Additionally, with per-member rating, premium changes
for new hires and departures during the year would be priced more
accurately, an issue of particular importance in smaller groups. And in
the SHOP, when employees are offered choices among plans and issuers,
the additional cost or savings resulting from an employee's plan choice
would also be priced more accurately, ensuring that each issuer
receives appropriate premiums for the individuals choosing its health
plans.
The use of per-member rating would give employers flexibility to
choose how to allocate their contributions to employees' coverage. PHS
Act section 2701 governs the basis upon which an issuer may permissibly
charge different groups or individuals different rates for the same
insurance product, but it does not specify how an employer will
allocate the premium contributions among employees.\35\ Although many
[[Page 70591]]
variations may be consistent with applicable state and federal law, we
anticipate that there are two primary ways employee contributions may
be determined.
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\35\ Employer/employee contribution levels are subject to other
laws. PHS Act section 2705(b) prohibits group health plans from
discriminating based on health status against similarly situated
individuals in terms of contribution amounts. This nondiscrimination
requirement generally was carried over to the Affordable Care Act
from HIPAA. The relevant HIPAA authorities currently in effect for
group health plans and group health insurance coverage are Code
section 9802, ERISA section 702, and PHS Act section 2702 (prior to
being renumbered and amended by the Affordable Care Act), as well as
26 CFR 54.9802-1, 29 CFR 2590.702, and 45 CFR 146.121. Guidance
concerning employer/employee contributions has been provided by the
Equal Employment Opportunity Commission in connection with the age
discrimination requirements (29 CFR 1625.10(d)(4)(ii)).
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An employer may choose to set the employee contribution as a
percentage of the underlying cost of the employee's coverage. Under
this option, older employees and smokers would make higher
contributions toward coverage, reflecting their higher risk and
permissible rate variation based on age and tobacco use. Younger
employees would make lower contributions, which may improve the
perceived value of insurance for these employees and increase take-up
rates, making it easier for the employer to meet any minimum
participation rate requirement that may apply.
Alternatively, after the issuer develops rates using the per-member
methodology, an employer may elect to generate a composite rate in
which each employee's contribution for a given family composition is
the same, as most employers offering coverage do today, by adding the
per-member rates and dividing the total by the number of employees to
arrive at the group's average rate and determine employer and employee
contributions based on that composite rate. This flexibility for small
employers would take into account that many employers, states, and
issuers are already accustomed to composite rating, it is relatively
simple, and this method may be beneficial to older employees. However,
this composite method may differ from how composite rates often are
developed today. This decision will be up to employers.
We seek comment on the alignment of the method for calculating each
employee's rate in the small group market with that used to calculate
an individual's rate in the individual market. In particular, we seek
comment on the implications of this approach for employers and
employees, whether it is more compatible with employee choice in the
SHOP, and whether it leads to more accurate pricing of employee
choices.
3. Family Rating
PHS Act section 2701(a)(1)(A)(i) provides that issuers may vary
rates based on whether a plan covers an individual or a family. PHS Act
section 2701(a)(4) provides that, with respect to family coverage, the
rating variation permitted for age and tobacco use must be applied
based on the portion of the premium attributable to each family member
covered under a plan.
The rule proposes that issuers add up the rate of each family
member to arrive at a family premium.\36\ However, we propose that the
rates of no more than the three oldest family members who are under age
21 would be taken into account in computing the family premium. This
policy is intended to mitigate the premium disruption for larger
families accustomed to family tier structures, which typically cap the
number of children taken into consideration in setting premiums. We
propose a cut-off age of 21 for this cap so that it is consistent with
the cut-off age used in the proposed rule on age rating, as well as the
requirement that child-only policies be available to those under age
21. We do not propose a similar cap on the number of family members age
21 and older whose per-member rates would be added into the family
premium.
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\36\ Under this approach, the issuer would charge the same per-
member premium for all family members of the same age and tobacco
use status. The issuer could not charge different rates for family
members of the same age and tobacco use status based on their
status, for example, as the policyholder, spouse, or dependent.
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Consistent with PHS Act section 2701(a)(4), the proposed per-member
approach to family rating ensures that any variation in premium by age
or tobacco use is applied to the appropriate family member. Per-member
rating also simplifies the administration of risk adjustment because
the risk associated with each family member would be easily identified.
We solicit comments on the use of the per-member build-up methodology
for individual and small group market coverage. In addition, we request
comments on the appropriate cap, if any, on the number of child and
adult family members whose premiums should be taken into account in
determining the family premium and the appropriate cut-off age for a
per-child cap (for example, whether this should be aligned with the
extension of dependent coverage to age 26 instead).
Currently, some issuers apply specified family tier or family
composition multipliers to a base premium to arrive at a family rate.
Other issuers may determine a family premium rate based upon the
policyholder or oldest adult's age. These current practices are
impermissible under PHS Act section 2701(a)(4) to the extent that the
multipliers or the base premium vary based on age or tobacco use, since
some family members would be rated using factors that do not apply to
them individually. However, this conflict does not exist in a state
that does not permit variation based on age or tobacco use.
Accordingly, the proposed rule would permit a state to require
issuers to use a standard family tier methodology (with corresponding
multipliers) if the state requires pure community rating, without any
adjustments for age or tobacco use. The multipliers for the tiers would
need to be actuarially justified to ensure that health insurance
issuers could not charge excessively high premiums to individuals or
families that would render meaningless their guaranteed availability
rights under PHS Act section 2702. PHS Act section 2701 does not
require that issuers use a two-tier structure (that is, individual and
family). For example, a state would be able to specify a four-tier
structure (that is, individual; individual and spouse; individual and
child/children; and all other families). If a state anticipates
adopting such a policy in the event this proposed approach is
finalized, we propose such states submit relevant information on their
proposed family tiers to CMS no later than 30 days after the
publication of the final rule to support the accuracy of the risk
adjustment methodology.
We propose that if a state has pure community rating in place, but
does not adopt a uniform family tier methodology (with corresponding
multipliers), the per-member rating methodology would apply as the
default. In a state that does not require community rating, an issuer
that voluntarily uses pure community rating would need to use per-
member rating, given the absence of a uniform family tier methodology
in that state. We solicit comment on whether, instead of permitting
flexibility in the final rule, states with pure community rating should
also use the per-member approach that would be used in states that
allow age and tobacco use adjustments.
4. Persons Included Under Family Coverage
Currently, issuers have considerable flexibility in determining how
to set rates for family policies and in defining which family members
may be on the same policy, subject to federal and state laws requiring
coverage of certain individuals (for example, dependent
[[Page 70592]]
children under age 26 pursuant to PHS Act section 2714, if a plan or
issuer otherwise offers dependent child coverage). Our research
indicates that covered family members typically include the employee or
individual market policyholder; a spouse or partner, as defined by
state law; biological children; adopted children; and children placed
for adoption. Sometimes other classes of people are covered, such as
stepchildren, grandchildren, other children related by blood, foster
children, and children under guardianship.
We request comments on whether the final rule should specify the
minimum categories of family members that health insurance issuers must
include in setting rates for family policies, or whether we should
defer to the states and health insurance issuers to make this
determination. We also request comments on the types of individuals who
typically are included under family coverage currently, including types
of covered individuals who would not meet the classification of tax
dependents. We note that any family member not covered under a family
policy would be eligible for an individual policy pursuant to
guaranteed availability of coverage under PHS Act section 2702.
5. Rating for Geography
PHS Act section 2701(a)(1)(A)(ii) provides that rates may vary by
rating areas. PHS Act section 2701(a)(2) provides that a state must
establish one or more rating areas within that state. CMS is charged
with reviewing the adequacy of the rating areas established by a state.
If the state's rating areas are inadequate (for example, they do not
cover a sufficient number of individuals) or a state does not act, CMS
may establish such rating areas. Although section 2701 does not specify
the maximum variation for a rating area factor, in contrast to its
specifying the maximum age factor (3:1 for adults) and the maximum
tobacco factor (1.5:1), a rating area factor should be actuarially
justified to ensure that issuers do not charge excessively high
premiums that would render meaningless the guaranteed availability
rights of individuals and employers under PHS Act section 2702.
Currently, in most states, issuers have considerable flexibility in
establishing their rating areas. The rule proposes that a state could
establish no more than seven rating areas within the state along
geographic divisions, generally consistent with the maximum number in
states today. The proposed rule makes no distinction between health
insurance coverage offered inside or outside an Exchange, so these
rating areas would apply equally to all non-grandfathered coverage in
the individual or small group market.
The choice of a maximum of seven areas in the proposed rule is
based on the higher-end of the number of rating areas that states
currently have established in the individual and small group markets
(for example, Massachusetts, New Jersey, and Oregon). We believe that
setting an upper limit on the number of rating areas provides states
with the flexibility needed to designate rating areas that are
adequately sized and accommodate local market conditions, while
avoiding an excessive number of rating areas that would be confusing to
consumers and not reflect significant market differences. We solicit
comments on the maximum number of rating areas that may be established
within a state and the potential standards for determining an
appropriate maximum number.
Taking into account the spectrum of current rating rules regarding
geography and the need for state flexibility to account for local
market conditions, the proposed rule includes three standards for the
geographic divisions based on standards that we understand states and
issuers currently use for rating areas. A state could select one of the
approved standards that we would presume ``adequate'' or submit its own
standard, which would be subject to approval. These are: (1) One rating
area for the entire state; (2) rating areas based on counties or three-
digit zip codes (that is, areas in which all zip codes share the same
first three digits); or (3) rating areas based on metropolitan
statistical areas (MSAs) and non-MSAs. The proposed rule would not
require that all the sections of a rating area be geographically
adjacent. For example, a state could create a rating area comprised of
all non-MSA portions of a state that have similar health care costs.
Under the first standard, there would be one rating area for the
entire state. While this approach would make it easier to establish and
monitor rating areas, it may be most practical in states where there is
not significant variation in health care costs among the different
regions of the state.
Under the second standard, the rating areas would be based on
counties or three-digit zip codes. A state using this method would be
expected to use either counties or three-digit zip codes, but not both.
In the United States, there are 3,068 counties, varying greatly in size
and population. There are approximately 455 three-digit zip codes in
the United States. Three-digit zip codes generally cover larger areas
than a county. Current NAIC rating guidance notes that many small group
plans currently use rating areas based on three-digit zip codes or
counties.\37\
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\37\ NAIC, Guidance Manual in the Evaluation of Rating Manuals
and Filings Concerning Small Employer and Individual Health
Insurance (2003), p. 33.
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Under the third standard, rating areas could be based on the
state's MSAs and non-MSAs. MSAs encompass at least one urban core with
a population of at least 50,000 people, plus adjacent territory that
has a high degree of social and economic integration with the core.
MSAs are always established along county boundaries, but may include
counties from more than one state. The 367 MSAs in the United States
include approximately one-third of the counties and 83 percent of the
population of the United States. MSAs could provide a convenient and
established method of grouping counties into larger areas. Further,
current NAIC rating guidance suggests that MSAs be considered as one
possible standard for rating areas. For MSAs that cross state
boundaries, we propose that these should be divided between the
respective states if the MSA option is adopted. States with counties
not encompassed by an MSA could create one or more non-MSA rating areas
for those counties. For states with more than seven MSAs and non-MSA
areas, we propose that these states combine some of the areas into no
more than seven rating areas based on a reasonable methodology, such as
cost similarity.
We request comments regarding the use of these proposed standards
for rating areas, as well as comments regarding other options for
standards for geographic divisions and other relevant factors that
could be used for developing rating areas. We request comments from
states that already have standard rating areas regarding what changes,
if any, would be necessary to meet one or more of the proposed
standards and the proposed limit of having no more than seven rating
areas. We also request comments on whether the final rule should
establish minimum geographic size and minimum population requirements
for rating areas and whether state rating areas currently in existence
should be deemed in compliance with this provision.
To the extent a state establishes rating areas using the proposed
standards, that is one rating area for the entire state, or no more
than seven rating areas if counties, three-digit zip codes, or MSAs/
non-MSAs are used, we propose that the state's rating areas would be
[[Page 70593]]
presumed adequate. We propose that CMS would take a more active role in
assessing the adequacy of the state's rating areas when a state
designates rating areas based on geographic divisions other than those
identified in the proposed rule.
In the event that a state does not establish rating areas
consistent with the proposed standards, the one-area-per-state standard
would apply, unless we applied one of the other standards to designate
rating areas in a particular state. In that case, we likely would be
inclined to use the MSA/non-MSA standard. To the extent that we
establish a state's rating areas, we would work with the state, local
issuers, and others to determine how best to establish rating areas
responsive to local market conditions.
We recognize that states and issuers need lead time to update
pricing models and make related system changes to accommodate
potentially new rating areas in 2014. To support the accuracy of the
risk adjustment methodology, we propose that states needing such lead
time submit relevant information on their rating areas to CMS within 30
days after the publication of the final rule. Lastly, we recognize that
states may wish to establish or modify their rating areas after 2014.
For example, states might wish to modify rating areas in light of local
utilization and cost patterns, issuer service areas, or changes in MSA
designations. We request comments on appropriate schedules and
procedural considerations related to rating area designations for plan
years after 2014.
6. Rating for Age
PHS Act section 2701(a)(1)(A)(iii) provides that the premium rate
charged by an issuer for non-grandfathered health insurance coverage in
the individual or small group market may vary by age, but may not vary
by more than 3:1 for adults. The statute does not specify a premium
rating limitation for children, but it provides that the 3:1 adult
ratio must be ``consistent with section 2707(c)'' of the PHS Act.
Section 2707(c), in turn, requires that child-only plans be made
available to individuals under age 21.
We believe the statutory language supports an interpretation that
the 3:1 age rating limitation was intended to apply only to adults age
21 and older. Further, we believe that PHS Act section 2702 supports a
requirement that issuers set actuarially justifiable child rates using
a standard population, to prevent the charging of unjustified premiums
that would, in effect, prevent individuals under age 21 from exercising
their guaranteed availability rights. Accordingly, we propose to allow
rates to vary within a ratio of 3:1 for adults (defined for purposes of
this requirement as individuals age 21 and older), and that rates must
be actuarially justified based on a standard population for individuals
under age 21, consistent with the proposed uniform age curve discussed
later in this section. We request comment on this approach.
We propose that enrollees' age factors and bands should be
determined based on an enrollee's age at policy issuance and renewal,
so that age rating factors are applied on a consistent basis by all
issuers and that consumers (including those purchasing policies
covering multiple family members) do not receive multiple premium
increases each year. This is the same measurement point as the first
day of a plan or policy year, which is the age determination point for
catastrophic plans. We request comments on whether other measurement
points (for example, birthdays) might be more appropriate.
PHS Act section 2701(a)(3) directs CMS, in consultation with the
NAIC, to define ``permissible age bands'' for purposes of age rating.
Age bands are simply ranges of sequential ages. In the context of
health insurance, they are often used to segregate where the slope of
premium rate variation by age changes, the most common being that the
slope is zero within the band (that is, does not change), and non-zero
from one band to the next band in the sequence (for example, persons
aged 30 to 34 pay the same premium, but lower than those age 35 to 39,
who pay the same premium to each other, and similarly for age 40 to 44,
etc.).
In accordance with section 2701(a)(3), we consulted with the NAIC,
through its Health Care Reform Actuarial (B) Working Group, concerning
the permissible age bands to be defined by CMS. The NAIC Working Group
did not make specific recommendations, but provided valuable feedback
regarding state regulation of age bands, issuer practices, and
important policy considerations related to possible age band standards.
Although state standards vary, and issuers that set their own age bands
do so using a variety of different methods, our discussions with the
industry indicate that bands smaller than five years are common in the
individual market. Taking into consideration the feedback we received
from NAIC, we propose the following standard age bands for use in all
states and markets subject to the rating rules of PHS Act section 2701:
Children: A single age band covering children 0 to 20
years of age, where all premium rates are the same.
Adults: One-year age bands starting at age 21 and ending
at age 63.
Older adults: A single age band covering individuals 64
years of age and older, where all premium rates are the same.
We propose these age bands for a number of reasons. First, with
respect to children, we are proposing a single age band for child ages
0-20 to reflect the generally small differences in costs between
children of various ages (other than newborns and very young children).
We believe that a single age band for children will simplify and make
risk adjustment methodologies more efficient, and allow consumers to
more easily compare and predict costs as children age, particularly if
the consumer has children that are several years apart in age. We
solicit comments on whether multiple age bands or a single age band for
children are appropriate.
Second, with respect to adults ages 21 to 63, we propose one-year
age bands so that consumers would experience steady, relatively small
premium increases each year due to age. If broader age bands are
adopted (for example, five-year bands), consumers would experience
larger premium increases when they reach the end of one age band and
move into the next. Although five-year bands are currently common in
the small group market, we are also proposing to apply the same age-
band structure to the small group market to align with our proposal
that the per-member rating buildup approach be used in both the
individual and the small group markets. We request comment on this
approach.
Finally, we propose a single age band for adults age 64 and older
largely to facilitate compliance with the Medicare Secondary Payer
requirements when per-member rating is used for older individuals in
the small group market. Medicare Secondary Payer requirements generally
prohibit an employer with 20 or more employees from charging Medicare-
eligible employees a premium that is higher than the premium charged to
non-Medicare-eligible employees (section 1862(b)(1)(A) of the Social
Security Act, 42 U.S.C. 1395y(b)(1)(A); 42 CFR 411.102(b),
411.108(a)(6)). Consequently, we believe that the highest age band used
to generate individually rated premiums must begin before age 65, when
individuals generally are not eligible for Medicare based on age. We
believe this proposed age band is reasonable because individuals age 64
and older represent
[[Page 70594]]
only a small proportion of enrollees in the individual and small group
markets, and are likely to have similar claims costs despite their age
differences. We seek comment on this approach.
This proposed rule would direct health insurance issuers within a
market in a state to use a uniform age rating curve. An age curve is a
specified distribution of relative rates across all age bands.
Reflecting statutory requirements, our proposed age curve anchors the
premium amount to age 21, and is expressed as a ratio, for all ages
between ages 0 and 64, inclusive. We believe that using uniform age
bands and rating curves will simplify identification of the second
lowest cost silver plan used to determine premium tax credits, and will
provide an incentive for issuers to compete to offer plans that provide
the best value across the entire age curve. Doing so will also promote
the accuracy of the risk adjustment program established under section
1343 of the Affordable Care Act, which is essential to ensuring market
stability in the reformed marketplace, and reduce the potential for
adverse selection.\38\ A standardized rating methodology for all plans
within a state would also enhance the transparency, predictability, and
accuracy of the risk adjustment program because the risk adjustment
methodology could account for age rating as it is applied by issuers.
