29964 Federal Register / Vol. 76, No. 99 / Monday, May 23, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 154 

[CMS–9999–FC] 

RIN 0938–AQ68 

Rate Increase Disclosure and Review 

AGENCY: Center for Consumer 

Information and Insurance Oversight, 

Centers for Medicare & Medicaid 

Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This final rule with comment 

period implements requirements for 

health insurance issuers regarding 

disclosure and review of unreasonable 

premium increases under section 2794 

of the Public Health Service Act. The 

final rule establishes a rate review 

program to ensure that all rate increases 

that meet or exceed a specified 

threshold are reviewed by a State or 

CMS to determine whether they are 

unreasonable and that certain rate 

information be made public. 

DATES: Effective date. This rule is 

effective on July 18, 2011. 

Comment date. We will consider 

comments on § 154.102 regarding the 

definitions of ‘‘individual market’’ and 

‘‘small group market’’ that are received 

at one of the addresses provided in the 

ADDRESSES section of this rule no later 

than 5 p.m. EST on July 18, 2011. 

ADDRESSES: In commenting please refer 

to file code CMS–9999–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–9999–FC, P.O. Box 8010, 

Baltimore, MD 21244–8010. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–9999–FC, 

Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments only to the 

following addresses prior to the close of 

comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://regulations.gov. 

Follow the search instructions on that 

Web site to view public comments. 

Comments received timely will be 

also available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4:00 p.m. To schedule an 

appointment to view public comments, 

phone (800) 743–3591. 

FOR FURTHER INFORMATION CONTACT: 

Sally McCarty, (301) 492–4489 (or by 

e-mail: ratereview@hhs.gov). 

SUPPLEMENTARY INFORMATION: Comment 

Subject Areas: We will consider 

comments on how individual and small 

group coverage sold through 

associations should be treated under the 

rate review process as discussed in this 

final rule with comment period that are 

received by the date and time indicated 

in the DATES section of this final rule 

with comment period. 

I. Background 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) was enacted 

on March 23, 2010; the Health Care and 

Education Reconciliation Act (Pub. L. 

111–152) was enacted on March 30, 

2010. In this preamble, we refer to the 

two statutes collectively as the 

Affordable Care Act. The Affordable 

Care Act reorganizes, amends, and adds 

to the provisions of Part A of title XXVII 

of the Public Health Service Act (PHS 

Act) relating to group health plans and 

health insurance issuers in the group 

and individual markets. 

Section 1003 of the Affordable Care 

Act adds a new section 2794 of the PHS 

Act which directs the Secretary of the 

Department of Health and Human 

Services (the Secretary), in conjunction 

with the States, to establish a process for 

the annual review of ‘‘unreasonable 

increases in premiums for health 

insurance coverage.’’ The statute 

provides that this process shall require 

health insurance issuers to submit to the 

Secretary and the applicable State 

justifications for unreasonable premium 

increases prior to the implementation of 

the increases. 

On December 23, 2010, we published 

a proposed rule entitled ‘‘Rate Increase 

Disclosure and Review.’’ Sixty 

comments were received by the end of 

the comment period. Commenters 

included several State insurance 

regulators; the National Association of 

Insurance Commissioners (‘‘NAIC’’); 

many consumer, retiree, and patient 

organizations; health care providers; 

health insurance issuers and related 

trade associations (collectively, 

‘‘industry’’); an organization 

representing the actuarial profession; 

and others. 

II. Provisions of the Proposed Rule and 

Responses to Comments 

In this section of the preamble, we 

summarize each section of the proposed 

rule, discuss the public comments 

received on each section (if any), and 

provide responses to the comments. 

A. Subpart A—General Provisions 

1. Basis and Scope (§ 154.101) 

Section 154.101 of the proposed rule 

indicated that this rule would 

implement section 2794 of the PHS Act. 

Specifically, the rule would establish 


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disclosure requirements on health 

insurance issuers offering health 

insurance coverage in the small group or 

individual markets concerning rate 

increases that are above a specific 

threshold and designated as subject to 

review. The rule proposed to establish 

the process by which such increases are 

reviewed to determine whether they are 

unreasonable. 

Comment: One consumer commenter 

expressed concern that the proposed 

rule did not include authority for CMS 

to require an issuer to rescind an 

unreasonable rate or otherwise impose 

penalties on such issuer for proposing 

an unreasonable rate. 

Response: Section 2794 of the PHS 

Act only provides CMS with the 

authority to require justification and 

disclosure of proposed rate increases. 

However, if an issuer fails to comply 

with the requirements set forth in this 

final rule, CMS could seek a court order 

against the issuer to enforce compliance. 

Some States have the authority to 

deny proposed rate increases, and the 

grants awarded under section 2794(b) of 

the PHS Act provided supplemental 

performance funding for States that 

have or seek such authority. In addition, 

States receiving grants under section 

2794(b) of the PHS Act will be required 

to make recommendations to State 

Exchanges regarding whether issuers 

should be excluded from participation 

in the Exchanges based on patterns or 

practices of excessive or unjustified 

premium increases. Section 1311(e)(2) 

of the Affordable Care Act requires 

Exchanges to take the States’ 

recommendations into consideration 

when determining whether to make 

health plans available through the 

Exchanges. 

2. Definitions (§ 154.102) 

Certain key definitions in § 154.102 of 

the proposed rule are discussed below. 

a. Individual Market and Small Group 

Market. The proposed rule would have 

defined ‘‘individual market’’ and ‘‘small 

group market’’ as they are defined under 

the applicable State rate filing laws, if 

the State laws included such 

definitions. Under the proposed rule, if 

a State rate filing law did not include 

definitions for the individual market or 

the small group market, the definitions 

under the PHS Act would be used, with 

the exception that a small group would 

be defined to include employers with 50 

or fewer employees. 

