| Law & Industry Daily
Published on: Friday, September 2, 2011

Health Insurance Rates Face State, Federal Reviews



WASHINGTON – U.S. health insurers, effective this month, are subject to increased regulatory scrutiny when seeking to raise premiums by 10 percent or more over their 2010 rates.

Beginning Sept. 1, health insurance rates for the individual and small group markets face state or federal review to determine whether a double-digit rate increase would be reasonable under the Patient Protection and Affordable Care Act (PPACA, Pub. L. 111–148).

For rate increases of 10 percent or greater, insurers will be required to file an actuarial justification with regulators.

Forty-one states will conduct reviews of rates in their respective jurisdictions, while the federal Centers for Medicare & Medicaid Services (CMS) will review rates in nine states that lack the authority to do so.


The CMS Center for Consumer Information and Insurance Oversight (CCIIO) will conduct reviews for the individual- and small-group markets in Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming.  In Pennsylvania and Virginia, it will conduct only small-group market reviews, officials said.

Officials will not have the authority to reject rate increases deemed to be excessive. Disclosures of them, however, will be posted on the Department of Health and Human Services’ website.

Beginning in 2012, states can choose the threshold at which they’ll review rate hikes, under PPACA.

In states where statute does not define “individual market” and “small-group market,” federal regulation says the definitions in the Public Health Service Act (PHSA; 42 U.S.C. § 300gg-94) will apply.

For the individual market, that’s PHSA § 2791(e)(1)(A); group coverage is at PHSA § 2791(e)(5), but modified to state 50 employees rather than the 100 listed in the statute.

The health care overhaul law, PPACA, authorized $250 million in federal grants to help states conduct rate reviews. Some $48 million has been used to bankroll states’ preparation efforts, including the bolstering of oversight capabilities in 42 states, the District of Columbia and the five U.S. territories.

Secretary of Health and Human Services Kathleen Sebelius said rate-reviews would provide “greater transparency, accountability,” and in some cases, reduced insurance costs for families and small businesses.

“For far too long, families and small employers have been at the mercy of insurance rate increases that often put coverage out of their reach. Rate review will shed a bright light on the industry’s behavior and drive market competition to lower costs,” Sebelius said in statement. “We are pleased to team with states to bring this important new protection to consumers and employers.”

Rate reviews are authorized by PPACA § 1003, which amended the Public Health Service Act (PHSA), relating to group health plans and issuers in the group and individual markets.

PHSA § 2794 directs the secretary of the Department of Health and Human Services, in conjunction with states, to establish a process for the annual review of “unreasonable increases” in premiums for medical coverage. Section 2794, however, doesn’t apply to grandfathered health insurance coverage and self-funded plans.


On Sept. 1, HHS issued an amendment to its rate-review final rule, specifying that health insurance coverage sold to individuals or small groups through an association is subject to rate review, on or after Nov. 1, 2011.

“This approach is consistent with the approach taken under long-standing Department policy and the medical loss ratio regulation,” the department said.

Effective January 2011, PPACA medical-loss-ratio provisions require health insurers to spend at least 80 percent of premiums collected from the individual and small-group markets on health care benefits or quality improvements, and 85 percent of premiums collected on large-group plans, or return the difference to consumers.

On the rate-review rule, CMS Administrator Donald Berwick signed-off on Aug. 16. Sebelius did so Aug. 29.

In December 2010, HHS published the Notice of Proposed Rulemaking to implement PPACA § 2794. A final rule, with comment period, was published in May 2011 (76 FR 29964).

“According to comments from consumer advocates and some of the affected associations, if association coverage was not included in the rate review rule, the association coverage market would be treated differently from traditional markets in some states, and consumers in these plans would not benefit from the Affordable Care Act’s rate review process,” the Sept. 1-issued rule reads.


America’s Health Insurance Plans’ (AHIP), an industry group of health insurers, has questioned the potential effect of rate-reviews on overall costs.

“Focusing on health insurance premiums while ignoring underlying medical cost drivers will not make health care coverage more affordable for families and employers,” AHIP President and CEO Karen Ignagni said in a May 19 statement.

“The public policy discussion needs to be enlarged to focus on the soaring cost of medical care that threatens our economic competitiveness, our public safety net, and the affordability of health care coverage,” she added.

The HHS final rule is at 45 CFR Part 154. The text is available here.

  • Disclosure of Rate Hikes Isn’t Enough to Stop Unreasonable Health Insurance Rates, Says Consumer Watchdog (prnewswire.com)
  • New rate reviews begin for health insurers (seattletimes.nwsource.com)

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