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\38\ We have developed our proposed age curve based on our
assumptions of the distribution of claims costs by age in the post-
2103 market. Although it is difficult to exactly predict the
composition of the post-2013 market and the actual claims costs that
will be incurred, we developed our proposed age curve using
assumptions that are consistent with those utilized for the risk
adjustment program, as described in our Premium Stabilization Rule
(77 FR 17220).
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We are proposing to apply the same default age rating curve to both
the individual and small group markets. Our proposed uniform age curve
assumes that issuers will vary premiums to the greatest extent
permissible within the 3:1 age rating constraint for adults (or
narrower ratios as provided under state law). We have constructed our
proposed age curve based on gross premium amounts, which includes
administrative, overhead, and marketing costs in addition to the amount
attributable to enrollee claims costs, without accounting for any tax
credits that may offset a consumer's premium costs. Because our
analysis of premiums found evidence that issuers do not vary their age
curves across much of the 21-64 age band in significant amounts across
geography or product types, we do not believe that applying a uniform
rating curve to individual and small group markets would disadvantage
issuers according to the geographic region they are licensed in, or the
value of the coverage that the product/plan type offers.\39\
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\39\ We measured the value of plan coverage by approximating
plan actuarial value (AV) on the same scale that we use to separate
plans into four metal tiers. For the purposes of our analysis, we
designated plans with AVs of 0.55-0.75 as ``low value'' plan
designs, 0.75-0.85 as ``medium value'' plan designs, and 0.85-0.95
for ``high value'' plan designs.
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Our review of base premium rates for 60,000 covered lives (based on
data reported on HealthCare.gov by a sample of regional issuers
operating in different regions of the country) has shown that base
premium rates vary according to age at a mostly consistent rate, and
are largely unaffected by product type/plan design or geographic
region.\40\ Furthermore, an examination of the large group insurance
market demonstrates clear evidence that issuers generally utilize an
underlying cost curve that varies by age in a manner that is
independent of the value of the plan coverage.\41\ The analysis of the
large group market is particularly relevant as a predictor of post-2014
individual and small group market rating practices because the large
group market is characterized by coverage for most essential benefits,
has guaranteed availability of coverage, and does not use person-
specific underwriting; these types of rates will likely be more
characteristic of those of the reformed 2014 individual and small group
market. Consequently, we do not believe that issuers need the
flexibility to vary age curves across product/plan designs or
geographic regions after taking into account the requirement for a 3:1
rating restriction, or that applying a uniform age curve to issuers in
the individual and small group markets will lead to any significant
disturbance in issuer pricing practices across different geographic
regions or plan designs. Therefore, we are proposing that CMS's uniform
age curve would apply by default in a state, unless a state adopted a
different uniform age curve. We request comment on the application of a
single, default age curve to the individual and small group market
based on the above assumptions and the methodology for doing so.
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\40\ Reporting of base premium rates for the individual market
to HealthCare.gov does not take into account any additional premium
due to health status, which is commonly added in the individual
market. These rates, therefore, are not necessarily the actual
premiums paid by the 60,000 enrollees in those plans.
\41\ For the purposes of this analysis, we analyzed two separate
employer databases with data from a combination of large and small
employers. One database consisted of 303,000 individuals with 12
continuous months of coverage (to account for seasonal variation in
claims costs) that were employed at firms with 50-250 employees. The
second database of large employer coverages (including self-insured
employers) was composed of 33 million individuals with 12 months of
continuous coverage.
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We propose that we would fit our uniform age curve to the 3:1 adult
age rating limit by ``flattening'' the ends of the age curve derived
from expected claim cost patterns in a manner that accommodates the 3:1
premium ratio limit for the highest and the lowest adult ages. Under
this approach, when other factors (for example, mix of gender, tobacco
use, geographic region, and plan type) are held constant among ages,
the rate of premium change from one age to the next will closely mirror
the rate of expected claims costs, except for those ages closest to age
21 and age 64.\42\ As compared to an approach that would proportionally
compress the curve (that is, the relationship between premiums by age)
for all ages, this proposed approach would ensure that the fewest
number of individuals (or employees, in the small group market) would
be affected by the 3:1 premium ratio constraint, thereby mitigating
premium disruption for the largest number of consumers, and reducing
the need for significant risk adjustment across age bands. We propose
that we would revise our default curve periodically to reflect our most
current knowledge of the individual and small group market (for
example, enrollment, population distribution, and cost patterns)
following implementation of 2014 reforms. We request comment on our
proposed approach for fitting the proposed adult age curve to the
statutorily specified 3:1 premium ratio.
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\42\ For younger ages near age 21 and older ages closer to 64,
the change of premium rates from one age to the next higher age
would be lower than the change in expected claims costs for those
ages.
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With respect to the age curve for children's ages, we have
constructed a proposed default curve using a single age band for ages
0-20, using the same data sources that we used to derive our proposed
adult age curve, as described above. The value of our proposed default
age curve for ages 0-20 was supported by the actual experience for
those ages. The shift from the child age curve at age 20 to the adult
age curve at age 21 could result in a premium differential for these
ages that is not reflected in issuers' current rating practices.
However, given the low premiums for individuals in these age groups, as
well as the relative premium stability from age 21 through early 30s
under the standardized age curve, we do not anticipate that this
differential would result in a significant financial burden on
consumers. While we do not
[[Page 70595]]
believe that this discontinuity undermines the accuracy of the
methodology we used to develop our proposed child and adult age curves,
we request comment on potential implications that the transition from
the proposed child curve to the proposed adult curve may have for
issuers and consumers. We also seek comment on the proposed rating
curve, including whether it is generally consistent with current
insurer rating practices and minimally disruptive to the current market
within the confines of the rating restrictions and reforms under the
Affordable Care Act.
CMS Proposed Standard Age Curve
----------------------------------------------------------------------------------------------------------------
Age Premium ratio Age Premium ratio Age Premium ratio
----------------------------------------------------------------------------------------------------------------
0-20 0.635 35 1.222 50 1.786
21 1.000 36 1.230 51 1.865
22 1.000 37 1.238 52 1.952
23 1.000 38 1.246 53 2.040
24 1.000 39 1.262 54 2.135
25 1.004 40 1.278 55 2.230
26 1.024 41 1.302 56 2.333
27 1.048 42 1.325 57 2.437
28 1.087 43 1.357 58 2.548
29 1.119 44 1.397 59 2.603
30 1.135 45 1.444 60 2.714
31 1.159 46 1.500 61 2.810
32 1.183 47 1.563 62 2.873
33 1.198 48 1.635 63 2.952
34 1.214 49 1.706 64 and Older 3.000
----------------------------------------------------------------------------------------------------------------
Although we are proposing a uniform age rating curve for the
reasons described above, our proposed approach would maintain
flexibility for states and issuers regarding certain aspects of age
rating. In most states, premium rates for health insurance coverage are
permitted to vary by age to the extent that issuers can actuarially
justify such rates; this practice could continue within the boundaries
of the proposed policy. A state law that prescribed a narrower ratio
for adults (for example, 2:1) or prohibited different adult rates
altogether would not be preempted under PHS Act section 2724(a)(1)
since such state law would not ``prevent the application'' of section
2701.\43\ To support the accuracy of the risk adjustment methodology,
we propose that states using narrower ratios submit relevant
information on their ratios to CMS no later than 30 days after the
publication of the final rule. We also seek input on the consequences
of these choices in terms of the likely percentage premium increases
that consumers will face when aging from one age band to another, the
impact on the administration and accuracy of risk adjustment, the
administration of premium tax credits, and consumer convenience. We
propose that states would have the option to designate a uniform age
curve other than the CMS age curve. If a state anticipates using its
own age curve, we propose the state submit relevant information on its
proposed curve to CMS no later than 30 days after the publication of
the final rule to support the accuracy of the risk adjustment
methodology.
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\43\ In addition, section 1334(c)(5) of the Affordable Care Act,
pertaining to multi-state plans, indicates that states may require
``more protective'' age rating requirements that are lower than 3:1
in their individual and small group markets.
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7. Rating for Tobacco Use
PHS Act section 2701(a)(1)(A)(iv) provides that health insurance
issuers in the individual and small group markets cannot vary rates
based on tobacco use by more than 1.5:1.\44\ As mentioned, PHS Act
section 2701(a)(4) provides that the rating variation for tobacco use
applies based on the portion of premium that is attributable to each
family member covered under the plan. A state law that prescribes a
narrower ratio (for example, 1.25:1) or prohibits varying rates for
tobacco use altogether would not be preempted since such state law
would not impose a standard or requirement that conflicts, or makes it
impossible to comply, with permissible rating practices under federal
law, and thus would not prevent the application of PHS Act section
2701.\45\ If a state anticipates adopting narrower ratios for tobacco
use, we propose that the state submit relevant information on their
ratios to CMS no later than 30 days after the publication of the final
rule.
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\44\ The interaction of PHS Act section 2701 with the wellness
program rules under PHS Act section 2705(j) is discussed later in
this section.
\45\ Although not the subject of this NPRM, we note that the
tobacco use rating factor is not taken into account in determining
the amount of the premium tax credit under Code section 36(b)(3)(C).
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Currently, many states allow health insurance issuers in the
individual and small group markets to vary premiums based on tobacco
use. In addition, many states limit the amount by which premiums can
vary due to tobacco use by allowing use of that factor only within
their overall health status limits. For example, the NAIC's Small
Employer Health Insurance Availability Model Act (1993 Version) does
not specifically identify tobacco use as a permissible rating factor,
but allows its use within the overall 1.67:1 ratio for the health
status of the employees or dependents of the small employer.
There is not a clear and consistent definition of tobacco use among
the states for rating purposes. Numerous states such as Louisiana,
Maine, Massachusetts, Minnesota, and New Mexico allow tobacco use to be
considered as a rating factor in both the individual and small group
markets. While these states provide a definition of what constitutes a
tobacco product, they do not specifically define ``tobacco use.''
We understand that issuers typically rely on self-reported data,
such as information from applications and health risk assessments, to
determine tobacco usage. Since applications and health risk assessments
vary from issuer to issuer, there is wide variation in how issuers
define tobacco use.
One possible approach for purposes of implementing this provision
upon which we invite comment would be to include one or more questions
on tobacco use in the single streamlined application under Sec.
155.405, or in connection with other enrollment-related processes for
an Exchange. We
[[Page 70596]]
specifically invite comment on the possible use of the single
streamlined application to collect information concerning tobacco use
in connection with a premium surcharge, as well as alternative options
for identifying tobacco use, as well as how the information should be
collected with respect to health insurance coverage offered outside an
Exchange.
The proposed rule does not prohibit issuers from varying the
tobacco use factor used for a particular age band, as long as any
variation is not greater than 1.5:1, the maximum variation for tobacco
use under PHS Act section 2701(a)(1)(A)(iv), and is consistent with
other applicable law, including the HIPAA nondiscrimination provisions.
In other words, an issuer could use a lower tobacco use factor for a
younger individual (for example, 1.3:1) compared to an older individual
(for example, 1.4:1), as long as the factor does not exceed 1.5:1 for
any age group. In contrast to the age rating factor, where we are
proposing that issuers utilize a standard age curve, we are proposing
that states or issuers have the flexibility to determine the
appropriate tobacco rating factor within a range of 1:1 to 1:1.5,
consistent with the wellness requirements discussed below. We seek
comments on this approach.
We also considered how the requirements under PHS Act section
2701(a)(1)(A)(iv) would interact with rewards for tobacco cessation
offered as part of employer wellness programs. Tobacco cessation
programs are a common aspect of employers' wellness programs. Prior to
the enactment of the Affordable Care Act, the Departments of HHS,
Labor, and the Treasury (jointly, the Departments) published final
rules regarding the nondiscrimination and wellness program provisions
under HIPAA (71 FR 75014, Dec. 13, 2006, referred to as the 2006
regulations).\46\ The HIPAA wellness requirements implemented in these
2006 regulations were set forth in section 2702 of the PHS Act (with
parallel provisions contained in ERISA section 702 and Code section
9802). While PHS Act section 2702 did not specifically impose any limit
on rewards that could be offered under wellness programs, the 2006
regulations provided that plans and issuers could offer a reward that
does not exceed 20 percent of the total cost of coverage in a health-
contingent wellness program, provided specified consumer-protection
conditions were met.\47\
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\46\ See 26 CFR 54.9802-1; 29 CFR 2590.702; 45 CFR 146.121.
Prior to the issuance of the final 2006 regulations, the Departments
published interim final regulations with request for comment
implementing the HIPAA nondiscrimination provisions on April 8, 1997
at 62 FR 16894, followed by proposed regulations regarding wellness
programs on January 8, 2001 at 66 FR 1421.
\47\ The 2006 regulations also required that a wellness program
be reasonably designed to promote health or prevent disease; give
eligible individuals an opportunity to qualify for the reward at
least once per year; make the reward available to all similarly
situated individuals (and offer a reasonable alternative standard to
any individual for whom it is unreasonably difficult due to a
medical condition to satisfy the otherwise applicable standard
during that period (or for whom it is medically inadvisable to
attempt to satisfy the otherwise applicable standard)), and, in all
plan materials describing the terms of the program, disclose the
availability of a reasonable alternative standard.
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The Affordable Care Act added a new PHS Act section 2705(j),
effective for plan years beginning on or after January 1, 2014. Section
2705(j) largely reflects the wellness provisions from the 2006
regulations, with a few clarifications and modifications. Under PHS Act
section 2705(j), plans and issuers generally can offer a reward of up
to 30 percent of the cost of coverage\48\ for participation in a
wellness program that is based on an individual satisfying a standard
that is related to a health status-related factor (``health factor''),
subject to certain conditions. PHS Act section 2705(j) also authorizes
the Departments to increase the maximum reward to as much as 50 percent
of the total cost of coverage if they determine such an increase to be
appropriate.
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\48\ While this new 30 percent limit is set forth in PHS Act
section 2705(j), because the existing 20 percent limits were
established by regulation, in the case of grandfathered health plans
governed by the old version of section 2702, the 20 percent limit is
proposed to be increased by the Departments in proposed regulations
published contemporaneously with the publication of this proposed
rule.
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Contemporaneously with the publication of this proposed rule, the
Departments are publishing a notice of proposed rulemaking (NPRM) under
section 2705(j), which proposes to increase the maximum reward under a
wellness program in group health coverage from 20 percent to 30 percent
of the cost of coverage. The rule further proposes an increase of an
additional 20 percentage points (to 50 percent) to the extent that the
additional percentage is in connection with a program designed to
prevent or reduce tobacco use.
We propose in this rule that the definition of ``tobacco use'' for
purposes of section 2701 be consistent with the approach taken with
respect to health-contingent programs designed to prevent or reduce
tobacco use under section 2705(j). That is, by proposing to raise the
maximum permissible reward for participating in a tobacco cessation
program in the wellness rule, we are proposing that a health insurance
issuer in the small group market would be required to offer a tobacco
user the opportunity to avoid paying the full amount of the tobacco use
surcharge permitted under PHS Act section 2701 if he or she
participates in a wellness program meeting the standards of PHS Act
section 2705(j) and its implementing regulations.\49\
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\49\ The wellness program NPRM proposes that the additional
increase in the size of the reward for wellness programs designed to
prevent tobacco use would not be limited to the small group market,
to provide consistency across markets and to provide large group,
self-insured, and grandfathered employment-based plans the same
additional flexibility to promote tobacco-free workforces as small,
insured, non-grandfathered health plans.
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There are several positive aspects to implementing PHS Act sections
2701 and 2705(j) in a coordinated manner with respect to tobacco use in
the small group market. Rather than have the tobacco use surcharge
under PHS Act section 2701 be strictly a negative financial incentive,
this approach would encourage tobacco users to pursue tobacco cessation
remedies offered under their employers' wellness programs, enhancing
their long-term health and potentially reducing health care costs. It
also would alleviate underreporting for tobacco use since tobacco users
who disclose their tobacco use would not automatically have to pay the
premium surcharge, but could instead participate in the employer's
cessation program. Finally, group health plans and health insurance
issuers with wellness programs may find it administratively more
efficient to implement the two provisions concurrently given that
employers are familiar with the requirements of wellness programs
associated with increased premiums related to a health factor. We
welcome comments on this proposal and other ideas for coordinating the
implementation of the tobacco surcharge under PHS Act section 2701 and
the wellness provisions under PHS Act section 2705(j).
We also invite comment on possible definitions of ``tobacco use''
that could be applied for purposes of sections 2701 and 2705(j). One
possible definition would rely on self-reporting as to whether the
individual would be considered a tobacco user. Another possibility may
be what some issuers use today: a defined amount of tobacco use within
a specified look-back period. A third possibility may be to define
``tobacco use'' as regular, and not infrequent or sporadic, tobacco use
(perhaps including some standard of frequency). Another option would
[[Page 70597]]
define a tobacco user as one who uses tobacco with sufficient frequency
so as to be addicted to nicotine. Regardless of how tobacco use is
defined, we are proposing that the definition of ``tobacco use'' for
purposes of section 2701 be consistent with the approach taken with
respect to health-contingent wellness programs designed to prevent or
reduce tobacco use under section 2705(j).
PHS Act section 2705(b) also prohibits issuers from charging
enrollees in the individual market higher premiums based on health
factors. However, PHS Act section 2705(j) does not apply to the
individual health insurance market. To the extent there is any conflict
between PHS Act sections 2701 and 2705 as applied to the individual
market, we think the more specific language of PHS Act section 2701
allowing tobacco use surcharges prevails over the more general language
of PHS Act section 2705 prohibiting premium differences based on health
factors. In other words, issuers could implement the tobacco use
surcharge in the individual market without having to offer wellness
programs. However, we solicit comments on whether and how, consistent
with PHS Act sections 2701 and 2705, the tobacco surcharge in the
individual market could be combined with the same type of incentive to
promote tobacco cessation that is available in the group market.
B. Guaranteed Availability of Coverage (Proposed Sec. 147.104)
PHS Act section 2702 provides that health insurance issuers that
offer health insurance coverage in the individual or group market in a
state must accept every individual and employer in the state that
applies for coverage, subject to certain exceptions. These exceptions
allow issuers to limit enrollment: (1) To certain open and special
enrollment periods; (2) to an employer's eligible individuals who live,
work, or reside in the service area of a network plan; and (3) in
certain situations involving network capacity and financial capacity.