Comment: State regulators, industry, 

and other commenters agreed that CMS 

generally should defer to State rate 

filing laws concerning the definitions 

for the individual market and the small 

group market. One State regulator 

commenter requested clarification as to 

whether short-term limited duration 

coverage was required to be included in 

the proposed rule’s definition of 

individual market, if the State excluded 

such coverage from its own definition. 

Response: The final rule continues to 

defer to State rate filing law definitions 

for individual market and small group 

market including in cases in which the 

State definition of individual market 

excludes short-term limited duration 

coverage. This rule, therefore, does not 

require that a State with an Effective 

Rate Review Program review proposed 

rate increases for short-term limited 

duration coverage if the State’s rate 

filing law does not consider short-term 

limited duration coverage to be 

individual market coverage. 

Comment: Five commenters 

specifically expressed concern that the 

proposed rule, as drafted, would not 

cover association coverage sold to 

individuals and small employers in 

some States and recommended that the 

final rule include them in its scope. 

One State regulator commented that a 

large percentage of small employers 

purchase health insurance coverage 

through associations in her State. Under 

that State’s law, small employers 

purchasing through an association are 

considered one large group not subject 

to the provisions of State law that apply 

to small group coverage. However, the 

commenter noted that rate increases are 

based on each small employer’s own 

experience, and not that of the entire 

association, so that rate-setting for 

association coverage sold to small 

groups is not the same as that for large 

employer coverage. She recommended 

that association coverage be treated 

consistently for purposes of section 

2794 of the PHS Act and other PHS Act 

provisions. As CMS Insurance 

Standards Bulletin Transmittal Nos. 02– 

02 and 02–03 makes clear, PHS Act 

requirements generally apply to 

individual market and small group 

market coverage sold through 

associations in the same manner as they 

apply to other individual market and 

small group market coverage sold 

directly to consumers and small 

employers. 

Another State regulator voiced similar 

concerns, noting that his State had more 

small employers with association 

coverage than small employers with 

coverage in the traditional small group 

market. This State regulator urged that 

the final rule categorize individual and 

small employer coverage based on the 

purchasers of such coverage. 

A major trade association representing 

issuers found the proposed rule 

ambiguous concerning the regulation of 

product filings in the individual and 

small group markets offered through 

out-of-state associations and group 

trusts. The commenter noted that in 

some cases, a group policy is issued in 

one State, with certificates being issued 

to individuals or small groups in other 

States. Since many States only review 

rates for policies issued in their States, 

their rate review laws would not apply 

to coverage sold through out-of-state 

associations and group trusts. 

Similarly, one large issuer noted that 

CMS’s deference to State rate filing law 

definitions could result in some 

individual market products sold 

through associations and group trusts 

not receiving any review by States or 

CMS. This commenter recommended 

that consistent filing requirements and 

rate review standards be applied to all 

products marketed to individuals, 

regardless of the technical insurance 

arrangement that might be involved, and 

that CMS review rates for individual 

market products sold through 

associations and group trusts in cases 

where States did not. The commenter 

thought this approach would ensure 

uniform consumer protection and 

advance competition by subjecting all 

issuers to the same rules. 

Lastly, one consumer commenter 

stated that all coverage marketed to 

individuals and small employers should 

be subject to the same review, regardless 

of whether the coverage was marketed 

directly to consumers or through 

associations. 

Response: Given the fact that we did 

not include a discussion on the 

association health plan issue in the 

proposed rule, we are not making a 

determination regarding this issue in 

this final rule, but instead are seeking 

comments and additional data on the 

definitions of ‘‘individual market’’ and 

‘‘small group market’’ in § 154.102 of 

this final rule in relation to whether to 

provide that individual and small 

employer policies sold through 

associations are to be included in the 

rate review process, even if the State 

excludes such coverage from its 

definitions of individual and small 

group market coverage. Given the 

comments received and our policy goals 

with regard to rate review, we are 

inclined to amend the definitions of 

individual market and small group 

market in § 154.102 to include coverage 

sold to individuals and small groups 

through associations in all cases. 

However, as indicated above, we are 

interested in receiving further 

comments on § 154.102 for future 

consideration. If we were to amend the 

definitions of ‘‘individual market’’ and 

‘‘small group market’’ in § 154.102 to 


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include individual coverage and small 

employer coverage sold through 

associations in the rate review process, 

the amendment will only be applied 

prospectively. 

We recognize that some States may be 

unable to review proposed rate 

increases for coverage sold through 

associations in circumstances in which 

such association coverage is viewed as 

large group coverage under State law 

and State law does not provide for 

review of rate increases in the large 

group market, or the State otherwise 

lacks legal authority to review such 

rates. In that case, CMS could review 

the proposed increases for those 

products. Whether or not a State does or 

may be unable to review rate increases 

for association coverage is not a criteria 

for determining whether it has an 

Effective Rate Review Program. 

In addition, we are seeking comments 

to address the following questions: 

1. Do States currently review rate 

increases for association and out-ofState trust coverage sold to individuals 

and small groups, regardless of whether 

the policies are sitused in or outside of 

their States? 

2. How many such rate filings do 

States receive for association and out-ofState trust coverage? 

3. How prevalent are association and 

out-of-State trust coverage 

arrangements? What percentage of 

individual market and small group 

market business is sold through 

associations and out-of-State trusts? 

4. In which States is association and 

out-of-State trust coverage commonly 

purchased by individuals and small 

groups? Where are out-of-State trusts 

typically sitused? 

5. Why do some individuals and 

small employers purchase coverage 

through associations and out-of-State 

trusts rather than the traditional 

markets? Are there particular groups of 

individuals or types of small employers 

that typically purchase coverage 

through associations and out-of-State 

trusts? What organizations (other than 

issuers) typically sponsor, endorse, or 

market association and out-of-State trust 

arrangements? 