PHS Act section 2702 generally is based on the HIPAA provision for
guaranteed availability in the small group market. Compared to HIPAA,
however, the Affordable Care Act: (1) Expands guaranteed availability
beyond the small group market to include the individual and large group
markets as well; (2) requires the establishment of open enrollment
periods; (3) establishes new special enrollment periods in addition to
those in HIPAA; and (4) eliminates the guaranteed availability
exception for coverage offered only to bona fide association members in
the small group market. Accordingly, this proposed rule generally is
based on the HIPAA rule for guaranteed availability in the small group
market (Sec. 146.150). In addition, the proposed rule would add a new
marketing standard pursuant to PHS Act section 2702 that is identical
to that applicable to QHPs established under 45 CFR 156.225.
The proposed rule would direct that issuers offer coverage to and
accept any individual or employer in the state that applies for such
coverage--regardless of health status, risk, or medical claims and
costs--with limited exceptions.\50\ Issuers would be required to offer
all products that are approved for sale in the applicable market. We
believe that the protections of the Affordable Care Act apply to all
non-grandfathered health insurance coverage in an applicable state
market. Accordingly, beginning in 2014, even non-grandfathered ``closed
blocks'' of business would be available to new enrollees, subject to
the limited exceptions discussed below. We welcome comments on this
proposal.
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\50\ Other federal laws may restrict the health insurance
coverage products available to certain individuals. For example,
individuals must meet certain requirements related to residency,
citizenship/immigration status, and non-incarceration in order to
buy QHPs through an Exchange (45 CFR 155.305(a)).
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We propose that issuers offering health insurance coverage in the
group market would maintain a year-round open enrollment period for
employers to purchase such coverage, while issuers offering coverage in
the individual market would offer plans during open enrollment periods
(including the initial open enrollment period) consistent with those
required by Exchanges for individual market QHPs. The effective dates
of such coverage would align with the Exchange standards for the
appropriate market (if any, in the case of the large group market).
These standards are intended to minimize adverse selection by setting
consistent open enrollment periods for the insurance marketplace,
regardless of whether individuals or employers choose to purchase
outside or through an Exchange. We solicit comments on whether this
proposal sufficiently addresses the open enrollment needs of individual
market customers whose coverage renews on dates other than January 1
and whether aligning open enrollment periods with policy years (based
on a calendar year) in the individual market is more desirable. Given
that employer groups generally pose less of an adverse selection risk
than individuals and issuers currently are willing to offer them
coverage at any point in the year, we believe that a year-round
enrollment period for large and small employers will not be burdensome
on issuers nor change the status quo in most states.
Prior to the Affordable Care Act, the HIPAA provision for
guaranteed availability in the small group market had allowed issuers
to establish employer contribution rules and group participation rules
that small employers must meet in order to qualify for guaranteed
availability, as allowed under applicable state law. PHS Act section
2702 does not include the contribution and participation exception to
guaranteed availability; however, PHS Act section 2703 does include
such an exception for guaranteed renewability. We are concerned that
failing to provide a small employer contribution and participation
exception to guaranteed availability by regulation would trigger
adverse selection against the small group market, given its year-round
open enrollment period, vis-[agrave]-vis the individual market, which
has a time-limited open enrollment period. In other words, some
individuals could use the open-ended enrollment period for small
employers to buy insurance only as medical needs arise, thereby
creating instability in the small group market and increasing premiums
for other small employers. Thus, the proposed rule would allow issuers
to condition year-round open enrollment in the small group market on a
small employer being able to satisfy the same contribution and
participation requirements at issuance that the issuer is permitted to
consider at renewal, either as allowed by state law or, in the case of
a QHP offered in the SHOP, as permitted by Sec. 156.285(c).
Establishing this requirement by rule effectively would preserve the
status quo under HIPAA. If the final rule includes this requirement, we
would also adopt corresponding changes in Sec. 155.725, which
establishes the enrollment periods in the SHOP.
The proposed rule sets forth that issuers make available special
enrollment periods in both the individual and group markets for
individuals and plan participants and beneficiaries in connection with
the events that would trigger eligibility for COBRA coverage under
ERISA section 603.\51\ This set of special enrollment
[[Page 70598]]
events is in addition to the special enrollment events provided under
PHS Act section 2704(f) for loss of eligibility for other coverage or
dependent special enrollment (that is, the special enrollment rights
originally created under HIPAA for group health insurance coverage and
group health plans \52\) and Sec. 155.420(d) and Sec. 155.725(a)(3)
(the special enrollment rights for QHPs). The proposed rule directs
that the election period would be 30 calendar days, which is generally
consistent with the HIPAA standard. However, we request comment as to
whether another standard, such as 60 calendar days, generally
consistent with the Exchange standard, is more appropriate.\53\ The
proposed rule also would include standards regarding the effective
dates of coverage modeled upon the effective dates of coverage provided
for the QHP special enrollment events under Sec. 155.420(b). We also
request comments on whether health insurance issuers in the individual
market should provide to enrollees in their products a notice of
special enrollment rights similar to what is currently provided to
enrollees in group health plans (Sec. 146.117(c)).
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\51\ For employees, COBRA events include a loss of coverage due
to voluntary or involuntary termination of employment for reasons
other than gross misconduct and reduction in the number of hours of
employment. For spouses of covered employees, these events include a
loss of coverage due to reasons that would make the employee
eligible for COBRA, the employee's becoming entitled to Medicare,
divorce or legal separation of the covered employee, and death of
the covered employee. For children of covered employees, these
events include a loss of coverage due to reasons that would make the
employee eligible for COBRA, the employee's becoming entitled to
Medicare, divorce or legal separation of the covered employee, death
of the covered employee, and loss of dependent child status under
plan rules.
\52\ The special enrollment framework originally created under
HIPAA for special enrollment due to loss of eligibility for other
coverage and dependent special enrollment is 30 days. The Children's
Health Insurance Program (CHIP) Reauthorization Act of 2009 also
added special enrollment rights to ERISA, the PHS Act, and the Code
that allow employees to enroll in a group health plan or group
health insurance coverage upon termination of Medicaid or CHIP
coverage or eligibility for a premium assistance program under
Medicaid or CHIP. Under these circumstances, an employee must
request special enrollment within 60 days.
\53\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, and 45 CFR 146.117
(HIPAA); and 45 CFR 155.420 (Exchange).
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In addition, the proposed rule would include provisions allowing
issuers with network plans to limit guaranteed availability to
employers with eligible individuals who live, work, or reside in the
plans' service areas. While PHS Act section 2702(c)(1)(A) does not
explicitly include a corresponding exception allowing issuers to limit
the sale of individual market coverage to individuals who live or
reside in the individual market plan's service area, failing to
recognize such an exception would eliminate an issuer's ability to
define a service area for its individual market business within a
state. Moreover, references to persons with individual market coverage
in paragraph (c)(1) and subparagraph (c)(1)(B) of PHS Act section 2702
suggest that such persons with individual market coverage also were
intended to be described in paragraph (c)(1)(A). Accordingly, the
proposed rule would clarify that individual market coverage also may
limit enrollment to those individuals who live or reside in a service
area.
Issuers with network plans also would not have to offer coverage to
employers and individuals if they demonstrated to the appropriate state
authority that they lacked the capacity to deliver services adequately
to additional groups or individuals due to their existing contractual
obligations to current group contract holders and enrollees. Issuers
would need to apply the denial of guaranteed availability uniformly to
all employers and individuals, without regard to the enrollees' claims
experience or health status-related factors. Issuers invoking this
exception generally would be barred from offering new coverage for at
least 180 calendar days after coverage is denied, as directed by PHS
Act section 2702(c)(2).
As noted, PHS Act section 2702 does not include an explicit
guaranteed availability exception allowing issuers to limit the
offering of certain products to members of bona fide associations.
However, in the appropriate circumstances, we think that the network
capacity exception to guaranteed availability could be used to provide
a basis for limiting enrollment in certain products to bona fide
association members. Additionally, while the guaranteed availability
exception for bona fide association coverage is not allowed under the
statute, we are interested in whether and how a transition or exception
process for bona fide association coverage could be structured to
minimize disruption while maintaining consumer protections. We seek
comment on this issue.
Similarly, issuers would not have to offer coverage to employers
and individuals, uniformly and without regard to claims experience, if
they demonstrate to their applicable state authority (if required) that
they lack the financial capacity to sell additional coverage. Issuers
invoking this exception also would be barred from offering new coverage
for at least 180 calendar days, as directed by PHS Act section
2702(d)(2).
Lastly, the proposed rule would include as a minimum standard a
more detailed marketing standard in connection with guaranteed
availability that had not been included in the earlier HIPAA rule.
Nonetheless, it is similar to the guidance we provided in Health Care
Financing Administration Bulletin No. 98-01 that interpreted the HIPAA
provisions related to guaranteed availability in the individual and
small group markets. Bulletin No. 98-01 stated that the PHS Act
prohibited issuers from setting agent commissions for sales to HIPAA-
eligible individuals and small groups so low that they were discouraged
from marketing policies to such individuals and groups.\54\ Pursuant to
section 1311(c)(1)(A) of the Affordable Care Act, QHP issuers are
required to comply with applicable state laws and regulations regarding
marketing by health insurance issuers and not employ marketing
practices or benefit designs that will have the effect of discouraging
the enrollment of individuals with significant health needs in QHPs
(Sec. 156.225). The proposed rule would adopt this standard and apply
it to the entire marketplace in order to ensure consistency in the
marketing of plans inside and outside of the Exchanges and leverage
existing state oversight mechanisms.
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\54\ Available at: http://cciio.cms.gov/resources/files/Files2/10112011/hipaa_98_01_508.pdf.pdf.
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The intent of this policy is for states to continue their
traditional role of regulating marketing activities of issuers,
consistent with Sec. 156.225. We reiterated this point in guidance
issued on November 29, 2011, where we indicated that we will apply
existing state standards on marketing materials in states where a
federally-facilitated Exchange operates.\55\ We note that the NAIC's
Model Unfair Trade Practices Act 880-1 has been adopted in a
``substantially similar manner'' by 46 states, and the NAIC's
Advertisements of Accident and Sickness Insurance Model Regulation 40-1
has been adopted in a ``substantially similar manner'' by 44 states.
Both the Model Act and Regulation include comprehensive marketing
standards for issuers.\56\
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\55\ CMS, ``State Exchange Implementation Questions and Answers.
Available at: http://cciio.cms.gov/resources/files/Files2/11282011/exchange_q_and_a.pdf.pdf.
\56\ Section 4 of the NAIC Model Act prohibits ``an
advertisement, announcement or statement containing any assertion,
representation or statement with respect to the business of
insurance or with respect to any insurer in the conduct of its
insurance business, which is untrue, deceptive or misleading.''
Section 5 of the NAIC Model Regulation provides that the format and
content of advertisements of accident and sickness insurance must
``be sufficiently complete and clear to avoid deception or the
capacity or tendency to mislead or deceive.''
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[[Page 70599]]
We propose these marketing standards to minimize the potential for
the adverse selection that could result if plans sold through Exchanges
were subject to different marketing standards from plans sold outside
of the Exchanges. A common standard covering the entire insurance
market can protect the efficient operation of all markets and reduce
confusion for consumers. As stated in Bulletin No. 98-01, which
interpreted the HIPAA guaranteed availability requirement, marketing
practices that fall below these standards represent a failure by
issuers to offer required coverage. We propose that all issuers comply
with state laws regulating the marketing of insurance unless the state
has no laws regulating marketing or has laws which are below the
federal minimum standard, in which case the federal minimum standard
would govern. We solicit comment on this federal minimum standard.
Concerns have been raised about the ability of individuals to
manipulate guaranteed availability each year. While PHS Act section
2703 allows an issuer to nonrenew coverage for an individual who has
not paid premiums, PHS Act section 2702 does not include an exception
allowing issuers to refuse to cover individuals with histories of non-
payment under other policies either with the same issuer or other
issuers. Nonetheless, we recognize the concerns that such potential
gaming raises in relation to adverse selection, fairness to consumers
maintaining continuous coverage, and the financial stability of issuers
participating in the individual market. We solicit comments on possible
ways to discourage consumers from abusing guaranteed availability
rights (for example, by ensuring enrollees cannot use open and special
enrollment periods to facilitate such abuses) while ensuring consumers
are guaranteed the protections afforded to them under the law.
C. Guaranteed Renewability of Coverage (Proposed Sec. 147.106)
PHS Act section 2703 directs that any health insurance issuer
offering health insurance coverage in the individual or group market
must renew coverage at the option of the plan sponsor or individual,
with certain exceptions, which are more fully discussed below in
connection with the proposed rule text. PHS Act section 2703 is based
largely on the HIPAA provision for group market guaranteed
renewability, but generally expands its scope to include both the group
and individual markets.\57\ While section 2703 does not include the
individual market in its guaranteed renewability exceptions for uniform
modifications of coverage and loss of bona fide association membership,
nonetheless, we believe PHS Act section 2742 continues to provide a
basis for those exceptions. This proposed rule generally is based on
the corresponding HIPAA rule (Sec. 146.152).
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\57\ Prior to being amended and renumbered as PHS Act section
2703 by the Affordable Care Act, the HIPAA guaranteed renewability
requirements for the group market were found at PHS Act section
2712. The HIPAA guaranteed renewability requirements continue to
apply with respect to grandfathered group market coverage in 2014
and beyond (and with respect to all group market coverage before
2014). Section 1251 of the Affordable Care Act specifically excludes
grandfathered health plans from the effect of the amendments in the
Affordable Care Act. The Affordable Care Act did not modify PHS Act
section 2742, which continues to require guaranteed renewability in
the individual market, including with respect to grandfathered
health plans in the individual market.
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The proposed rule would direct health insurance issuers offering
health insurance coverage in the individual or group market to renew or
continue in force the coverage at the option of the plan sponsor or
individual, as applicable, with certain exceptions. These exceptions
include: (1) Nonpayment of premiums by the plan sponsor, or individual,
as applicable; (2) an act or practice that constitutes fraud or an
intentional misrepresentation of material fact under the terms of
coverage performed by the plan sponsor or individual, as applicable;
(3) in the case of group health insurance coverage, the plan sponsor
has failed to comply with a material plan provision relating to
employer contribution or group participation rules pursuant to
applicable state law; (4) the issuer is ceasing to offer coverage of
this type, acting uniformly without regard to claims experience or
health status-related factor (an issuer may also modify the health
insurance coverage for a plan offered to a group health plan at
renewal); (5) for network plans, there is no longer any enrollee under
the plan who lives, resides, or works in the service area of the issuer
(or in the area for which the issuer is authorized to do business); and
in the case of the small group market, the issuer could limit the
employers that may apply for coverage to those with eligible
individuals who live, work, or reside in the service area for such
network plan; and (6) for coverage made available in the small or large
group market only through one or more bona fide associations, if the
employer's membership in the association ceases, but only if the
coverage terminated uniformly without regard to any health status-
related factor relating to any covered individual. In the case of
health insurance coverage that is made available by a health insurance
issuer in the small or large group market to employers only through one
or more associations, the reference to ``plan sponsor'' is deemed, with
respect to coverage provided to an employer member of the association,
to include a reference to such employer.
In addition, the proposed rule would set requirements for issuers
closing blocks of business. In any case where an issuer decides to
discontinue offering a particular plan offered in the group or
individual market, that plan may be discontinued by the issuer in
accordance with applicable state law in the particular market under
certain circumstances. An issuer who elects to discontinue offering all
health insurance coverage in a market (or markets) in a state may not
issue coverage in the state's market (or markets) involved during the
5-year period beginning on the date of discontinuation of the last
coverage not renewed, as directed by PHS Act section 2703(c)(2)(B).
Only at the time of renewal may issuers modify the health insurance
coverage for a plan offered to a group health plan in the large group
market, and small group market if, for coverage available in this
market (other than only through one or more bona fide associations),
the modification is consistent with state law and is effective
uniformly among group health plans with that plan.\58\
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\58\ Although PHS Act section 2703 does not contain a
corresponding exception for uniform modification of coverage in the
individual market, PHS Act section 2742 continues to provide a basis
for such an exception in the individual market.
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PHS Act section 2703(b)(6) retains a guaranteed renewability
exception for an employer's loss of membership in a bona fide
association. Although not the subject of this proposed rule, PHS Act
section 2742(b)(5) continues to provide a guaranteed renewability
exception for an individual's loss of membership in a bona fide
association.
Under Sec. 155.430(b), an Exchange may terminate an enrollee's
coverage, and permit a QHP issuer to terminate such coverage, under
certain circumstances. These circumstances are: (1) The enrollee is no
longer eligible for coverage in a QHP; (2) payments of premiums for
coverage of the enrollee cease and any grace period(s) have been
exhausted; (3) the enrollee's coverage is rescinded due to fraud or
misrepresentation; (4) a QHP terminates or is decertified; or (5) the
enrollee changes from one QHP to another
[[Page 70600]]
during an annual open enrollment period or special enrollment period.
Although some QHP termination of coverage events correspond to PHS Act
non-renewal events (for example, nonpayment of premiums), other events
do not (for example, a QHP's loss of certification). With respect to
those instances, we request comments on whether an issuer would have to
renew that coverage on a non-QHP basis, outside the Exchange, if
applicable, to affected enrollees.
We are aware that issuers may need to make some plan design changes
for non-grandfathered coverage issued between March 23, 2010 and
January 1, 2014 in order to comply with the standards of the Affordable
Care Act that are effective for the 2014 plan and policy years. In
addition, on an ongoing basis, issuers may need to make some cost-
sharing adjustments at renewal to ensure that policyholders' plans
remain at the same actuarial value level from year to year. We believe
that issuers can make these types of policy changes consistent with the
uniform modification of coverage requirements under PHS Act sections
2703 and 2742, and solicit comments on whether our interpretation
should be explicitly incorporated into text of the final rule.
D. Applicability of the Proposed Rules Under PHS Sections 2701, 2702,
and 2703 and Section 1312(c) of the Affordable Care Act to Student
Health Insurance Coverage
Section 1560(c) of the Affordable Care Act provides that nothing in
title I of the Affordable Care Act, or an amendment made by title I,
``shall be construed to prohibit an institution of higher education (as
such term is defined for purposes of the Higher Education Act of 1965)
from offering a student health insurance plan, to the extent that such
requirement is otherwise permitted under applicable federal, state, or
local law.'' Title I of the Affordable Care Act includes the rating,
guaranteed availability, guaranteed renewability, and single risk pool
provisions that are discussed in this proposed rule.
We have interpreted section 1560(c) to mean that if particular
requirements in the Affordable Care Act would have, as a practical
matter, the effect of prohibiting an institution of higher education
from offering a student health plan otherwise permitted under federal,
state or local law, such requirements would be inapplicable pursuant to
the rule of construction in section 1560(c).
We previously provided student health insurance coverage with
exceptions from the HIPAA guaranteed availability and renewability
requirements applicable to the individual market (Sec. 147.145(b)(1)).
Consistent with that policy, this proposed rule would provide student
health insurance coverage with exceptions from the Affordable Care
Act's guaranteed availability and renewability requirements to ensure
that enrollment in these policies is limited to students and their
dependents.
Under this proposed rule, student health insurance coverage would
be included in an issuer's individual market single risk pool, as
described below. Nonetheless, given the differences between the student
health insurance market and other forms of individual market coverage,
we solicit comment on whether the final rule should allow issuers to
maintain a separate risk pool for student health insurance coverage. We
also seek comment on whether the final rule should provide any
modifications with respect to the generally applicable individual
market rating rules in connection with student health insurance
coverage.
E. Single Risk Pool (Proposed Sec. 156.80)
Section 1312(c)(1) and (2) of the Affordable Care Act states that a
health insurance issuer must consider all of its enrollees in all
health plans (other than grandfathered health plans) offered by the
issuer to be members of a single risk pool in the individual market and
small group market, respectively.\59\ This requirement applies to
health plans both inside and outside of an Exchange for both markets.
Section 1312(c)(3) of the Affordable Care Act provides a state with an
option to merge its individual and small group markets, in which case
all non-grandfathered plans' risk would be merged. To support the
accuracy of the risk adjustment methodology, we propose that states
that intend to merge their individual and small group market pools in
2014 inform us no later than 30 days after the publication of the final
rule. Lastly, section 1312(c)(4) of the Affordable Care Act renders
inapplicable any state law requiring grandfathered health plans to be
included in the single risk pool(s).
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\59\ By law, issuers are required to transition all non-
grandfathered small group and individual market coverage issued
prior to January 1, 2014, to the appropriate single risk pool in the
first plan year (small group market) or the first policy year
(individual market) beginning on or after January 1, 2014.
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The proposed rule would largely codify the statutory language and
clarify that the single risk pool requirement applies on a state-by-
state basis and only to forms of non-grandfathered individual and small
group market coverage subject to PHS Act section 2701. Thus, excepted
benefit and short-term limited duration policies, for example, would
not be subject to the single risk pool requirement. Also, this
requirement would not be enforced against health insurance coverage
issued to plans with fewer than two participants who are current
employees (for example, retiree-only plans) (see 75 FR 34538, 34539-40
(June 17, 2010)).
Section 1312(c) of the Affordable Care Act represents a change from
current market practice. Today, issuers often maintain several separate
risk pools within their individual and small group market business,
often as a way to segment risk and further underwrite premiums. For
example, the NAIC's Small Employer Health Insurance Availability Model
Act (1993 Version), adopted by a majority of states, allows issuers to
maintain up to nine blocks of business in the small group market,
subject to a limitation that the index rates between the blocks not
vary by more than 20 percent. A 2004 study by the American Academy of
Actuaries noted that the current regulatory climate in most states
allows issuers to open and close books of business in the individual
market at will, effectively causing many long-term policyholders in
closed blocks to face very high premium increases at renewal because
issuers can refuse to pool their claims experience with that of the
newer or healthier policyholders.\60\
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\60\ American Academy of Actuaries' Rate Filing Task Force,
Report to the NAIC's A&H Working Group of the Life & Health
Actuarial Task Force, at 3-4. See also NAIC, White Paper: An
Exploration of Potential Regulatory Measures Intended to Prevent
Individuals at Later Durations of Non-Group Major Medical Products
from Receiving Higher Rate Increases than Those at Early Durations
(2008).
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Beginning in 2014, issuers are no longer able to deny coverage
based on applicants' health status and are limited in the types of
rating factors they can apply in setting premiums in the individual and
small group markets. Without a single risk pool rule, these
prohibitions against traditional underwriting could incentivize issuers
to find ways to segment the market into separate risk pools and charge
differential premiums based on segmented risk, a de facto mechanism for
underwriting. As a result, this statutory requirement that an issuer
consider all of its enrollees in all plans (other than grandfathered
plans) offered by the issuer to be members of a single risk pool in the
individual market or small group market, respectively, prevents issuers
from creating separate pools in order to segment high risk and
[[Page 70601]]
low risk enrollees. While risk adjustment will address some risk
segmentation, the single risk pool requirement provides another layer
of protection against adverse selection among plans and protects
consumers by requiring issuers to consider the risk of all enrollees
when developing and pricing unique plans.
To implement the single risk pool protection, we propose that the
claims experience of the enrollees in all non-grandfathered plans of an
health insurance issuer in the individual or small group market within
a state (or both, if the risk pools of the individual and small group
market are merged within a state) be combined so that the premium rate
of a particular plan is not adversely impacted by the health status or
claims experience of its enrollees. For rates effective starting
January 1, 2014, a health insurance issuer would use the estimated
total combined claims experience of all non-grandfathered plans
deriving from providing essential health benefits within a state market
to establish an index rate (average rate) for the relevant market. The
index rate would be utilized to set the rates for all non-grandfathered
plans of the issuer in the market. After setting the index rate, an
issuer would make a market-wide adjustment to the index rate based on
the total expected market-wide payments and charges under the risk
adjustment and reinsurance programs in a state.
The premium rate for any given plan could not vary from the
resulting index rate, except for the following factors: \61\
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\61\ However, as described in Sec. 147.102 of this proposed
rule, the specific premiums charged for particular enrollees would
be permitted to vary based on family size, geographic rating area,
and age and tobacco use, within limits.
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The actuarial value and cost-sharing design of the plan;
The plan's provider network and delivery system
characteristics, as well as utilization management practices. This
factor is intended to pass savings onto consumers where issuers are
able to negotiate better discounts, construct efficient networks, or
manage care more efficiently;
Plan benefits in addition to the essential health
benefits. The additional benefits must be pooled with similar benefits
provided in other plans to determine the allowable rate variation for
plans that offer these benefits; and
With respect to catastrophic plans, the expected impact of
the specific eligibility categories for those plans.
The index rate, the market-wide adjustment based on total expected
payments and charges for the risk adjustment and reinsurance programs,
and the variations for individual plans would have to be actuarially
justified. Furthermore, all such actuarially justified adjustments
would have to be implemented by issuers in a transparent fashion,
consistent with state and federal rate review processes. We seek
comment on the approach described above, and on the proposed plan-
specific adjustments to the index rate. This proposed rule would apply
both when rates are initially established for a plan and at renewal. We
expect that percentage renewal increases generally would be similar
across all plans in the same risk pool, but might differ somewhat due
to the permitted product differences described above. We are
considering allowing additional flexibility in product pricing in 2016
after issuers have accumulated sufficient claims data. We request
comments on this approach.
F. CMS Enforcement in Group and Individual Insurance Market (Various
Provisions in Parts 144 and 150)
Part 150 of title 45 of the CFR sets forth our enforcement
processes for all of the requirements of title XXVII of the PHS Act
with respect to health insurance issuers and non-federal governmental
group health plans. The scope of part 150 includes our processes for
enforcing the requirements of title XXVII of the PHS Act added by the
Affordable Care Act, given that the statutory enforcement provisions
that part 150 implements, PHS Act sections 2723 and 2761, apply to all
of parts A and B of title XXVII.
This proposed rule would make a number of conforming changes in
various sections of parts 144 and 150 intended to clarify the
applicability of enforcement procedures to the PHS Act requirements
added by the Affordable Care Act. For example, we are proposing to
replace the term ``HIPAA requirements'' with ``PHS Act requirements''
throughout part 150 to make clear that the part 150 processes would be
used for enforcing not only the requirements emanating from HIPAA, but
also the Affordable Care Act and other legislation enacted subsequent
to HIPAA. Similarly, the proposed rule would add, where appropriate,
references to part 147 (that is, the Affordable Care Act's group and
individual market requirements) alongside references to parts 146 and
148 (the group and individual market requirements pre-dating the
Affordable Care Act).
While these proposed changes should clarify to stakeholders our
interpretation concerning part 150, the lack of these revisions in part
150 currently in no way prejudices our continued use of part 150 in
connection with enforcing the requirements of part 147 prior to the
issuance of a final rule.
G. Enrollment in Catastrophic Plans (Proposed Sec. 156.155)
Section 1302(e) of the Affordable Care Act outlines standards for
offering catastrophic plans, which we propose to codify in Sec.
156.155. In paragraph (a)(1), we propose that a plan is a catastrophic
plan if it meets all applicable requirements for health insurance
coverage in the individual market (including but not limited to those
requirements described in 45 CFR parts 147 and 148) and is offered only
in the individual market. In proposed paragraph (a)(2), we specify that
a catastrophic plan does not offer coverage at the bronze, silver,
gold, or platinum coverage levels described in section 1302(d) of the
Affordable Care Act and in proposed paragraph (a)(3), we clarify that a
catastrophic plan does not provide coverage of essential health
benefits until the enrolled individual reaches the annual limitation in
cost sharing in section 1302(c)(1) of the Affordable Care Act. Proposed
paragraph (a)(4) codifies the statutory requirement that a catastrophic
plan must cover at least three primary care visits per year before
reaching the deductible. We do not propose here to prohibit an issuer
from imposing cost sharing in connection with these primary care visits
so long as other applicable law (for example, PHS Act section 2713)
permits.
In paragraph (a)(5), we propose codifying the statutory criteria
identified in section 1302(e)(2) of the Affordable Care Act that lists
the individuals who are permitted to enroll in a catastrophic plan. In
paragraph (a)(5)(i), we propose that individuals younger than age 30
before the beginning of the plan year are eligible to enroll in
catastrophic plans. If an individual enrolled in a catastrophic plan
reaches age 30 during a plan year, we propose that the individual can
remain enrolled in the catastrophic plan for the remainder of the plan
year. In paragraph (a)(5)(ii), we propose that the second group of
individuals eligible to enroll in a catastrophic plan are those who
have been certified as exempt from the individual responsibility
payment because they cannot afford minimum essential coverage, or they
are eligible for a hardship exemption.
In paragraph (b), we propose to codify the exception found in
section 1302(e)(1)(B)(i) of the Affordable Care Act by proposing that a
health plan may
[[Page 70602]]
not impose cost-sharing requirements (such as a copayment, coinsurance,
or deductible) for preventive services identified in PHS Act section
2713. We note that a catastrophic plan must provide coverage for such
services without regard to whether the enrollee accessing the service
has reached the cost-sharing maximum.
In paragraph (c), we propose that if more than one person is
covered by a single catastrophic plan, such as a non-self only plan,
then each individual enrolled must meet at least one of the two
eligibility criteria in proposed paragraph (a)(5). For example, a
couple could enroll in a catastrophic family plan if one of them was
under age 30 and the other had received a certificate of exemption in
accordance with section 1302(e)(2)(B) of the Affordable Care Act.
H. Rate Increase Disclosure and Review (Part 154)
To account for the market changes in 2014, many of which are
detailed in this proposed rule; to fulfill the statutory requirement
beginning in 2014 that the Secretary, in conjunction with the states,
monitor premium increases of health insurance coverage offered through
an Exchange and outside of an Exchange; and in an effort to streamline
data collection for issuers and states, we propose three changes to the
existing rate review program under 45 CFR part 154.
First, we propose to amend Sec. 154.200(a)(2) and (b), so that
states seeking state-specific thresholds submit proposals to CMS by
August 1 of each year; that the Secretary publish a notice no later
than September 1 of each year concerning whether a state-specific
threshold applies in a state; and that any state-specific threshold be
effective on January 1 of each year following the Secretary's notice.
We are proposing these changes in order to align with the timing of
rate submissions of QHPs in the Exchanges, as well as market-wide
rating rules created by the Affordable Care Act, which are effective
January 1, 2014. We welcome comments on these proposed changes in the
submission date and the effective date of state-specific thresholds.
Second, we propose to amend Sec. 154.215 to direct health
insurance issuers to submit data and documentation regarding rate
increases on a standardized form in a manner determined by the
Secretary. Beginning in 2014, section 2794(b)(2)(A) of the Affordable
Care Act directs that the Secretary, in conjunction with states,
``monitor premium increases of health insurance coverage offered
through an Exchange and outside of an Exchange.'' The purpose of this
policy is to identify patterns that could indicate market disruption,
which could occur given the additional standards that apply to
qualified health plans, and to oversee the new, market-wide reforms. To
assist the Secretary in carrying out this new monitoring function, we
propose modifying the rate review standards by extending the
requirement that health insurance issuers report information about rate
increases above the review threshold to all rate increases, as is
already the policy in the vast majority of states. Under this proposal,
each issuer would submit the same set of files for all of their
products in the same market, pursuant to work conducted in partnership
with the NAIC to ensure consistency between the NAIC's System for
Electronic Rate and Form Filing (SERFF) and HHS's Health Insurance
Oversight System (HIOS) and to promote efficiency in data collection
for states and issuers. The same type of information is currently
collected by most states today, but in a variety of non-standardized
formats. States would continue to have the authority to collect
additional information, above this baseline, to conduct more thorough
reviews or rate monitoring. The review threshold, described in Sec.
154.200, would continue to be used to determine which rates must be
reviewed rather than just reported.
Under the current rate review program, CMS collects rate filing
information from issuers proposing increases of 10 percent or greater,
including in states with Effective Rate Review Programs. This data
collection allows the Secretary to ensure the public disclosure of
information on such increases as required by the statute. Collecting
rate filing information on all rate increases in applicable markets
would provide CMS, in partnership with states, the necessary data to
gauge how 2014 market changes are affecting rate changes for consumers
both inside and outside the Exchange and to fulfill its obligation
under section 2794(b)(2)(A) of the PHS Act. Additionally, the improved
data collection would allow states and CMS, where applicable, to adapt
their rate review processes to include the changes to the individual
and small group markets that begin in 2014. Primary among these changes
to the individual and small group market is the single risk pool
requirement. Beginning with rates effective in 2014, pursuant to
section 1312(c) of the Affordable Care Act, all rates must be based on
claims experience calculated from all claims of all products an issuer
has within a state in either the individual or small group market (or
both if the state merges the individual and small group markets into a
combined risk pool). This means that products can no longer be reviewed
as completely unique, but rather must include experience of the entire
market (single risk pool). Accordingly, when any product has a rate
increase, all other products with enrollment or projected enrollment
would be reported to assure the single risk pool requirement was
appropriately implemented to promote fair market competition.
Additionally, collecting rate filing data in a standardized format,
as proposed, would reduce the burden on issuers because the data would
be used for purposes beyond rate review, including Exchange functions
like QHP certification and premium tax credit and cost-sharing
reduction verification. Rather than requiring multiple data submissions
to conduct these various reviews, this proposal would provide state and
federal regulators the information they need in one place. CMS
incorporated feedback from state regulators facilitated through the
NAIC and health plans in developing this proposal.
CMS will propose for comment through the Paperwork Reduction Act of
1995 (PRA) process a standardized data template form for health
insurance issuers to use for submitting the data for rate increases.
The template was developed with input from the NAIC and other
stakeholders. The goal of a standardized data template is to provide
state regulators with a baseline of information necessary to conduct
the review and approval of products sold inside and outside an Exchange
as new market rules go into effect in 2014. In order to help assure a
competitive health insurance market, CMS anticipates releasing only
information collected that is determined to not include trade secrets
and is approved for release under the Freedom of Information Act.
This data collection is intended to create greater uniformity for
effective rate review information, creating efficiencies and also
providing issuers with a standardized, electronic format for submitting
this uniform data. Issuers would no longer be required to submit the
same type of data in different formats to different regulators. We
request comments through the corresponding PRA comment process on the
proposed information collection authorized under Sec. 154.215, as
proposed to be amended, and the additional burden, if any, it would
impose on health insurance issuers and the states. The improved rate
review data and
[[Page 70603]]
information collection outlined in the PRA would allow issuers to
submit a baseline set of rate review data in a standardized form and
format, which should, on net, reduce the burden of providing similar
data in multiple formats to each state and the federal government. We
also welcome comments on the need for and impact of the extension of
the reporting requirement below the review threshold and whether
alternative approaches to monitoring and oversight should be considered
(e.g., auditing).
Third, we propose to modify the standards for an Effective Rate
Review Program in response to the market changes in 2014 for rate
filings subject to review. We propose revisions in Sec. 154.301(a)(3)
so that a state with an Effective Rate Review Program would review the
following additional elements as part of its rate review process: (1)
The reasonableness of assumptions used by the health insurance issuer
to estimate the rate impact of the federal reinsurance and risk
adjustment programs; and (2) The health insurance issuer's data related
to implementation and ongoing utilization of a market-wide single risk
pool, essential health benefits, actuarial values, and other market
reforms rules as required by the Affordable Care Act. The 10 percent
review threshold, as finalized in Sec. 154.200 (76 FR 29964), will
remain unchanged. Thus, only proposed rate increases of 10 percent or
more will be subject to a determination of whether they are
unreasonable, unless the Secretary changes the threshold in a time and
manner specified in 76 FR 29964, or a state requests (and the Secretary
approves) a different threshold under Sec. 154.200.
Additionally, we propose to revise Sec. 154.301(a)(4) by adding
additional factors that states must take into consideration when
conducting their examinations. Specifically, we propose that, in
reviewing the impact of cost-sharing changes, the impact on the
actuarial value of the health plan must be considered in light of the
requirement under section 1302(d) of the Affordable Care Act that a
plan meet one of the metal levels in terms of actuarial value. We also
propose that, in reviewing benefit changes to a plan, a state must
consider the impact of the changes on the plan's essential health
benefits and non-essential health benefits. The impact of the changes
on pricing, including the rating limitations on age and tobacco use
under PHS Act section 2701, must also be considered.