6. How do rate increases for 

association and out-of-State trust 

coverage sold to individuals and small 

groups compare to rate increases in the 

traditional market? What explains the 

differences (if any) between rate 

increases for association and out-ofState trust coverage and traditional 

market coverage? 

Once we receive and review the 

comments, we will make a 

determination on whether to amend 

§ 154.102 of the rule to include 

individual and small employer health 

insurance coverage sold through 

associations in the rate review process. 

Meanwhile, nothing prohibits a State 

from reviewing rates of coverage sold 

through associations if it already does so 

or amends its laws in the future to do 

so. 

b. Product. The proposed rule would 

define ‘‘product’’ as a package of health 

insurance coverage benefits with a 

discrete set of rating and pricing 

methodologies offered in a State. 

Comment: Several industry 

commenters raised concerns that the 

definition of product was not consistent 

with State definitions and urged CMS to 

defer to such State definitions. Some 

commenters further contended that it 

would be administratively cumbersome 

to develop a new Federal product 

classification system that did not align 

with existing State classification 

systems. 

Response: While we have not 

modified the proposed rule’s definition 

of product in this final rule, we believe 

that the definition is sufficiently flexible 

to accommodate existing State 

definitions, and that, as a practical 

matter, issuers will not have to 

reclassify their products to comply with 

the rate review process. Further, this 

definition is intended to track closely 

with the definition of health insurance 

product for purposes of the web portal, 

45 CFR 159.110. We expect that in most 

cases issuers will be able to use their 

existing identification numbers for 

health insurance products under the 

Health Insurance Oversight System 

(HIOS) for reporting rate increases to 

CMS. 

c. Rate Increase. The proposed rule 

would define ‘‘rate increase’’ as an 

increase in the rates of a specific 

product in the individual or small group 

market. 

Comment: Several industry 

commenters supported CMS’ decision to 

base the threshold standards on rates, 

rather than premiums. They noted that 

the distinction between premiums and 

rates was explained in the proposed 

rule’s preamble and recommended that 

this discussion be incorporated into the 

final rule itself. 

Response: We do not believe it is 

necessary to repeat the discussion in the 

proposed rule, as we are adopting the 

proposal described in that discussion, 

and that discussion applies to this final 

rule. 

d. State. The proposed rule would 

define ‘‘State’’ using the definition 

provided in section 2791(d)(14) of the 

PHS Act. 

Note: We note that the definition in 

2791(d)(14) of the PHS Act includes the 

States, the District of Columbia, Puerto Rico, 

the Virgin Islands, Guam, American Samoa, 

and Northern Mariana Islands. 

3. Applicability (§ 154.103) 

The proposed rule generally would be 

applicable to all health insurance 

issuers offering coverage in the small 

group or individual markets in a State. 

The proposed rule would not apply to 

grandfathered health plan coverage, as 

defined in 45 CFR 147.140, and to 

insurance coverage that meets the 

‘‘excepted benefits’’ definition set forth 

in section 2791(c) of the PHS Act. 

Comment: State regulators, industry, 

and employers generally agreed that the 

large group market should not be subject 

to the final rule, noting that large 

employers are sophisticated purchasers, 

that rates generally are based on each 

large employer’s own experience, and 

that the proposed rule’s filing 

requirements were not aligned with 

State large group market practices. In 

contrast, some provider commenters 

and a labor organization recommended 

that the large group market be subject to 

the final rule, noting the rate increases 

that large groups have faced and the 

consolidation that has occurred in the 

health insurance industry. Lastly, one 

State regulator noted that rates for midsized employers (that is, those with 51 

to 99 employees) are only partially 

experience-rated and that a rate review 

process could be warranted for them, as 

well. 

Response: We understand that many 

employer groups at the smaller end of 

the large group spectrum are only 

partially experience-rated, but we have 

not included them in the scope of the 

final rule because few States review 

rates for large groups. However, we will 

monitor rate increases in that market 

segment using a variety of sources 

including data from the rate review 

grant program and assess whether future 

amendments to the final rule may be 

warranted. 

Comment: One commenter suggested 

that grandfathered plans be included 

within the scope of the final rule. 

Response: Section 1251 of the 

Affordable Care Act provides that 

section 2794 of the PHS Act does not 

apply to coverage that was in effect on 

March 23, 2011 and retains grandfather 

status. If coverage loses its grandfather 

status, then PHS Act section 2794 of the 

PHS Act will apply. 

Comment: One provider commenter 

recommended that dental and vision 

plans be included within the scope of 

the final rule. The commenter stated 

that rates for these products have 

increased significantly due to lack of 


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regulation and noted the importance of 

such coverage to children. 

Response: We have maintained the 

exclusion for excepted benefits 

(including limited scope dental and 

vision benefits) as defined under section 

2791(c) of the PHS Act because we 

believe Federal and State resources are 

most effectively focused on increases 

that affect the affordability of basic 

medical coverage. We do not believe 

that rate increases for excepted benefit 

plans such as limited scope dental and 

vision benefits have the same impact on 

individuals and small employers as rate 

increases for basic medical coverage that 

includes benefits for hospital and 

physician services. States may review 

these rates if permitted under State law. 

Comment: One commenter 

recommended that retiree-only plans be 

included within the scope of the final 

rule when current or former employees 

pay for substantial portions of the 

premium increases. 

Response: While it is possible that 

some State filing laws may apply to 

such coverage, we have not required 

that health insurance coverage provided 

to retiree-only plans be subject to this 

rule. We note that many retiree-only 

plans are self-funded and thus would 

not constitute health insurance coverage 

subject to section 2794 of the PHS Act. 