We also propose to add new paragraphs (xii), (xiv), (xv), and (xvi)
to Sec. 154.301(a)(4), to ensure that states take into account, to the
extent possible, the following additional factors (which are necessary
to carry out some of the market reforms going into effect in 2014) when
conducting an examination of a rate review filing:
Other standardized ratio tests (in addition to the medical
loss ratio) recommended or required by statute, regulation, or best
practices;
The impacts of geographic factors and variations;
The impact of changes within a single risk pool to all
products or plans within the risk pool; and
The impact of federal reinsurance and risk adjustment
payments and charges.
The above proposed revisions and additions to Sec. 154.301(a)(4) are
driven by provisions of the Affordable Care Act that are effective in
2014. CMS intends to work with states to ensure states continue to have
Effective Rate Review Programs. Comments are solicited on the impact on
states created by these proposed changes and whether there are
additional factors that should be considered in reviewing rate
increases starting in 2014.
In Sec. 154.301(b), we propose revisions to ensure that a state
with an Effective Rate Review Program makes available on its Web site,
at a minimum, the same information in Parts I, II, and III of each Rate
Filing Justification that CMS makes available on its Web site. We
propose that a state may, instead of providing access to the
information contained in Parts I, II, and III of each Rate Filing
Justification, provide a link to CMS's Web site where consumers can
find such information.
Finally, in Sec. 154.225 and Sec. 154.330, we propose to replace
the term ``Preliminary Justification'' with the term ``Rate Filing
Justification,'' to reflect more appropriately the rate filing
information that would be reported under this proposed rule.
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. This
proposed rule contains information collection requirements (ICRs) that
are subject to review by OMB. A description of these provisions is
given in the following paragraphs with an estimate of the annual
burden, summarized in Table IV.1. 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 are soliciting public comment on each of these issues for the
following sections of this proposed rule that contain information
collection requirements (ICRs).
A. ICRs Regarding State Disclosures [Sec. 147.102(a)(1)(iii), Sec.
147.102(a)(1)(iv), Sec. 147.102(b)(1), Sec. 147.102(c)(2), Sec.
147.102(c)(3), Sec. 147.102(e), Sec. 156.80 (c)]
The proposed rule would direct states to submit to CMS information
on their rating and risk pooling requirements if different than the
federal standards. In Sec. 147.102(a)(1)(iii), we propose that a state
inform CMS if it adopts a narrower age rating ratio than 3:1, and in
Sec. 147.102(a)(1)(iv), we propose that a state inform CMS if it
adopts a narrower rating ratio for tobacco use than 1.5:1. In Sec.
147.102(b)(1), we propose that a state submit information to CMS
regarding its geographic rating areas. In Sec. 147.102(c)(2), we
propose that a state with pure community rating submit information to
CMS about its uniform family tiers and corresponding multipliers, if
any. In Sec. 147.102(c)(3), we propose that a state inform CMS if it
requires premiums to be based on average enrollee amounts in the small
group market. In Sec. 147.102(e), we propose that a state submit
information on its uniform age rating curve to CMS. Finally, in Sec.
156.80(c), we propose that a state inform CMS if it elects to merge its
individual and small group market risk pools. Because we do not know
how many states will choose to determine their own geographical rating
areas, age rating curves, and family tier structures; adopt narrower
age or tobacco rating factors; require premiums to be based on average
enrollee amounts in the small group market; or merge their individual
and small group market risk pools, we have estimated the burden for one
state. We seek comments on how many states are likely to submit their
own rating and risk pooling rules.
The burden associated with this requirement is the time involved
for states to provide to CMS information on the rating factors and
requirements
[[Page 70604]]
applicable to their small group and individual markets. If a state
adopts narrower rating ratios for age or tobacco use, or chooses to
merge their individual and small group market risk pools, the state
will inform CMS. We estimate that it will take 20 minutes for a state
to prepare and submit a report to CMS for each of these disclosures,
for a total burden of one hour and a cost of approximately $31 for all
three reports combined. If a state develops geographical rating areas
(some states will default to one rating area for the entire state), it
will provide a report on the rating areas to CMS. We estimate that it
will take one hour for a state to prepare and submit a report to CMS on
its geographical rating areas, for a burden of one hour and a cost of
approximately $31. If a state develops an age rating curve, the state
will report the state's age rating curve to CMS. We anticipate that
most states will default to national age curve. For states that
designate their own curve, we estimate that it will take three hours
for each state to prepare and submit a report on its age rating curve,
for a burden of three hours and a cost of $92. If a state is community
rated and designates a uniform family tier structure, the state will
report family tier structure information to CMS. We estimate that very
few states will designate family tier structures and that it will take
one hour to prepare and submit a report to CMS. The burden for
reporting family tier structure information is estimated to be one
hour, and a cost of approximately $31. If a state requires premiums in
the small group market to be based on average enrollee amounts, it will
submit that information to CMS. We estimate that it will take one hour
for a state to prepare and submit the report on small group market
premiums to CMS, for a burden of one hour and a cost of approximately
$31. The total burden for all disclosures is seven hours and
approximately $215 per state, if a state needs to disclose all seven
rating requirements.
Table IV.1--Annual Reporting, Recordkeeping and Disclosure Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hourly
Burden per Total labor cost Total labor Total
Regulation section(s) OMB Control Number of Responses response annual of cost of capital/ Total cost
No. respondents (hours) burden reporting reporting maintenance ($)
(hours) ($) ($) costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Age Ratio: Sec. N.A.......... 1 7 1 7 30.67 214.69 0 214.69
147.102(a)(1)(iii); Tobacco
Ratio: 147.102(a)(1)(iv); Rating
areas: Sec. 147.102(b)(1);
Family Tier: Sec.
147.102(c)(2); Small Group
Market Premium: Sec.
147.102(c)(3); Age rating curve:
Sec. 147.102(e); Risk Pool
Merger: Sec. 156.80(c).
--------------------------------------------------------------------------------------------------------------------------------------------------------
B. ICRs Regarding Rate Increase Disclosure and Review (Sec. 154.215,
Sec. 154.301)
This proposed rule would require that health insurance issuers use
a standardized data form, as specified by the Secretary, to report
information about a proposed rate increase. In addition, this proposed
rule would direct states with Effective Rate Review Programs to
consider additional information (as a baseline) in their rate review
processes. The existing information collection requirement (OMB Control
Number 0938-1141) includes a data template that is currently used by
issuers seeking rate increases to submit data to CMS. CMS is publishing
an updated data template for public comment, in accordance with the
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).
To obtain copies of the supporting statement and any related forms
for the proposed paperwork collections referenced above, access CMS's
Web Site at http://www.cms.gov/PaperworkReductionActof1995/PRAL/list.asp#TopOfPage or email your request, including your address, phone
number, OMB number, and CMS document identifier, to
Paperwork@cms.hhs.gov, or call the Reports Clearance Office at 410-786-
1326.
If you comment on these information collection requirements, please
do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: CMS Desk Officer,
CMS-9972-P. Fax: (202) 395-5806; or Email: OIRA_submission@omb.eop.gov.
V. Regulatory Impact Analysis
In accordance with the provisions of Executive Order 12866, this
proposed rule was reviewed by the Office of Management and Budget.
A. Summary
As stated earlier in this preamble, this proposed rule would
implement the Affordable Care Act's requirements on health insurance
coverage related to fair health insurance premiums, guaranteed
availability, guaranteed renewability, single risk pools, and
catastrophic plans. These provisions are generally effective for plan
or policy years beginning on or after January 1, 2014. In addition,
this proposed rule would amend the standards for health insurance
issuers and states regarding reporting, utilization, and collection of
data under the rate review program.
CMS has crafted this proposed rule to implement the protections
intended by Congress in the most economically efficient manner
possible. We have examined the effects of this proposed rule as
required by Executive Order 13563 (76 FR 3821, January 21, 2011),
Executive Order 12866 (58 FR 51735, September 1993, Regulatory Planning
and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980,
Pub. L. 96-354), the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism, and the Congressional Review
Act (5 U.S.C. 804(2)). In accordance with OMB Circular A-4, CMS has
quantified the benefits, costs and transfers where possible, and has
also provided a qualitative discussion of the benefits, costs and
transfers that may stem from this proposed rule.
B. Executive Orders 13563 and 12866
Executive Order 12866 (58 FR 51735) directs 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
[[Page 70605]]
equity). Executive Order 13563 (76 FR 3821, January 21, 2011) is
supplemental to and reaffirms the principles, structures, and
definitions governing regulatory review as established in Executive
Order 12866.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action that is likely to result in a proposed
rule--(1) Having an annual effect on the economy of $100 million or
more in any one year, or adversely and materially affecting a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or state, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating a
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for rules with
economically significant effects (e.g., $100 million or more in any 1
year), and a ``significant'' regulatory action is subject to review by
the OMB. OMB has designated this proposed rule as a ``significant
regulatory action.'' Even though at this time it is uncertain whether
it is likely to have economic impacts of $100 million or more in any
one year, CMS has provided an assessment of the potential costs,
benefits, and transfers associated with this proposed regulation.
1. Need for Regulatory Action
Sections 1302(e) and 1312(c) of the Patient Protection and
Affordable Care Act (Affordable Care Act), and sections 2701, 2702, and
2703 of the Public Health Service Act (PHS Act), as added and amended
by the Affordable Care Act, create certain standards related to fair
health insurance premiums, guaranteed availability, guaranteed
renewability, risk pools, and catastrophic plans applicable to non-
grandfathered health insurance coverage starting in 2014. These
proposed regulations would provide the necessary guidance to implement
these important consumer protections. The current individual and small
group health insurance markets generally are viewed as dysfunctional,
placing consumers at a disadvantage due to the high cost of health
insurance coverage, resulting from factors such as lack of competition,
adverse selection, and limited transparency. In addition to
affordability concerns, many people have difficulty finding and
enrolling in coverage options. If employer-based coverage is not
available, a person may find that affordable individual market coverage
is not available due to medical underwriting. The provisions of this
proposed rule, combined with other provisions in the Affordable Care
Act, will improve the functioning of both the individual and the small
group markets and make insurance affordable and accessible to millions
of Americans who currently do not have affordable options available to
them. In addition, this proposed rule would amend the existing rate
review standards under section 2794 of the PHS Act to reflect the new
market conditions in 2014.
2. Summary of Impacts
In accordance with OMB Circular A-4, Table V.1 below depicts an
accounting statement summarizing CMS's assessment of the benefits,
costs, and transfers associated with this regulatory action. The period
covered by the regulatory impact analysis (RIA) is 2013-2017.
CMS anticipates that the provisions of these proposed regulations
would ensure increased access and improve affordability of health
insurance coverage in the individual and small group markets.
Individuals who are currently unable to obtain affordable coverage
because of their medical history, their health status, gender or age
will be able to obtain such coverage once the proposed rules are in
effect along with other provisions of the Affordable Care Act, leading
to an increase in the number of people with health insurance. Newly
insured individuals and individuals with expanded coverage will have
increased access to health care, improving utilization of preventive
care and health outcomes and protection from the risk of catastrophic
medical expenditures, leading to financial security. In addition, an
issuer seeking a rate increase would submit data and documentation
about the rate increase using a standardized format, which would
provide CMS the data necessary for monitoring rate increases, enable
consistent reporting between CMS and the states and eliminate issuer
burden arising from having to use different formats for submitting the
data to states and to CMS. In accordance with Executive Order 12866,
CMS expects that the benefits of this proposed regulatory action would
justify the costs.
Table V.1--Accounting Table
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Benefits:
----------------------------------------------------------------------------------------------------------------
Qualitative:
* Increase in enrollment in the individual market leading to improved access to health care for the
previously uninsured, especially individuals with medical conditions, which will result in improved health
and protection from the risk of catastrophic medical expenditures.
* Lower premium rates in the individual market due to the improved risk profile of the insured, competition,
and pooling.
* A common marketing standard covering the entire insurance market, reducing adverse selection, improving
market oversight and competition and reducing search costs for consumers.
* Decrease in administrative costs for issuers due to elimination of medical underwriting and coverage
exclusions.
* Prevent duplication of effort for rate review filings subject to review by setting forth a standardized
template for both non-QHPs and QHPs.
* Provide state departments of insurance with more capacity to conduct meaningful rate review and approval
of products sold inside and outside an Exchange by using a standardized data template.
----------------------------------------------------------------------------------------------------------------
Costs............................ Estimate \62\ Year dollar Discount rate Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year).... $16 million......... 2012 7% 2013-2017
------------------------------------------------------------------------------
$16 million......... 2012 3% 2013-2017
----------------------------------------------------------------------------------------------------------------
Administrative costs related to submission of data by issuers seeking rate increases below the rate review
threshold
----------------------------------------------------------------------------------------------------------------
[[Page 70606]]
Qualitative:
* Costs incurred by issuers to comply with provisions in the proposed rule..................................
* Costs incurred by states choosing to establish rating areas and age rating curves.........................
* Costs related to possible increases in utilization of health care for the newly insured...................
* Costs incurred by states for disclosure of rate increases, if applicable..................................
----------------------------------------------------------------------------------------------------------------
Transfers:
----------------------------------------------------------------------------------------------------------------
Qualitative:
* Lower rates for individuals in the individual and small group market who are older and/or in relatively
poor health, and women; and potentially higher rates for some young men which will be mitigated by
provisions such as premium tax credits, risk stabilization programs, access to catastrophic plans, and the
minimum coverage provision..
* Reduction in uncompensated care for providers who treat the uninsured and increase in payments from
issuers..
* Decrease in out-of-pocket expenditures by the newly insured and increase in health care spending by
issuers, which will be more than offset by an increase in premium revenue..
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\62\ These estimates are exclusive of each other. Therefore, the
total cost is estimated to be no higher than $16 million.
---------------------------------------------------------------------------
3. Anticipated Benefits, Costs and Transfers
In developing this proposed rule, CMS carefully considered its
potential effects including both costs and benefits. Because of data
limitations, CMS did not attempt to quantify all of the benefits, costs
and transfers resulting from this proposed rule. Nonetheless, CMS was
able to identify several potential qualitative impacts which are
discussed below.
There are diverse state laws and industry practices currently in
place that result in a wide variation in premium rates (henceforth
referred to as ``rates'') and coverage for individual and group health
insurance markets. Regarding the individual market, only five states
have both guaranteed issue for at least some products and modified or
pure community rating requirements, while in other states, issuers can
deny health insurance coverage or charge higher premiums to people with
medical conditions.\63\ Currently, 11 states and the District of
Columbia have rate bands, which allow issuers to vary rates only within
a certain range of the average rate, two states bar rating based on
age, and five states bar rating based on tobacco use in the individual
market.\64\ In the small group market, 36 states and the District of
Columbia have rate bands, 12 states have community rating requirements,
two states do not allow rating based on age and 16 do not allow rating
based on tobacco use. In many states, women are charged higher premiums
than men--only 14 states bar gender rating in the individual market
while 15 states do not allow gender rating in the small group market.
Of the states that bar gender rating in the individual market, only
three of those states require maternity coverage in all policies,
meaning that women in the other states can be charged additional
premiums for maternity coverage.
---------------------------------------------------------------------------
\63\ GAO, Private Health Insurance: Estimates of Individuals
with Preexisting Conditions Range from 36 Million to 122 Million,
GAO-12-439, March 2012.
\64\ Kaiser Family Foundation, Focus on Health Reform: Health
Insurance Market Reforms: Rate Restrictions, June 2012.
---------------------------------------------------------------------------
Currently, only five states have guaranteed issue in the individual
market. Studies show that 48 states require guaranteed renewability in
small group market while all 50 states provide some level of guaranteed
renewability in the individual market. In addition, HIPAA already
provides guaranteed renewability of coverage to individuals and
employers, irrespective of state law. Therefore, this provision is not
expected to have any significant effect in that regard.
Starting in 2014, issuers in the individual and small group markets
will only be allowed to vary rates based on age and tobacco use within
specified ranges, family size, and geography (the fair health insurance
premium requirement). Issuers generally will accept every individual
and employer that applies for health insurance coverage (the guaranteed
availability requirement), and must also renew or continue health
insurance coverage at the option of the plan sponsor or individual (the
guaranteed renewability requirement). In addition, issuers must have
single risk pools for each of the individual and small group markets,
or a single merged risk pool, if a state so elects, which will include
all individuals enrolled in all non-grandfathered plans in the
applicable market (the single risk pool requirement).
The provisions of the proposed rule will affect the characteristics
of enrollees, enrollment and premium rates in the individual and small
group markets. In addition, there are other provisions of the
Affordable Care Act that will be effective by 2014, such as
establishment of the Exchanges, premium tax credits, and the minimum
coverage provision, that relate to the provisions in this proposed
rule. These provisions will improve access to and affordability of
health insurance coverage. Therefore, it is appropriate to take into
consideration the effect of all these provisions in this analysis, even
though not all of them are the focus of this proposed rule. It should
be noted that the impact of these provisions may vary between states,
because of the differences in current regulatory frameworks.
We solicit information and data on any industry practices and
procedures that would be affected by the implementation of these
provisions and any related costs and savings, including administrative,
operating, and information technology related costs, and anticipated
effects on premium rates and financial performance.
The provisions of this proposed rule would also modify the existing
Effective Rate Review Program to take into account market rule changes
in 2014. Specifically, a state must include additional elements in its
rate review process, like a review of the reasonableness of assumptions
used by the health insurance issuer to estimate the rate impact of the
federal reinsurance and risk adjustment programs and review of the
health insurance issuer's data related to implementation and ongoing
utilization of a market-wide single risk pool, essential health
benefits, actuarial values, and other market reforms rules as required
by the law.
a. Benefits
In 2011, 48.6 million people in the United States were
uninsured.\65\ In
[[Page 70607]]
addition, an estimated 29 million adults were underinsured in 2010.\66\
Studies have shown that people without health insurance have reduced
access to health care, higher out-of-pocket costs, higher mortality
rates and receive less preventive care.\67\ Uninsured and underinsured
people are also more likely to be unable to pay their medical bills,
have medical debt, and experience financial difficulties.
---------------------------------------------------------------------------
\65\ Source: U.S. Census Bureau, Current Population Survey, 2012
Annual Social and Economic Supplement, Table HI01. Health Insurance
Coverage Status and Type of Coverage by Selected Characteristics:
2011.
\66\ Cathy Schoen Michelle M. Doty, Ruth H. Robertson and Sara
R. Collins, Affordable Care Act Reforms Could Reduce The Number Of
Underinsured U.S. Adults by 70 Percent, Health Affairs, 30, no.9
(2011):1762-1771.