B. Subpart B—Disclosure and Review 

Provisions 

1. Rate Increases Subject to Review 

(§ 154.200) 

Under the proposed rule, CMS or the 

applicable State would review those rate 

increases that meet or exceed specified 

thresholds to determine if they are 

unreasonable. (We understand that 

many States review all rate increases in 

the applicable markets; nothing in this 

rule affects State laws or practices with 

respect to rate increases below the 

relevant threshold.) Rate increases 

would be subject to review if they are 

10 percent or more and either: (1) are 

filed in a State on or after July 1, 2011; 

or (2) are in a State that does not require 

rate increases to be filed, and are 

effective on or after July 1, 2011. For 

rate increases filed in a State during 

calendar year 2012 and thereafter, or 

effective in calendar year 2012 and 

thereafter in a State that does not 

require rate increases to be filed, rate 

increases that meet or exceed Statespecific thresholds determined by the 

Secretary for the applicable calendar 

year (or 10 percent if applicable Statespecified thresholds are not determined 

by the Secretary) would be subject to 

review. The State-specific thresholds 

would be published in the Federal 

Register no later than the September 

15th prior to each calendar year to 

which they apply. 

To determine whether the specified 

threshold is met or exceeded, the 

weighted average increase for all 

enrollees subject to the rate increase 

would be used. Rate increases during 

the 12 month period that precedes the 

date on which a rate increase is effective 

are aggregated to determine whether the 

specified threshold is met or exceeded. 

Comment: Some State regulator and 

industry commenters believed that the 

proposed rule underestimated the 

number of rate increases that would be 

above the 10 percent threshold, with 

some commenters claiming that 

virtually all proposed rate increases 

would be captured under that threshold. 

Industry commenters contended that the 

10 percent threshold did not represent 

a fair balance of capturing a reasonable 

number of proposed rate increases and 

did not track with recent rate increase 

trends. Some State regulator and 

industry commenters noted that section 

2794 of the PHS Act called for the 

review of ‘‘unreasonable’’ increases, and 

that increases above 10 percent are not 

necessarily unreasonable. Other 

industry commenters asserted that the 

threshold was arbitrary and low. They 

claimed this threshold would stigmatize 

actuarially appropriate rates, bias State 

review, deluge consumers with 

confusing information, and place 

significant administrative burdens on 

issuers. Industry commenters 

recommended that the threshold be 

based on a broader range of factors 

including medical cost inflation, 

adverse selection, deductible leveraging, 

and required benefit changes, among 

others. 

Consumer, provider, and some State 

regulator commenters, in contrast, 

argued that the 10 percent threshold 

was too high. Commenters listed 

numerous concerns including: (1) The 

threshold did not consider the 

cumulative impact of increases from 

multiple years and could encourage 

issuers to target just below the 

threshold; (2) many rate increases below 

10 percent could be problematic from an 

actuarial perspective; and (3) a 

threshold designed to be above medical 

trend would not pressure issuers into 

taking steps to moderate growth in 

medical costs. In addition, some 

commenters recommended that all 

proposed increases be subject to review. 

Response: We believe that 10 percent 

continues to be an appropriate initial 

threshold for determining which rates 

will be subject to review based on the 

analysis of the trend in health care costs 

and rate increases provided in the 

preamble to the proposed rule. The 10 

percent transitional threshold balances 

the need to provide more disclosure to 

consumers while avoiding undue 

administrative burdens on other 

stakeholders. This threshold should not 

cause consumers to be overwhelmed 

with information since they likely will 

only review rate information concerning 

their current plans or those which they 

are considering buying. With respect to 

the commenter focusing on the word 

‘‘unreasonable’’ in section 2794, we 

believe that to identify and review 

unreasonable rates prior to 

implementation, it is necessary to 

review potentially unreasonable rates to 

assess their reasonableness. Lastly, we 

note that the 10 percent threshold is 

intended to be transitional, until Statespecific thresholds are put in place. 

Comment: Several commenters 

suggested that the proposed July 1, 2011 

effective date for the rate review 

program did not provide States and 

health insurance issuers with adequate 

time to come into compliance with a 

final rule. Many State regulator 

commenters suggested that the proposed 

effective date be delayed until January 

1, 2012 and noted that later effective 

dates would allow the rate review 

program to begin with State-specific 

thresholds rather than the 10 percent 

threshold. One State regulator 

commenter suggested that the effective 

date be 6 months after promulgation of 

the final rule. One industry commenter 

proposed that the effective date be July 

1, 2012, expressing concern that there 

would not be enough time between 

issuance of the final rule and a July 1, 

2011 effective date for issuers to 

develop and implement necessary 

system changes. Several industry 

commenters stated that they currently 

are in the process of developing rates for 

July 1, 2011 effective dates and 

recommended that the proposed rule 

not apply to those rates in States 

without current rate filing requirements. 

Response: In response to these 

comments, we have moved the effective 

date in this final rule from July 1, 2011 

to September 1, 2011 and maintained 

the initial, transitional 10 percent 

threshold. This effective date is 

intended to ensure that proposed 2012 

rate increases meeting or exceeding the 

10 percent threshold will be reviewed 

by either CMS or the applicable State. 

Further delay could mean that many 

rate increases for 2012 will not be 

subject to review. We do not deem 

further delay in starting the rate review 

program to be desirable given that 

stakeholders now have been able to 

provide us with valuable feedback 

concerning the program’s design and we 


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are prepared to initiate the program. We 

note that issuers will not be required to 

provide data beyond what the majority 

of States already require to be filed in 

support of proposed rate increases. We 

will be offering further guidance and 

training to assist issuers in complying 

with their obligations under the 

program. 

Comment: State regulator and 

industry commenters generally 

expressed support for State-specific 

thresholds. Some consumer commenters 

expressed concern that use of Statespecific thresholds would reward 

inefficient insurance markets with 

higher thresholds. They recommended 

either the use of a national threshold or 

the lower of a national or State-specific 

threshold. Alternatively, some 

consumer commenters recommended 

that CMS apply downward adjustments 

to State-specific thresholds in inefficient 

insurance markets. State regulator 

commenters recommended that States 

be able to establish their own review 

thresholds, or that, at a minimum, CMS 

consult with States in developing the 

State-specific thresholds. State regulator 

commenters also recommended that the 

final rule provide more detail on CMS’s 

process for determining State-specific 

thresholds and include a process by 

which States could ask CMS to 

reconsider State-specific thresholds they 

considered inappropriate. Industry 

commenters generally were supportive 

of more State involvement in 

developing State-specific thresholds. 

Many commenters provided 

recommendations on the methodology 

for establishing the State-specific 

thresholds applicable to 2012. Industry 

commenters raised concerns that a 

threshold tracking loosely with medical 

trend, but not other factors, would not 

sufficiently account for expected rate 

increases and emphasized that the 

threshold’s underlying factors should 

have an appropriate actuarial basis. 

Additionally, some industry 

commenters said that the threshold 

should take into account possible 

impacts from the Affordable Care Act on 

proposed increases. As noted, many 

consumer and provider commenters 

stated that the 10 percent threshold was 

too high and recommended that CMS 

use lower thresholds in 2012. Some 

consumer commenters stated that the 

threshold should be based solely on 

medical trends, while others 

recommended that it be based on 

multiple factors, including adjustments 

for inefficient insurance markets and 

issuers’ medical loss ratios. 

Many commenters urged CMS to act 

quickly to develop the State-specific 

thresholds for 2012, noting that health 

insurance issuers were already 

developing their proposed rates and that 

even if the State-specific thresholds 

were released by September 15, 2011, 

most of the 2012 increases would be 

missed. Several commenters noted the 

need to monitor State-specific 

thresholds closely on an ongoing basis 

to keep up with market trends and 

address potentially unintended 

consequences (for example, under- or 

over-inclusive thresholds). 

Response: As noted earlier, the 10 

percent threshold is intended to be 

transitional and we believe that this 

initial phase of the rate review program 

will enable CMS and the States to gather 

information that will be helpful in 

developing the State-specific thresholds. 

CMS will immediately begin work with 

the States and the NAIC to develop a 

process and identify data and 

methodologies for setting State-specific 

thresholds, so that the first Statespecific thresholds can be effective for 

the twelve-month period beginning on 

September 1, 2012. We plan to update 

the State-specific thresholds annually, 

although the 10 percent threshold will 

apply in a State if a State-specific 

threshold has not been established for 

that State. We will publish a notice 

concerning the applicable thresholds no 

later than June 1 of each year beginning 

in 2012. 

Comment: Commenters offered 

various interpretations concerning how 

rate increases should be calculated and 

how the weighting concept should work 

under the proposed rule, while others 

asked for clarification on these issues. 

Specifically, one commenter understood 

the proposed rule to mean that rate 

increases would be calculated as the 

overall average percentage increase 

between the old premium and the new 

premium, while another believed that 

rate increases would be calculated as 

the percentage change between the old 

revenue and the new projected revenue. 

With respect to weighting, some 

commenters interpreted the proposed 

rule to mean that the increase 

percentage be weighted by the number 

of policies, arguing that a subgroup with 

a lower premium should not be treated 

the same as another subgroup with a 

larger premium but an equal percentage 

increase. 

Response: We have modified the final 

rule to clarify the issues raised by these 

comments. We believe that the rule’s 

method for calculating a rate increase 

(that is, the average increase over all 

policies weighted by premium volume) 

is arithmetically identical to calculating 

the rate increase as the overall average 

percentage increase between the old 

premium and the new premium. In 

addition, the rule’s method for 

calculating a rate increase could be 

applied such that it is the same as 

calculating the rate increase as the 

percentage change between the old 

revenue and the new projected revenue. 

With respect to weighting, we note that 

weighting should not be done based on 

the number of policies; rather, premium 

volume is the appropriate weighting 

factor. 

2. Unreasonable Rate Increase 

(§ 154.205) 

The proposed rule would set three 

criteria that CMS would use in 

determining whether a rate increase is 

excessive, unjustified, or unfairly 

discriminatory, and, therefore, 

unreasonable. First, an increase would 

be considered excessive if it causes the 

premium to be unreasonably high in 

relation to benefits. In making this 

determination, CMS would consider 

whether: (1) The rate increase would 

result in a projected medical loss ratio 

below the applicable Federal standard; 

(2) one or more of the assumptions is 

not supported by substantial evidence; 

and (3) the choice of assumptions (or 

combination thereof) is unreasonable. 

Second, an increase would be 

considered unjustified if the issuer 

provides data or documentation that is 

incomplete, inadequate, or otherwise 

does not provide a basis to determine 

whether the increase is reasonable. 

Third, an increase would be considered 

unfairly discriminatory if it results in 

premium differences between insureds 

with similar risks that are not permitted 

under State law or, if there is no 

applicable State law, does not 

reasonably correspond to expected 

differences in costs. 

Comment: Commenters representing 

State regulators, industry, and a 

professional association expressed 

concern that the definition of 

‘‘unreasonable rate increase’’ in the 

proposed rule did not include a prong 

related to the adequacy of the proposed 

rates. 

Response: We acknowledge that 

inadequate rate increases can be 

problematic. For example, inadequate 

rate increases can lead to larger 

increases for consumers in subsequent 

years or even have a negative impact on 

an issuer’s overall financial condition. 

Section 2794 of the PHS Act is not 

primarily concerned with rate increases 

that are too low and does not identify 

adequacy among the criteria to be 

considered when determining 

unreasonableness. Therefore, we did not 

include adequacy as a prong of the 

unreasonableness test that we will use 

when reviewing rates under the final 


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rule. We note that many States do 

explicitly consider the adequacy of rates 

during their reviews, and nothing in this 

regulation prevents or prohibits a State 

from continuing to consider this factor 

in their review in the future. 