\67\ The Henry J. Kaiser Family Foundation, The Uninsured: A
Primer, Key Facts About Americans Without Health Insurance,
Washington, DC, 2011, citing a number of studies on the effects of
being uninsured; ASPE, The Value of Health Insurance: Few of the
Uninsured Have Adequate Resources to Pay Potential Hospital Bills,
2011 (http://aspe.hhs.gov/health/reports/2011/valueofinsurance/rb.shtml ); Sara R. Collins, Ruth Robertson, Tracy Garber, and
Michelle M. Doty, The Income Divide in Health Care: How the
Affordable Care Act Will Help Restore Fairness to the U.S. Health
System, The Commonwealth Fund, February 2012; J. Doyle, Health
Insurance, Treatment and Outcomes: Using Auto Accidents as Health
Shocks, Review of Economics and Statistics, 87(2): 256-270, 2005; S.
Dorn, Uninsured and Dying Because of It: Updating the Institute of
Medicine Analysis on the Impact of Uninsurance on Mortality, Urban
Institute, 2008; Cathy Schoen, Michelle M. Doty, Ruth H. Robertson
and Sara R. Collins, Affordable Care Act Reforms Could Reduce The
Number Of Underinsured U.S. Adults by 70 Percent, Health Affairs,
30, no.9 (2011):1762-1771.
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The provisions of this proposed rule and other changes implemented
by the Affordable Care Act will increase enrollment in the individual
and small group markets. According to the Congressional Budget Office
(CBO), there will be approximately 23 million enrollees in Exchange
coverage by 2016. CBO estimates that, by 2016, the number of uninsured
will be reduced to up to 30 million.\68\ Access to catastrophic plans
is likely to further increase the number of insured. Newly insured
individuals and individuals with expanded coverage will have access to
better health care and experience a reduction in out-of-pocket costs.
Ample research demonstrates that access to insurance coverage improves
utilization of preventive care, improves health outcomes, and creates
less financial debt, which would lead to better financial security.\69\
The State of Massachusetts passed similar health reforms in 2006, and
now has the lowest uninsured rate in the country. In 2011, only 3.4
percent of Massachusetts residents were uninsured.\70\ This has
resulted in increased access to health care, including preventive care
and fewer individuals with high out-of-pocket spending.\71\
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\68\ ``Estimates for the Insurance Coverage Provisions of the
Affordable Care Act Updated for the Recent Supreme Court Decision,''
Congressional Budget Office, July 2012.
\69\ T. Gross and Notowidigdo, Health Insurance and the Consumer
Bankruptcy Decision: Evidence from Expansions of Medicaid, Journal
of Public Economics, 95(7-8):767-778, 2011; J. Doyle, Health
Insurance, Treatment and Outcomes: Using Auto Accidents as Health
Shocks, Review of Economics and Statistics, 87(2): 256-270, 2005;
Amy Finkelstein, et al., The Oregon Health Insurance Experiment:
Evidence from the First Year, National Bureau of Economic Research
Working Paper No. 17190, July 2011; Institute of Medicine, Care
without coverage: too little, too late, National Academies Press,
2002; J. Ayanian et al., Unmet Health Needs of Uninsured Adults in
the United States, JAMA 284(16):2061-9, 2000; Andrew P. Wilper, et
al., Health Insurance and Mortality in U.S. Adults. American Journal
of Public Health, 99(12) 2289-2295, 2009; S. Dorn, Uninsured and
Dying Because of It: Updating the Institute of Medicine Analysis on
the Impact of Uninsurance on Mortality, Urban Institute, 2008; Jack
Hadley, Insurance Coverage, Medical Care Use, and Short-term Health
Changes Following an Unintentional Injury or the Onset of a Chronic
Condition, JAMA. 2007;297(10):1073-1084. doi: 10.1001/
jama.297.10.1073; K. Cook et al., Does major illness cause financial
catastrophe?, Health Services Research 45, no. 2, 2010.
\70\ Source: U.S. Census Bureau, Current Population Survey, 2012
Annual Social and Economic Supplement, Table HI06. Health Insurance
Coverage Status by State for All People: 2011.
\71\ Kaiser Family Foundation, Focus on Health Reform:
Massachusetts Health Care Reform: Six Years Later, June 2012.
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Research shows that individuals in relatively poor health
experience difficulty obtaining health insurance coverage. This results
in lack of adequate access to health care and higher out-of-pocket
expenses for these individuals. According to a recent study by GAO,
between 36 million and 122 million adults age 19 to 64 years old (or
between 20 and 66 percent of the adult population) have medical
conditions that could result in issuers denying them coverage or
charging higher premiums.\72\ Of these, an estimated 88-89 percent live
in states that do not have insurance protections provided by the fair
health insurance premium and guaranteed availability provisions of the
Affordable Care Act. The GAO study estimated that health care
expenditures for adults with medical conditions are, on average,
between $1,504 and $4,844 more per year than for other adults.
Similarly, a study by HHS found that there are between 50 million and
129 million non-elderly individuals with a medical condition, including
between 4 and 17 million children under age 18, and up to 25 million of
these adults and children are uninsured.\73\ A 2007 study by the
Commonwealth Fund found that 36 percent of adults ages 19 to 64 were
denied coverage or charged a higher price because of their medical
conditions.\74\ Another study found that, in 2010, 35 percent of
nonelderly adults who shopped for health insurance coverage in the
individual market were denied coverage or received coverage exclusions
for medical conditions.\75\ The Affordable Care Act's provision on
guaranteed availability will bar issuers from denying coverage to
individuals based on their health status or any other factor, and the
provision on fair insurance premiums will prevent issuers from charging
a higher premium to individuals based on health status. The proposed
rule will ensure that individuals who would have been denied coverage
or charged excessively high premium rates, for reasons such as medical
conditions or high expected medical costs, will now be able to obtain
health insurance at an affordable cost. In addition, young adults and
people for whom coverage would otherwise be unaffordable will have
access to a catastrophic plan that will have a lower premium, protect
against high out-of-pocket costs, and cover recommended preventive
services without cost sharing.
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\72\ GAO, Private Health Insurance: Estimates of Individuals
with Preexisting Conditions Range from 36 Million to 122 Million,
GAO-12-439, March 2012.
\73\ ASPE, At Risk: Preexisting Conditions Could Affect 1 in 2
Americans: 129 Million People Could Be Denied Affordable Coverage
Without Health Reform, November 2011.
\74\ Michelle M. Doty et al., Failure to Protect: Why the
Individual Insurance Market Is Not a Viable Option for Most U.S.
Families: Findings from the Commonwealth Fund Biennial Health
Insurance Survey, 2007, The Commonwealth Fund, July 2009.
\75\ Sara R. Collins, Invited Testimony: Premium Tax Credits
Under The Affordable Care Act: How They Will Help Millions Of
Uninsured And Underinsured Americans Gain Affordable, Comprehensive
Health Insurance, The Commonwealth Fund, October 27, 2011.
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The provisions of this proposed rule and other changes implemented
by the Affordable Care Act will increase enrollment in the individual
market. An analysis by the Congressional Budget Office (CBO) and the
staff of the Joint Committee on Taxation (JCT) \76\ estimated that the
characteristics of enrollees in the individual market will be
significantly different, especially due to the addition of people who
would have been uninsured in the absence of the Affordable Care Act.
CBO and JCT estimated that relatively more new enrollees in the
individual market would be younger and healthier and likely to use less
medical care, and the addition of new enrollees would result in average
premium rates in the market being 7 to 10 percent lower in 2016 all
[[Page 70608]]
else held constant. According to CBO and JCT, the characteristics of
people in the large and small group markets would change slightly, and
projected premium rate changes would range from a 1 percent decrease to
a 2 percent increase.
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\76\ Congressional Budget Office, Letter to Honorable Evan Bayh,
providing an Analysis of Health Insurance Premiums Under the Patient
Protection and Affordable Care Act, November 30, 2009.
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Currently, health insurance issuers may maintain several blocks of
business, or ``pools,'' for their individual and small group market
business. Most states place some restrictions on the number of small
group blocks of business. However, the individual market generally has
not been subject to similar restrictions. In the past, some issuers
used separate pools to segment risks, resulting in large rate increases
for less-healthy enrollees. A single risk pool will tend to lower rates
in the individual market by including younger, healthier individuals in
the pool and ensuring that newer and more long-term policyholders are
pooled together. In the small group market, a single risk pool will
stabilize rates.
The guaranteed availability provision may result in some adverse
selection--individuals with poor health who would have been denied
coverage before in some states will now be able to obtain health
insurance. However, according to CBO and JCT,\77\ adverse selection
will be mitigated principally by the minimum coverage provision and the
availability of premium tax credits, which will make insurance
affordable for millions of Americans for whom it is currently
unaffordable. Other factors such as fixed open enrollment periods will
also help to mitigate adverse selection. The Affordable Care Act also
establishes transitional reinsurance and temporary risk corridor
programs and a permanent risk adjustment program, which will provide
payments to issuers providing coverage to high-risk individuals, to
mitigate the potential effects of adverse selection. These programs
will provide payment stability to issuers and reduce uncertainty in
insurance risk in the individual market and in the small group market,
in the case of the permanent risk adjustment program.
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\77\ Congressional Budget Office, Letter to Honorable Evan Bayh
providing An Analysis of Health Insurance Premiums Under the Patient
Protection and Affordable Care Act, November 30, 2009.
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Administrative costs for issuers will be lowered because of the
elimination of medical underwriting and banning coverage exclusions.
Costs should decrease for processing new applications for coverage and
implementing the ban on coverage exclusions in the individual and small
group markets. This, in turn, could contribute to lower premium rates.
The proposed rule also would require all health insurance issuers
marketing group or individual health insurance coverage to comply with
the same marketing standards as issuers offering QHPs within the
Exchanges. This minimizes the potential for the adverse selection that
could result if plans sold through Exchanges were subject to different
marketing standards from plans sold outside of the Exchanges. A common
standard covering the entire insurance market would also ensure
consistency in market oversight, increase competition and reduce search
costs for consumers.\78\
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\78\ R. Cebul et al., Unhealthy Insurance Markets: Search
Frictions and the Cost and Quality of Health Insurance, American
Economic Review 101(5): 1842-1847, 2011.
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The proposed amendments to the Effective Rate Review Program would
help issuers to avoid significant duplication of effort for filings
subject to review by using the same standardized template for both non-
QHPs and QHPs. Issuers would also no longer be required to submit the
same type of data in different formats to different regulators.
Additionally, the use of a standardized data template would provide
state departments of insurance and CMS as applicable with more
information to conduct the review and approval of products sold inside
and outside an Exchange, monitor rates to detect patterns that could
signal market disruption, and oversee the market-wide rules.
b. Costs
Under the proposed rule, issuers will likely incur some one-time,
fixed costs in order to comply with the provisions of the final rule,
including administrative expenditures for systems and software updates
and changes in marketing. In addition, states may incur costs in order
to establish geographic rating areas and uniform age rating curves.
In addition to these administrative costs, insurance coverage can
lead to increased utilization of health services for individuals who
become newly insured. While a portion of this increased utilization may
be economically inefficient, studies that estimated the effects of
Medicare found that the cost of this inefficiency is likely more than
offset by the benefit of risk reduction.79 80
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\79\ Finkelstein, A, McKnight R: ``What Did Medicare Do? The
Initial Impact of Medicare on Mortality and Out Of Pocket Medical
Spending '' Journal of Public Economics 2008, 92:1644-1668.
\80\ Finkelstein, A., ``The Aggregate Effects of Health
Insurance: Evidence from the Introduction of Medicare,'' National
Bureau of Economic Research. Working Paper No. 11619, Sept, 2005.
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We solicit data on the timing, nature and magnitude of these
potential administrative and other costs and savings associated with
the proposed rules relative to current practices, including merging the
individual and small group markets into a single risk pool in a state,
if the state chooses to do so. We also request information on whether
the changes in rating rules would require issuers to undertake any
systems and operational changes, and we solicit data on any related
costs and potential savings as well as potential effects on premiums
and financial performance. We are also soliciting information on how
standardizing rating areas could affect rates. In addition, we are
requesting information on any potential costs incurred by states to
establish rating areas and uniform age rating curves if they choose to
do so.
The proposed rule would also direct states to provide information
to CMS about their rating and risk pooling practices in several key
areas, as applicable. They include: age and tobacco rating factors, age
rating curves, family tier structure, composite rating in the small
group market, geographical rating areas, and combined individual and
small group market risk pools. As discussed in the Collection of
Information Requirements section, we estimate a total burden of
approximately $215 for a state to submit information in all seven
areas.
Health insurance issuers seeking rate increases below the rate
review threshold would submit data using the standardized data template
and would incur administrative costs to prepare and submit the data.
Based on CMS's experience with the 2011 MLR reporting year, there are
2,010 health insurance issuers (company/state combinations) offering
coverage in the individual market in all states and 1,050 issuers
offering coverage in the small group market in all states, while there
are 2,294 unique issuers offering products in one or both markets. Most
issuers would already have to provide this information to their
respective states. We anticipate a total of 7,650 submissions for rate
review increases annually in both markets. Based on past experience, we
anticipate that approximately 1,200 of these submissions will be for
rate increases at or above the threshold and the remaining 6,450
submissions will be for rate increases below the threshold. We assume
that each submission will require 11 hours of work by an actuary (at a
cost of $225 per hour), including
[[Page 70609]]
minimal time required for recordkeeping. Therefore, the increase in
administrative costs for all issuers seeking rate increases below the
threshold would be approximately $16 million, with an average of $7,000
per issuer. It should be noted that there are administrative
efficiencies gained by helping issuers to avoid significant duplication
of effort for filings subject to review by using the same standardized
template for both non-QHPs and QHPs across all states, and because the
vast majority of states currently require all rate increases to be
filed; these efficiencies are not quantified in this rule.
Additionally, all issuers seeking rate increases would need to
adjust their systems to provide the data required in the standardized
data template. We seek comments on the extent of these costs and plan
to incorporate an estimate in the final rule.
For filings subject to review, states with Effective Rate Review
Programs would be expected to use the data submissions in their
reviews; however, it is not expected to increase review costs.
c. Transfers
As discussed elsewhere in the preamble, most aspects of rating
methodology today are left to the discretion of health insurance
issuers, subject to oversight by the states. In most states, issuers
may vary premium rates based on a number of factors such as age, health
status, and gender. In 2010, 60 percent of non-elderly adults who
shopped for insurance coverage in the individual market had difficulty
finding affordable coverage.\81\ Also, as a result of current gender
rating, premium rates for women are significantly higher than those for
men. According to a study by the National Women's Law Center, 92
percent of best-selling plans currently practice gender rating.\82\ The
provision of fair premiums will allow issuers to vary rates based on
only a limited number of factors and within specified ranges. Since
rating based on gender and health will no longer be allowed, rates for
some older, less healthy adults and women may decrease. While these
rules could increase rates for younger, healthier adults and for some
men, other factors will mitigate the effects of reformed rating
practices, such as choices of and competition among plans on Exchanges,
greater pooling of risks through the Exchanges, premium tax credits,
the risk stabilization programs, access to catastrophic plans, and the
minimum coverage provision.
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\81\ Sara R. Collins, Invited Testimony: Premium Tax Credits
Under The Affordable Care Act: How They Will Help Millions Of
Uninsured And Underinsured Americans Gain Affordable, Comprehensive
Health Insurance, The Commonwealth Fund, October 27, 2011.
\82\ National Women's Law Center, Turning to Fairness: Insurance
discrimination against women today and the Affordable Care Act,
Washington, DC, March 2012.
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As people who were previously uninsured obtain coverage, their out-
of-pocket expenses are expected to decrease while the issuers' spending
will increase, which is expected to be mitigated by an increase in
premium revenues. Expansion in health insurance coverage will also
reduce the amount of uncompensated care for providers that treat the
uninsured. Millions of people without health insurance now use health
care services for which they do not fully pay, shifting the
uncompensated cost of their care to health care providers, people who
do have insurance (in the form of higher premiums), and state and local
governments.\83\ Providers of uncompensated care try to recover the
money by increasing the amounts charged to insurance companies, which
results in higher premiums for individuals with private insurance. The
cost of uncompensated care for the previously uninsured will be
transferred from the providers (for example, hospitals and physicians),
governmental programs and charitable organizations to the individuals
and issuers of their health insurance coverage. Reduction in the number
of uninsured would reduce the amount of uncompensated care and could
lead to a decrease in private health insurance rates.
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\83\ Families USA, Hidden Health Tax: Americans Pay a Premium
(Washington, DC: Families USA, 2009) (http://familiesusa2.org/assets/pdfs/hidden-health-tax.pdf).
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C. Regulatory Alternatives
Under Executive Order 12866, CMS is required to consider
alternatives to issuing rules and alternative regulatory approaches.
Under the proposed rule, all issuers in a state would use a uniform
age rating curve. CMS considered the alternative of allowing issuers to
set their own rating curve. Under the alternative, issuers would have
more flexibility and might incur lower upfront, fixed costs (for
example, systems and software updates) to comply with the proposed
rule. A uniform age rating curve, however, would improve the accuracy
of risk adjustment, increase consumer transparency when comparing
prices across plans, and make it simpler to identify the second lowest
cost silver plan for purposes of obtaining tax credits.
CMS also considered the alternatives of including a tobacco
component for the rating curve and keeping the rating factor for
tobacco use separate from the wellness program rules. These
alternatives would reduce flexibility for the issuers with respect to
rating for tobacco use and would provide no alternative to the tobacco
surcharge, which could discourage disclosure of tobacco use. Under the
proposed rule, a health insurance issuer in the small group market
would be able to implement the tobacco use surcharge to employees only
in connection with a wellness program that effectively allows tobacco
users to reduce their premiums to the level of non-tobacco users by
participating in a tobacco cessation program or satisfying another
reasonable alternative. This proposal is designed to discourage
underreporting of tobacco use and encourage tobacco users to enter
cessation programs and improve their health and reduce health care
costs.
CMS believes that the provisions of this proposed rule strike the
best balance of extending protections of the Affordable Care Act to
consumers while preserving the availability of such coverage and
minimizing market disruptions to the extent possible.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires agencies that issue a
rule to analyze options for regulatory relief of small businesses if a
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.