3. Review of Rate Increases Subject to 

Review by CMS or by a State (§ 154.210) 

The proposed rule sets forth the 

factors that would be used by CMS to 

determine whether CMS would review 

rate increases subject to review or 

whether CMS would adopt the 

determinations made by a State. To the 

extent that a State had an Effective Rate 

Review Program in a given market, as 

determined by CMS, and provided to 

CMS its final determinations whether an 

increase is unreasonable, CMS would 

adopt that State’s determinations. A 

State’s final determination would need 

to include an explanation of its analysis 

and be provided to CMS within five 

business days following its 

determination. In all other situations, 

CMS would review rate increases 

subject to review. 

Comment: One commenter argued 

that since section 2794 of the PHS Act 

requires CMS to establish a rate review 

process ‘‘in conjunction with States,’’ 

CMS lacked authority to review rates in 

those States that did not have Effective 

Rate Review Programs. In contrast, a 

commenter representing business 

groups expressed support for the 

proposed rule’s approach to CMS 

establishing a rate review program in 

conjunction with the States. 

Response: We interpret the 

requirement that the rate review 

program be established ‘‘in conjunction 

with States’’ as requiring that it defer to 

rate review in the States to the extent 

consistent with the goals of the 

Affordable Care Act. The rate review 

program established by this rule defers 

to State law and provides that, for States 

with Effective Rate Review Programs, 

CMS will adopt their determinations as 

to whether rate increases are 

unreasonable. We do not view this 

requirement as barring CMS from 

reviewing rates or collecting any 

information in those States that do not 

have Effective Rate Review Programs. 

4. Submission of Disclosure to CMS for 

Rate Increases Subject to Review 

(§ 154.215) 

The proposed rule would require 

health insurance issuers to submit a 

‘‘Preliminary Justification’’ for all rate 

increases subject to review. Parts I (rate 

increase summary) and II (written 

description justifying the rate increase) 

would be provided to CMS and the 

applicable State (if the State receives 

such submissions). In addition, Part III 

(rate filing documentation) would be 

provided to CMS when it is reviewing 

the rate increase. Health insurance 

issuers may submit a combined 

Preliminary Justification for rate 

increases affecting multiple products if 

their claims experience is aggregated 

and the rate increases are the same 

across all of the aggregated products. 

Part I of the Preliminary Justification 

would be required to include: (1) 

Historical and projected claims 

experience; (2) trend projections related 

to utilization and service or unit cost; 

(3) any claims assumptions related to 

benefit changes; (4) allocation of the 

overall rate increase to claims and nonclaims costs; (5) per enrollee per month 

allocation of current and projected 

premium; (6) current loss ratio and 

projected loss ratio; (7) three-year 

history of rate increases for the product 

associated with the rate increase; and (8) 

employee and executive compensation 

data from the health insurance issuer’s 

annual financial statements. 

Part II would include a simple, brief 

narrative describing the data and 

assumptions used to develop the rate 

increase, including the rating 

methodology, the most significant 

factors causing the increase, and a brief 

description of the policies’ overall 

experience. 

Part III, submitted in cases where 

CMS is reviewing a rate increase, would 

be required to include the following 

elements: (1) Description of the type of 

policy, benefits, renewability, general 

marketing method, and issue age limits; 

(2) scope and reason for the rate 

increase; (3) average annual premium 

per policy, before and after the rate 

increase; (4) past experience and any 

other alternative or additional data 

used; (5) a description of how the rate 

increase was determined, including the 

general description and source of each 

assumption used; (6) the cumulative 

loss ratio and a description of how it 

was calculated; (7) the projected future 

loss ratio and a description of how it 

was calculated; (8) the projected lifetime 

loss ratio that combines cumulative and 

future experience and a description of 

how it was calculated; (9) the Federal 

medical loss ratio standard in the 

applicable market to which the rate 

increase applies, accounting for any 

adjustments allowable under Federal 

law; and (10) if the projected future loss 

ratio is less than the applicable Federal 

medical loss ratio, a justification for this 

outcome. CMS would accept a copy of 

a rate filing submitted to a State that 

included each of these elements. CMS 

would request additional information 

from health insurance issuers if their 

Part III submissions lacked sufficient 

information for CMS to determine 

whether rate increases were 

unreasonable. Issuers would have five 

business days to supply the additional 

information. The data which issuers are 

required to provide in the Preliminary 

Justification contains less detail and 

therefore will be less burdensome for 

issuers than what is called for in the 

NAIC Model for Individual Health 

Insurance Rate Filings. This data is 

readily available to issuers and is 

generally included in rate filings which 

they make today. 

CMS would promptly make Parts I 

and II of the Preliminary Justifications 

available through the healthcare.gov 

Web site. In addition, in cases where 

CMS receives Part III, CMS would post 

on the CCIIO Web site any information 

not designated as ‘‘confidential,’’ as 

defined under CMS’s Freedom of 

Information Act regulations, 45 CFR 

5.65. CMS would review information 

designated as ‘‘confidential’’ and would 

post it only if CMS determined that 

such information was, in fact, subject to 

disclosure under 45 CFR 5.65. Lastly, 

the healthcare.gov Web site would 

include a prominent disclaimer that 

stated: ‘‘The Preliminary Justification is 

the initial summary information 

regarding the rate increase subject to 

review and does not represent a 

determination that the rate increase 

subject to review is an unreasonable rate 

increase.’’ 

Comment: Consumer commenters 

recommended strengthening the 

proposed rule’s disclosure requirements 

by requiring additional information in 

Part I, II, and III of the Preliminary 

Justifications concerning average rate 

increases, historical rate increases, 

medical price and utilization changes, 

provider reimbursement and contracts, 

administrative costs (including costs 

related to medical management, 

marketing, lobbying, travel and 

association dues), and transfers of funds 

to affiliated companies. Provider 

commenters recommended similar 

disclosures concerning rate increases 

and administrative costs. One consumer 

commenter also suggested that sample 

rates be provided for persons with the 

same ages and family composition so 

that consumers could see how rate 

increases compared between health 

insurance issuers. Some State regulator 

commenters recommended that certain 

elements of the Preliminary Justification 

be revised or omitted to conform more 

closely to current reporting 

requirements imposed on issuers. One 

State regulator commenter 

recommended that executive 

compensation information not be 


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included in the Preliminary 

Justification, or, alternatively, that CMS 

explain how this information would 

help States evaluate a proposed 

increase. 

Many industry commenters argued 

that much of the information required in 

the Preliminary Justification would not 

be useful to consumers and could cause 

them unfairly to view the proposed rates 

as unreasonable. For example, they 

asserted that rate increase history and 

employee compensation generally were 

not taken into account during actuarial 

reviews. They also expressed concern 

that a large proportion of consumers 

would receive a confusing deluge of 

information concerning rates subject to 

review, given their estimates on the 

volume of proposed increases that 

would exceed the thresholds. 

Response: We generally believe that 

Parts I and II of the Preliminary 

Justification will provide consumers 

with sufficient detail concerning the 

factors influencing proposed rate 

increases, without being unduly 

confusing to consumers. Accordingly, 

the final rule continues to provide that 

Part I and II will be publicly posted. We 

have modified or eliminated certain 

reporting elements in the final rule as 

recommended by State regulator 

commenters. In Part I, medical loss ratio 

data has been removed because it can be 

computed from remaining Part I 

elements and therefore was redundant. 

(We note that medical loss ratio data 

continues to be a distinct reporting 

requirement for Part III.) The 

requirement to report executive and 

employee compensation data was also 

removed because these amounts would 

represent only a very small proportion 

of an overall rate increase when 

allocated by product and member 

month, and, consequently, would not be 

helpful to consumers in showing the 

primary rate increase drivers. We also 

added the phrase ‘‘as determined by the 

Secretary’’ in § 154.215(e) to allow HHS 

discretion in the future to respond to 

changes in the market and input from 

stakeholders as to what elements in Part 

I are most helpful to consumers. Finally, 

we removed the explanation of the 

rating methodology from Part II in order 

to keep Part II brief, non-technical, and 

understandable to consumers. 

Comment: Some industry commenters 

recommended that CMS allow issuers to 

aggregate and report multiple products 

at the same level of aggregation as 

permitted under State law, without 

requiring that the same rate increase be 

applied to all of the aggregated 

products. These commenters stated it 

would be administratively burdensome 

for CMS to adopt an aggregation 

standard that differed from current State 

requirements. Many consumer and 

provider commenters expressed concern 

that allowing aggregated filings for 

products would mask rate increase 

variations between different products. 

Response: Our understanding is that 

some States review rate filings at a 

product level, while other States review 

rate filings on an aggregated product 

basis, particularly in community-rated 

environments. The final rule maintains 

the proposed rule’s standard, which 

accommodates both State approaches. 

Where filings are made on an aggregated 

product basis, the same claim 

experience must have been used to 

develop the increases and the proposed 

increases must be the same for each of 

the different products to ensure that 

issuers cannot mask high increases for 

certain products within the combined 

filings. To the extent that this approach 

represents a change for some issuers, the 

burden should be minimal since the 

rule merely requires that they report 

existing information in a different 

fashion. We believe that this aggregation 

standard appropriately balances the 

need for increased transparency with 

current State rate filing requirements 

and actuarial practices. 

Comment: Many consumer 

commenters urged that Part III of the 

Preliminary Justification not be given 

confidential treatment, reasoning that 

the public’s right to information 

concerning rate increases outweighed 

issuers’ proprietary interests in such 

information. One commenter noted that, 

for example, issuers potentially could 

designate actuarial memoranda and riskbased capital information as 

confidential, thereby leaving consumers 

without important information needed 

to scrutinize proposed rate increases. 

Another consumer commenter 

recommended that issuers be required 

to submit data on provider 

reimbursement and contracts and that 

issuers not be permitted to designate 

such data as confidential. While 

provider commenters generally 

recommended that as much information 

as possible from the Preliminary 

Justification be publicly released, they 

expressed concern about maintaining 

the confidentiality of provider 

reimbursement rates. Industry 

commenters were concerned about the 

impact of disclosing market sensitive 

information and generally 

recommended that the information in 

Part III be kept confidential and not 

disclosed. Industry commenters 

requested that CMS provide additional 

information on how the ‘‘confidential’’ 

information exemption under the 

Freedom of Information Act (FOIA), 5 

U.S.C. section 552, would apply so that 

they could designate information in Part 

III of the Preliminary Justification 

appropriately. They also requested more 

guidance on CMS’s review and appeal 

process for FOIA requests and 

disclosures. 

Response: The final rule essentially 

adopts the confidentiality approach 

taken in the proposed rule; that is, 

information contained in Part III of a 

Preliminary Justification will be posted 

on our Web site unless the FOIA 

exemption for trade secrets and 

confidential commercial or financial 

information applies. As a Federal 

agency, we generally are required to 

utilize the FOIA standard in 

determining confidentiality. As 

discussed in more detail in the 

preamble to the proposed rule, CMS’s 

FOIA rule, 45 CFR Part 5, establishes 

the process and standards that generally 

apply to determining whether 

information designated as confidential 

is subject to disclosure. Issuers will be 

able to designate the information that 

they believe is protected by the 

exemption and we will determine 

whether the exemption applies. 