As discussed in the Web Portal final rule published on May 5, 2010
(75 FR 24481), CMS 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 it was determined that there were few, if any,
insurance firms underwriting comprehensive health insurance policies
(in contrast, for
[[Page 70610]]
example, to travel insurance policies or dental discount policies) that
fell below the size thresholds for ``small'' business established by
the SBA (currently $7 million in annual receipts for health
issuers).\84\
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\84\ Table of Small Business Size Standards Matched to North
American Industry Classification System Codes, effective March 26,
2012, U.S. Small Business Administration, available at www.sba.gov.
---------------------------------------------------------------------------
In addition, CMS used the data from Medical Loss Ratio annual
report submissions for the 2011 MLR reporting year to develop an
estimate of the number of small entities that offer comprehensive major
medical coverage. These estimates may overstate the actual number of
small health insurance issuers that would be affected, since they do
not include receipts from these companies' other lines of business. It
is estimated that there are 22 small entities each with less than $7
million in earned premiums that offer individual or group health
insurance coverage and would therefore be subject to the requirements
of this proposed regulation. These small entities account for less than
five percent of the estimated 466 issuers that would be affected by the
provisions of this rule. Thirty six percent of these small issuers
belong to holding groups, and many if not all of these small issuers
are likely to have other lines of business that would result in their
revenues exceeding $7 million. For these reasons, CMS expects that this
proposed rule will not affect small issuers.
This rule proposes requirements that may affect health insurance
premiums in the small group market. We expect that many employers that
purchase health insurance coverage in the small group market would meet
the SBA standard for small entities. As mentioned earlier in the impact
analysis, the impact on premiums is likely to be small and may even
lead to lower rates in the small group market.
E. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995
requires that agencies assess anticipated costs and benefits before
issuing any proposed rule that includes a Federal mandate that could
result in any 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 2012, that
threshold level is approximately $139 million.
UMRA does not address the total cost of a proposed 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 proposed rule would give state governments the option to
establish rating areas within the state and uniform age rating curves.
There are no mandates on local or tribal governments. State governments
may incur administrative cost related to the option of establishing
rating areas and uniform age rating curves. However, if the state
government does not act, CMS may establish the rating areas and uniform
age rating curve in that state. State governments would also incur
administrative costs related to disclosure of rating and pooling
requirements to CMS, which are estimated to be $215 per state. The
private sector (for example, health insurance issuers) will incur
administrative costs related to the implementation of the provisions in
this proposed rule. This proposed rule would not impose an unfunded
mandate on local or tribal governments. However, consistent with policy
embodied in UMRA, this proposed 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.
F. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule that imposes
substantial direct requirement costs on state and local governments,
preempts state law, or otherwise has Federalism implications.
As discussed earlier in the preamble, states are the primary
regulators of health insurance coverage. States would continue to apply
state laws regarding health insurance coverage. However, if any state
law or requirement prevents the application of a Federal standard, then
that particular state law or requirement would be preempted. If CMS
determines that a state does not meet the criteria for an Effective
Rate Review Program, 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
requirements that are more stringent than the Federal requirements
would be not be preempted by this proposed rule. Accordingly, states
have significant latitude to impose requirements with respect to health
insurance coverage 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 policymaking discretion of the states, CMS
has engaged in efforts to consult with and work cooperatively with
affected states, including consulting with National Association of
Insurance Commissioners.
Throughout the process of developing this proposed rule, CMS has
attempted to balance the states' interests in regulating health
insurance issuers and Congress's intent to provide uniform protections
to consumers in every state. By doing so, it is CMS's 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 rule, HHS certifies that the CMS Center
for Consumer Information and Insurance Oversight has complied with the
requirements of Executive Order 13132 for the attached proposed rule in
a meaningful and timely manner.
G. Congressional Review Act
This proposed rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can
take effect, the Federal agency promulgating the rule shall submit to
each House of the Congress and to the Comptroller General a report
containing a copy of the rule along with other specified information,
and has been transmitted to Congress and the Comptroller General for
review.
List of Subjects
45 CFR Part 144
Health care, Health insurance, Reporting and recordkeeping
requirements.
45 CFR Part 147
Health care, Health insurance, Reporting and recordkeeping
requirements, and state regulation of health insurance.
45 CFR Part 150
Administrative practice and procedure, Health care, Health
insurance, Penalties, Reporting and recordkeeping requirements.
[[Page 70611]]
45 CFR Part 154
Administrative practice and procedure, Claims, Health care, Health
insurance, Health plans, Penalties, Reporting and recordkeeping
requirements.
45 CFR Part 156
Administrative practice and procedure, Advertising, Advisory
committees, Brokers, Conflict of interest, Consumer protection, Grant
programs-health, Grants administration, Health care, Health insurance,
Health maintenance organization (HMO), Health records, Hospitals,
Indians, Individuals with disabilities, Loan programs-health,
Organization and functions (Government agencies), Medicaid, Public
assistance programs, Reporting and recordkeeping requirements, Safety,
State and local governments, Sunshine Act, Technical Assistance, Women,
and Youth.
For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR parts 144, 147, 150, 154,
and 156 as set forth below:
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
1. The authority citation for part 144 continues to read as
follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92).
2. Section 144.101 is amended by revising paragraphs (d)(1) and
(d)(2) to read as follows:
Sec. 144.101 Basis and purpose.
* * * * *
(d) * * *
(1) States that fail to substantially enforce one or more
provisions of part 146 concerning group health insurance, one or more
provisions of part 147 concerning group or individual health insurance,
or the requirements of part 148 of this subchapter concerning
individual health insurance.
(2) Insurance issuers in States described in paragraph (d)(1) of
this section.
* * * * *
3. Section 144.102 is revised to read as follows:
Sec. 144.102 Scope and applicability.
(a) For purposes of 45 CFR parts 144 through 148, all health
insurance coverage is generally divided into two markets--the group
market and the individual market. The group market is further divided
into the large group market and the small group market.
(b) The protections afforded under 45 CFR parts 144 through 148 to
individuals and employers (and other sponsors of health insurance
offered in connection with a group health plan) are determined by
whether the coverage involved is obtained in the small group market,
the large group market, or the individual market.
(c) Coverage that is provided to associations, but not related to
employment, and sold to individuals is not considered group coverage
under 45 CFR parts 144 through 148. If the coverage is offered to an
association member other than in connection with a group health plan,
or is offered to an association's employer-member that is maintaining a
group health plan that has fewer than two participants who are current
employees on the first day of the plan year, the coverage is considered
individual health insurance coverage for purposes of 45 CFR parts 144
through 148. The coverage is considered coverage in the individual
market, regardless of whether it is considered group coverage under
state law. If the health insurance coverage is offered in connection
with a group health plan as defined at 45 CFR 144.103, it is considered
group health insurance coverage for purposes of 45 CFR parts 144
through 148.
(d) Provisions relating to CMS enforcement of parts 146, 147, and
148 are contained in part 150 of this subchapter.
PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND
INDIVIDUAL HEALTH INSURANCE MARKETS
4. The authority citation for part 147 continues to read as
follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.
5. Section 147.102 is added to read as follows:
Sec. 147.102 Fair health insurance premiums.
(a) In general. With respect to the premium rate charged by a
health insurance issuer for health insurance coverage offered in the
individual or small group market--
(1) The rate may vary with respect to the particular plan or
coverage involved only by determining the following:
(i) Whether the plan or coverage covers an individual or family.
(ii) Rating area, as established in accordance with paragraph (b)
of this section.
(iii) Age, except that the rate must not vary by more than 3:1 for
like individuals of different age who are age 21 and older and that the
variation in rate must be actuarially justified for individuals under
age 21, consistent with the uniform age rating curve under paragraph
(e) of this section. For purposes of identifying the appropriate age
adjustment under this paragraph and the age band in paragraph (d) of
this section applicable to a specific enrollee, the enrollee's age as
of the date of policy issuance or renewal shall be used. Nothing in
this paragraph prevents a state from requiring the use of a ratio
narrower than 3:1 in connection with establishing rates for individuals
who are age 21 and older. A state that uses a narrower ratio shall
submit to CMS information on its ratio in accordance with the date and
format specified by CMS.
(iv) Tobacco use, except that such rate shall not vary by more than
1.5:1 for like individuals who vary in tobacco usage. (See Sec.
147.110, related to prohibiting discrimination based on health status
and programs of health promotion or disease prevention.) Nothing in
this paragraph prevents a state from requiring the use of a ratio
narrower than 1.5:1 in connection with establishing rates for
individuals who vary in tobacco usage. A state that uses a narrower
ratio shall submit to CMS information on its ratio in accordance with
the date and format specified by CMS.
(2) The rate must not vary with respect to the particular plan or
coverage involved by any other factor not described in paragraph (a)(1)
of this section.
(b) Rating area. (1) A state may establish rating areas within that
state for purposes of applying this section and the requirements of
title XXVII the Public Health Service Act and title I of the Patient
Protection and Affordable Care Act. A state that establishes rating
areas shall submit to CMS information on its rating areas in accordance
with the date and format specified by CMS.
(2) If a state's rating areas are not consistent with paragraph
(b)(3) of this section, or if a state does not establish rating areas,
the standard under paragraph (b)(3)(i) of this section shall apply
unless CMS establishes rating areas within the state applying one of
the standards under paragraph (b)(3)(ii) of this section.
(3) A state's rating areas will be presumed adequate if one of the
following requirements are met:
(i) There is only one rating area within the state.
[[Page 70612]]
(ii) There are no more than seven rating areas based on the one of
the following geographic divisions: counties, three-digit zip codes, or
metropolitan statistical areas/non-metropolitan statistical areas.
(4) Notwithstanding paragraph (b)(3) of this section, a state may
propose to CMS for approval other existing geographic divisions on
which to base rating areas or a number of rating areas greater than
seven.
(c) Application of variations based on age or tobacco use. With
respect to family coverage under health insurance coverage, the rating
variations permitted under paragraphs (a)(1)(iii) and (a)(1)(iv) of
this section must be applied based on the portion of the premium
attributable to each family member covered under the coverage.
(1) Per-member rating. The total premium for family coverage must
be determined by summing the premiums for each individual family
member. In determining the total premium for family members, premiums
for no more than the three oldest family members who are under age 21
must be taken into account.
(2) Family tiers under community rating. If a state does not permit
any rating variation for factors that otherwise would be permitted
under paragraphs (a)(1)(iii) and (a)(1)(iv) of this section, the state
may elect to require that premiums for family coverage be determined by
using uniform family tiers and the corresponding multipliers
established by the state. A state that establishes uniform family tiers
and corresponding multipliers shall submit to CMS information on its
uniform family tiers and corresponding multipliers in accordance with
the date and format specified by CMS. If a state does not establish
uniform family tiers and the corresponding multipliers, the per-member
rating methodology under paragraph (c)(1) of this section will apply in
that state.
(3) Application to small group market. In the case of the small
group market, the total premium charged to the group shall be
determined by summing the premiums of covered participants and
beneficiaries in accordance with paragraph (c)(1) or (c)(2) of this
section, as applicable. Nothing in this section shall preclude a state
from requiring issuers to offer, or an issuer from voluntarily
offering, to a group premiums that are based on average enrollee
amounts, provided that the total group premium is the same total amount
derived in accordance with paragraph (c)(1) or (c)(2) of this section,
as applicable. A state that requires premiums based on average enrollee
amounts shall submit to CMS information on its election in accordance
with the date and format specified by CMS.
(d) Uniform age bands. The following uniform age bands apply for
rating purposes under paragraph (a)(1)(iii) of this section:
(1) Child age bands. A single age band for individuals age 0 to 20.
(2) Adult age bands. One-year age bands starting at age 21 and
ending at age 63.
(3) Older adult age bands. A single age band for individuals age 64
and older.
(e) Uniform age rating curves. Each state must establish a uniform
age rating curve for rating purposes under paragraph (a)(1)(iii) of
this section and submit to CMS information on its uniform age rating
curve in accordance with the date and format specified by CMS. If a
state does not establish a uniform age rating curve by a date specified
by CMS, a default uniform age rating curve established by CMS shall
apply in that state which takes into account the rating variation
permitted for age under state law.
(f) Special rule for large group market. If a state permits health
insurance issuers that offer coverage in the large group market in the
state to offer such coverage through an Exchange starting in 2017, the
provisions of this section applicable to coverage in the small group
market shall apply to all coverage offered in the large group market in
the state.
(g) Applicability date. The provisions of this section apply for
plan years (in the individual market, for policy years) beginning on or
after January 1, 2014.
(h) Grandfathered health plans. This section does not apply to
grandfathered health plans.
6. Section 147.104 is added to read as follows:
Sec. 147.104 Guaranteed availability of coverage.
(a) Guaranteed availability of coverage in the individual and group
market. Subject to paragraphs (b) through (d) of this section, a health
insurance issuer that offers health insurance coverage in the
individual or group market in a state must offer to any individual or
employer in the state all products that are approved for sale in the
applicable market, and must accept any individual or employer that
applies for any of those products.
(b) Enrollment periods. A health insurance issuer may restrict
enrollment in health insurance coverage to open or special enrollment
periods.
(1) Open enrollment periods--(i) Group market. A health insurance
issuer in the group market must permit an employer to purchase health
insurance coverage for a group health plan at any point during the
year. In the case of health insurance coverage offered in the small
group market, a health insurance issuer may decline to offer coverage
to a plan sponsor that is unable to comply with a material plan
provision relating to employer contribution or group participation
rules, as defined in Sec. 147.106(b)(3), pursuant to applicable state
law and, in the case of a QHP offered in the SHOP, as permitted by
Sec. 156.285(c) of this subchapter. With respect to coverage in the
small group market, and in the large group market if such coverage is
offered in a Small Business Health Options Program (SHOP) in a state,
coverage shall become effective consistent with the dates described in
Sec. 155.725(h) of this subchapter.
(ii) Individual market. A health insurance issuer in the individual
market must permit an individual to purchase health insurance coverage
during the initial and annual open enrollment periods described in
Sec. 155.410(b) and (e) of this subchapter, with such coverage
becoming effective consistent with the dates described in Sec.
155.410(c) and (f) of this subchapter.
(2) Special enrollment periods. A health insurance issuer in the
group market and individual market shall establish special enrollment
periods for qualifying events as defined under section 603 of the
Employee Retirement Income Security Act of 1974, as amended. Enrollees
shall be provided 30 calendar days after the date of the qualifying
event to elect coverage, with such coverage becoming effective
consistent with the dates described in Sec. 155.420(b) of this
subchapter. These special enrollment periods are in addition to any
other special enrollment periods that are required under federal and
state law.
(c) Special rules for network plans. (1) In the case of a health
insurance issuer that offers health insurance coverage in the group and
individual market through a network plan, the issuer may do the
following:
(i) Limit the employers that may apply for the coverage to those
with eligible individuals in the group market who live, work, or reside
in the service area for the network plan, and limit the individuals who
may apply for the coverage in the individual market to those who live
or reside in the service area for the network plan.
(ii) Within the service area of the plan, deny coverage to
employers and
[[Page 70613]]
individuals if the issuer has demonstrated to the applicable state
authority (if required by the state authority) the following:
(A) It will not have the capacity to deliver services adequately to
enrollees of any additional groups or any additional individuals
because of its obligations to existing group contract holders and
enrollees.
(B) It is applying paragraph (c)(1) of this section uniformly to
all employers and individuals without regard to the claims experience
of those individuals, employers and their employees (and their
dependents) or any health status-related factor relating to such
individuals, employees, and dependents.
(2) An issuer that denies health insurance coverage to an
individual or an employer in any service area, in accordance with
paragraph (c)(1)(ii) of this section, may not offer coverage in the
individual or group market, as applicable, within the service area to
any individual or employer, as applicable, for a period of 180 calendar
days after the date the coverage is denied. This paragraph (c)(2) does
not limit the issuer's ability to renew coverage already in force or
relieve the issuer of the responsibility to renew that coverage.
(3) Coverage offered within a service area after the 180-day period
specified in paragraph (c)(2) of this section is subject to the
requirements of this section.
(d) Application of financial capacity limits. (1) A health
insurance issuer may deny health insurance coverage in the group or
individual market if the issuer has demonstrated to the applicable
state authority (if required by the state authority) the following:
(i) It does not have the financial reserves necessary to underwrite
additional coverage.
(ii) Is applying this paragraph (d)(1) uniformly to all employers
or individuals in the group or individual market, as applicable, in the
state consistent with applicable state law and without regard to the
claims experience of those individuals, employers and their employees
(and their dependents) or any health status-related factor relating to
such individuals, employees, and dependents.
(2) An issuer that denies group health insurance coverage to any
employer or individual in a state under paragraph (d)(1) of this
section may not offer coverage in the group or individual market, as
applicable, in the state before the later of either of the following
dates:
(i) The 181st day after the date the issuer denies coverage.
(ii) The date the issuer demonstrates to the applicable state
authority, if required under applicable state law, that the issuer has
sufficient financial reserves to underwrite additional coverage.
(3) Paragraph (d)(2) of this section does not limit the issuer's
ability to renew coverage already in force or relieve the issuer of the
responsibility to renew that coverage.
(4) Coverage offered after the 180-day period specified in
paragraph (d)(2) of this section is subject to the requirements of this
section.
(5) An applicable state authority may provide for the application
of this paragraph (d) on a service-area-specific basis.
(e) Marketing. A health insurance issuer and its officials,
employees, agents and representatives must comply with any applicable
state laws and regulations regarding marketing by health insurance
issuers and cannot employ marketing practices or benefit designs that
will have the effect of discouraging the enrollment of individuals with
significant health needs in health insurance coverage.
(f) Applicability date. The provisions of this section apply for
plan years (in the individual market, for policy years) beginning on or
after January 1, 2014.
(g) Grandfathered health plans. This section does not apply to
grandfathered health plans.
7. Section 147.106 is added to read as follows:
Sec. 147.106 Guaranteed renewability of coverage.
(a) General rule. Subject to paragraphs (b) through (d) of this
section, a health insurance issuer offering health insurance coverage
in the individual or group market is required to renew or continue in
force the coverage at the option of the plan sponsor or the individual,
as applicable.
(b) Exceptions. An issuer may nonrenew or discontinue health
insurance coverage offered in the group or individual market based only
on one or more of the following:
(1) Nonpayment of premiums. The plan sponsor or individual, as
applicable, has failed to pay premiums or contributions in accordance
with the terms of the health insurance coverage, including any
timeliness requirements.
(2) Fraud. The plan sponsor or individual, as applicable, has
performed an act or practice that constitutes fraud or made an
intentional misrepresentation of material fact in connection with the
coverage.
(3) Violation of participation or contribution rules. In the case
of group health insurance coverage, the plan sponsor has failed to
comply with a material plan provision relating to employer contribution
or group participation rules, pursuant to applicable state law. For
purposes of this paragraph (b) the following apply:
(i) The term ``employer contribution rule'' means a requirement
relating to the minimum level or amount of employer contribution toward
the premium for enrollment of participants and beneficiaries.
(ii) The term ``group participation rule'' means a requirement
relating to the minimum number of participants or beneficiaries that
must be enrolled in relation to a specified percentage or number of
eligible individuals or employees of an employer.
(4) Termination of plan. The issuer is ceasing to offer coverage in
the market in accordance with paragraph (c) or (d) of this section and
applicable state law.
(5) Enrollees' movement outside service area. For network plans,
there is no longer any enrollee under the plan who lives, resides, or
works in the service area of the issuer (or in the area for which the
issuer is authorized to do business); and in the case of the small
group market, the issuer applies the same criteria it would apply in
denying enrollment in the plan under Sec. 147.104(c)(1)(i).
(6) Association membership ceases. For coverage made available in
the small or large group market only through one or more bona fide
associations, if the employer's membership in the bona fide association
ceases, but only if the coverage is terminated uniformly without regard
to any health status-related factor relating to any covered individual.
(c) Discontinuing a particular product. In any case in which an
issuer decides to discontinue offering a particular product offered in
the group or individual market, that product may be discontinued by the
issuer in accordance with applicable state law in the applicable market
only if the following occurs:
(1) The issuer provides notice in writing to each plan sponsor or
individual, as applicable, provided that particular product in that
market (and to all participants and beneficiaries covered under such
coverage) of the discontinuation at least 90 calendar days before the
date the coverage will be discontinued.
(2) The issuer offers to each plan sponsor or individual, as
applicable, provided that particular product the option, on a
guaranteed issue basis, to purchase all (or, in the case of the large
group market, any) other health
[[Page 70614]]
insurance coverage currently being offered by the issuer to a group
health plan or individual health insurance coverage in that market.
(3) In exercising the option to discontinue that product and in
offering the option of coverage under paragraph (c)(2) of this section,
the issuer acts uniformly without regard to the claims experience of
those sponsors or individuals, as applicable, or any health status-
related factor relating to any participants or beneficiaries covered or
new participants or beneficiaries who may become eligible for such
coverage.
(d) Discontinuing all coverage. (1) An issuer may elect to
discontinue offering all health insurance coverage in the individual or
group market, or all markets, in a state in accordance with applicable
state law only if the issuer meets all of the following conditions:
(i) The issuer provides notice in writing to the applicable state
authority and to each plan sponsor or individual, as applicable, (and
all participants and beneficiaries covered under the coverage) of the
discontinuation at least 180 calendar days prior to the date the
coverage will be discontinued.
(ii) All health insurance policies issued or delivered for issuance
in the state in the applicable market (or markets) are discontinued and
not renewed.
(2) An issuer that elects to discontinue offering all health
insurance coverage in a market (or markets) in a state as described in
this paragraph (d) may not issue coverage in the applicable market (or
markets) and state involved during the 5-year period beginning on the
date of discontinuation of the last coverage not renewed.
(e) Exception for uniform modification of coverage. Only at the
time of coverage renewal may issuers modify the health insurance
coverage for a product offered to a group health plan in the following:
(1) Large group market.
(2) Small group market if, for coverage available in this market
(other than only through one or more bona fide associations), the
modification is consistent with state law and is effective uniformly
among group health plans with that product.
(f) Application to coverage offered only through associations. In
the case of health insurance coverage that is made available by a
health insurance issuer in the small or large group market to employers
only through one or more associations, the reference to ``plan
sponsor'' is deemed, with respect to coverage provided to an employer
member of the association, to include a reference to the employer.
(g) Applicability date. The provisions of this section apply for
plan years (in the individual market, for policy years) beginning on or
after January 1, 2014.
(h) Grandfathered health plans. This section does not apply to
grandfathered health plans.
8. Section 147.145 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 147.145 Student health insurance coverage.
* * * * *
(b) Exemptions from the Public Health Service Act-- (1) Guaranteed
availability and guaranteed renewability. (i) For purposes of sections
2741(e)(1) and 2742(b)(5) of the Public Health Service Act, student
health insurance coverage is deemed to be available only through a bona
fide association.
(ii) For purposes of section 2702(a) of the Public Health Service
Act, a health insurance issuer that offers student health insurance
coverage shall not be required to accept persons who are not students
or dependents of students in such coverage.
(iii) For purposes of section 2703(a) of the Public Health Service
Act, a health insurance issuer that offers student health insurance
coverage shall not be required to renew or continue coverage for
individuals who are no longer students or dependents of students.
* * * * *
PART 150--CMS ENFORCEMENT IN GROUP AND INDIVIDUAL INSURANCE MARKETS
9. The authority citation for part 150 continues to read as
follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.
10. Section 150.101 is amended by revising paragraphs (a) and
(b)(2) to read as follows:
Sec. 150.101 Basis and scope.
(a) Basis. CMS's enforcement authority under sections 2723 and 2761
of the PHS Act and its rulemaking authority under section 2792 of the
PHS Act provide the basis for issuing regulations under this part 150.
(b) * * *
(2) Enforcement with respect to health insurance issuers. The
states have primary enforcement authority with respect to the
requirements of title XXVII of the PHS Act that apply to health
insurance issuers offering coverage in the group or individual health
insurance market. If CMS determines under subpart B of this part that a
state is not substantially enforcing title XXVII of the PHS Act,
including the implementing regulations in parts 146, 147, and 148 of
this subchapter, CMS enforces them under subpart C of this part.
11. Section 150.103 is amended by--
a. Removing the definition of ``HIPAA requirements;''
b. Revising the definition of ``Individual health insurance policy
or individual policy;'' and
c. Adding the definition of ``PHS Act requirements'' in
alphabetical order.
The revision and addition read as follows:
Sec. 150.103 Definitions.
* * * * *
Individual health insurance policy or individual policy means the
legal document or contract issued by the issuer to an individual that
contains the conditions and terms of the insurance. Any association or
trust arrangement that is not a group health plan as defined in Sec.
144.103 of this subchapter or does not provide coverage in connection
with one or more group health plans is individual coverage subject to
the requirements of parts 147 and 148 of this subchapter. The term
``individual health insurance policy'' includes a policy that is -
(1) Issued to an association that makes coverage available to
individuals other than in connection with one or more group health
plans; or
(2) Administered, or placed in a trust, and is not sold in
connection with a group health plan subject to the provisions of parts
146 and 147 of this subchapter.
PHS Act requirements means the requirements of title XXVII of the
PHS Act and its implementing regulations in parts 146, 147, and 148 of
this subchapter.
* * * * *
12. In 45 CFR part 150, remove the words ``HIPAA requirement'' or
``HIPAA requirements,'' and add in their place ``PHS Act requirement''
or ``PHS Act requirements,'' respectively, wherever they appear in the
following places.
a. Section 150.103, in the definition of ``Complaint''.
b. In the heading of subpart B of part 150.
c. Section 150.201.
d. Section 150.203, in the introductory text and paragraphs (a) and
(b).
e. Section 150.205(d) and (e)(1).
f. Section 150.207, in the section heading and text.
g. Section 150.209.
[[Page 70615]]
h. Section 150.211, in the introductory text.
i. Section 150.213(b) and (c).
j. Section 150.217, in the introductory text.
k. Section 150.219(a).
l. Section 150.221(a).
m. Section 150.301.
n. Section 150.303(a) introductory text, (a)(3), and (b).
o. Section 150.305(a)(1), (b)(2), and (c)(2).
p. Section 150.309.
q. Section 150.311, in the introductory text and paragraphs (d),
(f) introductory text, (f)(3), and (g).
r. Section 150.313(a) and (e)(3)(iv).
s. Section 150.317(a)(1) and (a)(3).
t. Section 150.319(b)(1) introductory text, (b)(1)(ii), and
(b)(1)(iii).
u. Section 150.343(a).
v. Section 150.465(c).
PART 154--HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND
REVIEW REQUIREMENTS
13. The authority citation for part 154 continues to read as
follows:
Authority: Section 2794 of the Public Health Service Act (42
U.S.C. 300gg-94).
14. Section 154.200 is amended by revising paragraphs (a)(2) and
(b) to read as follows:
Sec. 154.200 Rate increases subject to review.
(a) * * *
(2) * * * A State-specific threshold shall be based on factors
impacting rate increases in a State to the extent that the data
relating to such State-specific factors is available by August 1.
States interested in proposing a State-specific threshold for approval
are required to submit a proposal to the Secretary by August 1.
(b) The Secretary will publish a notice no later than September 1
of each year, to be effective on January 1 of the following year,
concerning whether a threshold under paragraph (a)(1) or (a)(2) of this
section applies to the 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.
* * * * *
15. Section 154.215 is revised to read as follows:
Sec. 154.215 Submission of rate filing justification.
(a) If any product is subject to a rate increase, a health
insurance issuer must submit a Rate Filing Justification for all
products on a form and in a manner prescribed by the Secretary.
(b) The Rate Filing Justification must consist of the following
Parts:
(1) Standardized data template (Part I), as described in paragraph
(d) of this section.
(2) Written description justifying the rate increase (Part II), as
described in paragraph (e) of this section.
(3) Rating filing documentation (Part III), as described in
paragraph (f) of this section.
(c) A health insurance issuer must complete and submit Parts I and
III of the Rate Filing Justification described in paragraphs (b)(1) and
(b)(3) of this section to CMS and, as long as the applicable State
accepts such submissions, to the applicable State for any rate
increase. If a rate increase is subject to review, then the health
insurance issuer must also complete and submit to CMS and, if
applicable, the State Part II of the Rate Filing Justification
described in paragraph (b)(2) of this section.
(d) Content of standardized data template (Part I): The
standardized data template 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.
(6) Three year history of rate increases for the product associated
with the rate increase.
(e) 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 including 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.
(2) Brief description of the overall experience of the policy,
including historical and projected expenses, and loss ratios.
(f) Content of rate filing documentation (Part III): The rate
filing documentation must include an actuarial memorandum that contains
the reasoning and assumptions supporting the data contained in Part I
of the Rate Filing Justification. Parts I and III must be sufficient to
conduct an examination satisfying the requirements of 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.
(g) If the level of detail provided by the issuer for the
information under paragraphs (d) and (f) of this section does not
provide sufficient basis for CMS to determine whether the rate increase
is an unreasonable rate increase when CMS reviews a rate increase
subject to review under Sec. 154.210(a), 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.
(h) 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 Part II of each Rate Filing Justification.
(2) CMS will make available to the public on its Web site the
information contained in Parts I and III of each Rate Filing
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 Rate Filing Justification.
(i) CMS will include information on its Web site concerning how the
public can submit comments on the proposed rate increases that CMS
reviews.
16. Section 154.220 is revised to read as follows:
Sec. 154.220 Timing of providing the rate filing justification.
A health insurance issuer must submit a Rate Filing Justification
for all rate increases that are filed in a State on or after April 1,
2013, or effective on or after January 1, 2014 in a State that does not
require the rate increase 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 Rate Filing
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 Rate Filing
[[Page 70616]]
Justification prior to the implementation of the rate increase.
Sec. 154.225 [Amended]
17a. In Sec. 154.225(a),introductory text, remove the words
``Preliminary Justification'' and add in their place ``Rate Filing
Justification.''
Sec. 154.230 [Amended]
17b. In Sec. 154.230(b) and (c)(1), remove the words ``Preliminary
Justification'' and add in their place ``Rate Filing Justification.''
18. Section 154.301 is amended as follows:
a. Amending paragraph (a)(3)(i) by removing ``; and'' and adding in
its place a period.
b. Amending paragraphs (a)(4)(i), (a)(4)(ii), and (a)(4)(vi)
through (a)(4)(x) by removing the semicolons and replacing them with
periods.
c. Amending paragraph (a)(3)(xi) by removing ``: and'' and adding
in its place a period.
d. Revising paragraphs (a)(4)(iii) through (a)(4)(v), and (b).
e. Redesignating paragraph (a)(4)(xii) as paragraph (a)(4)(xiii)
and adding new paragraphs (a)(3)(iii), (a)(3)(iv), (a)(4)(xii), and
(a)(4)(xiv) through (a)(4)(xvi).
The revisions and additions read as follows:
Sec. 154.301 CMS's determinations of effective rate review programs.
(a) * * *
(3) * * *
(iii) The reasonableness of assumptions used by the health
insurance issuer to estimate the rate impact of the Federal reinsurance
and risk adjustment programs under sections 1341 and 1343 of the
Affordable Care Act.
(iv) The health insurance issuer's data related to implementation
and ongoing utilization of a market-wide single risk pool, essential
health benefits, actuarial values and other market reforms rules as
required by the Affordable Care Act.
(4) * * *
(iii) The impact of cost-sharing changes by major service
categories, including actuarial values.
(iv) The impact of benefit changes, including essential health
benefits and non-essential health benefits.
(v) The impact of changes in enrollee risk profile and pricing,
including rating limitations for age and tobacco use under section 2701
of the Public Health Service Act.
* * * * *
(xii) Other standardized ratio tests recommended or required by
statute, regulation, or best practices.
* * * * *
(xiv) The impacts of geographic factors and variations.
(xv) The impact of changes within a single risk pool to all
products or plans within the risk pool.
(xvi) The impact of Federal reinsurance and risk adjustment
payments and charges under sections 1341 and 1343 of the Affordable
Care Act.
* * * * *
(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, for the rate increases it reviews,
access from its Web site to at least the information contained in Parts
I, II, and III of the Rate Filing Justification that CMS makes
available on its Web site (or provide CMS's Web address for such
information) and have a mechanism for receiving public comments on
those proposed rate increases.
* * * * *
PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES
19. The authority citation for part 156 continues to read as
follows:
Authority: Title I of the Affordable Care Act, sections 1301-
1304, 1311-1312, 1321, 1322, 1324, 1334, 1342-1343, and 1401-1402,
Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18042).
20. Section 156.80 is added to subpart A to read as follows:
Sec. 156.80 Single risk pool.
(a) Individual market. A health insurance issuer shall consider the
claims experience of all enrollees in all health plans (other than
grandfathered health plans) subject to section 2701 of the Public
Health Service Act and offered by such issuer in the individual market
in a state, including those enrollees who do not enroll in such plans
through the Exchange, to be members of a single risk pool.
(b) Small group market. A health insurance issuer shall consider
the claims experience of all enrollees in all health plans (other than
grandfathered health plans) subject to section 2701 of the Public
Health Service Act and offered by such issuer in the small group market
in a state, including those enrollees who do not enroll in such plans
through the Exchange, to be members of a single risk pool.
(c) Merger of the individual and small group markets. A state may
require the individual and small group insurance markets within a state
to be merged into a single risk pool if the state determines
appropriate. A state that requires such merger of risk pools shall
submit to CMS information on its election in accordance with the date
and format specified by CMS.
(d) Index rate--(1) In general. Each plan year or policy year, as
applicable, a health insurance issuer shall establish an index rate for
a state market based on the total combined claims costs for providing
essential health benefits within the single risk pool of that state
market. The index rate shall be adjusted on a market-wide basis based
on the total expected market-wide payments and charges under the risk
adjustment and reinsurance programs in the state. The premium rate for
all of the health insurance issuer's plans in the relevant state market
must use the applicable index rate, as adjusted for total expected
market-wide payments and charges under the risk adjustment and
reinsurance programs, subject only to the adjustments permitted in
paragraph (d)(2) of this section.
(2) Permitted plan-level adjustments to the index rate. For plan
years or policy years beginning on or after January 1, 2014, a health
insurance issuer may vary premium rates for a particular plan from its
index rate for a relevant state market based only on the following
actuarially justified plan-specific factors:
(i) The actuarial value and cost-sharing design of the plan.
(ii) The plan's provider network, delivery system characteristics,
and utilization management practices.
(iii) The benefits provided under the plan that are in addition to
the essential health benefits. These additional benefits must be pooled
with similar benefits within the single risk pool and the claims
experience from those benefits must be utilized to determine rate
variations for plans that offer those benefits in addition to essential
health benefits.
(iv) With respect to catastrophic plans, the expected impact of the
specific eligibility categories for those plans.
(e) Grandfathered health plans in the individual and small group
market. A state law requiring grandfathered health plans to be included
in a single risk pool described in paragraph (a) or (b) of this section
shall not apply.
(f) Applicability date. The provisions of this section apply for
plan years (as that term is defined in Sec. 144.103 of this
subchapter) in the group market, and for policy years (as that term is
defined in Sec. 144.103 of this subchapter) in the
[[Page 70617]]
individual market, beginning on or after January 1, 2014.
21. Section 156.155 is added to subpart B to read as follows:
Sec. 156.155 Enrollment in catastrophic plans.
(a) General rule. A health plan is a catastrophic plan if it meets
the following conditions:
(1) Meets all applicable requirements for health insurance coverage
in the individual market (including but not limited to those
requirements described in parts 147 and 148 of this subchapter), and is
offered only in the individual market.
(2) Does not provide a bronze, silver, gold, or platinum level of
coverage described in section 1302(d) of the Affordable Care Act.
(3) Provides coverage of the essential health benefits under
section 1302(b) of the Affordable Care Act once the annual limitation
on cost sharing in section 1302(c)(1) of the Affordable Care Act is
reached.
(4) Provides coverage for at least three primary care visits per
year before reaching the deductible.
(5) Covers only individuals who meet either of the following
conditions:
(i) Have not attained the age of 30 prior to the first day of the
plan year.
(ii) Have received a certificate of exemption for the reasons
identified in section 1302(e)(2)(B)(i) or (ii) of the Affordable Care
Act.
(b) Coverage of preventive health services. A catastrophic plan may
not impose any cost-sharing requirements (such as a copayment,
coinsurance, or deductible) for preventive services, in accordance with
section 2713 of the Public Health Service Act.
(c) Application for family coverage. For other than self-only
coverage, each individual enrolled must meet the requirements of
paragraph (a)(4) of this section.
Dated: May 15, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: August 6, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-28428 Filed 11-20-12; 11:15 am]
BILLING CODE 4120-01-P