We reviewed the approaches 

currently taken by States concerning the 

public disclosure of rate filings. Some 

States make all parts of a rate filing 

public; some States provide standards 

for which parts of a rate filing will be 

made public; and other States follow a 

freedom of information process and 

standard under State law that is similar 

to FOIA. Based on a review of State 

filing guidelines and State Web sites, it 

appears at least 12 states do not redact 

any information when making rate 

filings available to the public. Given 

that Part III is based on State rate filing 

requirements, this means that many 

States do not regard the types of 

information found in Part III to be 

confidential or protected from 

disclosure. Based on the fact that the 

information contained in Part III 

appears to be widely available across 

the country and that many States 

already are making this information 

available, it may be difficult for an 

issuer to assert that the information in 

Part III is confidential or protected from 

disclosure under Federal law. 

Comment: Industry commenters 

recommended that issuers be provided 

additional time beyond five business 

days to respond to an inquiry from CMS 

regarding an incomplete Part III of the 

Preliminary Justification. Commenters 

noted that, for example, a more complex 

request might require an issuer to gather 

and organize information from different 

internal departments, which could take 

longer than five business days. 


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Response: We have modified the final 

rule so that, after receiving a request 

from CMS, an issuer will have 10 

business days to respond to provide 

additional Part III information. 

Comment: Several State regulator, 

consumer, and industry commenters 

expressed concerns that the proposed 

rule’s disclaimer language would be 

misleading to consumers and that a 

clearer description of both the purpose 

of the Preliminary Justification and the 

rate review process was needed. State 

regulator and industry commenters 

requested an explicit statement that 

rates subject to review had not yet been 

determined to be unreasonable by a 

State or CMS. Commenters also 

recommended including statements 

regarding: (1) The availability of 

additional information if a rate was 

determined to be unreasonable; (2) the 

actuarial factors that impact the 

reasonableness of rates; (3) the 

possibility that a proposed increase 

might change prior to implementation; 

and (4) whether a product was available 

for purchase notwithstanding review of 

its proposed rates. 

Response: We have modified the final 

rule to state more generally that a 

disclaimer will accompany the 

Preliminary Justifications posted on our 

Web site. Guidance concerning this 

disclaimer will be provided at a later 

date and the commenters’ concerns will 

be considered when that guidance is 

developed. 

5. Timing of Preliminary Justification 

(§ 154.220) 

The proposed rule provides that if a 

State requires a proposed rate increase 

to be filed with the State prior to 

implementation of the increase, the 

health insurance issuer must send CMS 

and the applicable State the Preliminary 

Justification on the date the issuer 

submits the proposed increase to the 

State. For all other States, the health 

insurance issuer must send CMS and 

the applicable State the Preliminary 

Justification prior to the implementation 

of the rate increase. 

Comment: A few State regulator 

commenters suggested that Preliminary 

Justifications should not be posted 

unless a rate was found to be 

unreasonable. These commenters 

expressed concern that posting 

Preliminary Justifications prior to the 

proposed increases’ evaluation would 

cause consumer confusion, lead to 

unsuitable replacements of coverage, 

and provide opportunities for misuse of 

information. In addition, commenters 

noted that some States did not allow 

disclosures concerning rate filing 

information until rates are approved. In 

contrast, other State regulator 

commenters supported the requirement 

that the Preliminary Justification be 

posted immediately upon receipt. 

Several consumer commenters 

recommended that policyholders and 

the public be given adequate notice of 

proposed rate increases prior to 

increases going into effect. These 

commenters generally suggested that 

issuers file proposed rates with the 

States and give consumers notice of the 

proposed increases 60 or 90 days before 

they go into effect. One commenter 

suggested that patient advocacy groups 

be given specific notice concerning 

proposed increases that were higher 

than medical inflation. 

Response: Section 2794 of the Act 

requires that issuers submit to the 

Secretary and the relevant State a 

justification for an unreasonable rate 

increase before the rate is implemented. 

We considered two alternatives to 

implement that provision. The first 

would be to establish a federal 

regulatory requirement that a rate 

cannot go into effect until it has been 

reviewed and determined to be 

reasonable or unreasonable. At that 

point, justifications could be submitted 

only for those rates that were 

determined to be unreasonable, prior to 

their being implemented. Such a federal 

requirement would be inconsistent with 

the ‘‘file and use’’ laws in many States, 

which provide that a rate may go into 

effect as soon as it is filed. We 

concluded that overriding State law in 

this respect was not the best approach. 

Alternatively, the approach taken in 

the proposed rule, which requires a 

Preliminary Justification to be submitted 

at the time a rate increase subject to 

review is filed, assures that there will be 

a justification for increases for all rate 

increases that ultimately are determined 

to be unreasonable, without requiring 

any change in current State law or 

practice for reviewing rates. We believe 

that requiring the posting of the 

Preliminary Justification before a final 

determination is made both satisfies the 

requirements of the Affordable Care Act 

and assures that consumers will better 

understand why their issuers are 

proposing rate increases that meet or 

exceed the subject to review threshold. 

In addition, the disclaimer language 

on our Web site will be modified to 

better inform consumers of the purpose 

of the Preliminary Justification and to 

make clear that its posting is not a 

determination that the proposed rate 

increase is unreasonable. 

6. Determination by CMS or a State of 

an Unreasonable Rate Increase 

(§ 154.225) 

When CMS reviews a rate increase 

subject to review, it will post on its Web 

site a final determination and a brief 

explanation of its analysis within five 

business days following the 

determination. If the rate increase is 

determined to be unreasonable, CMS 

will also provide this information to the 

health insurance issuer. 

When a State reviews an increase 

subject to review, CMS will adopt the 

State’s final determination and post it 

on the CMS Web site. If a State 

determines that the rate increase is 

unreasonable, but the health insurance 

issuer is legally permitted to implement 

the increase under State law, CMS will 

provide the State’s final determination 

and explanation to the issuer within five 

business days of CMS receiving the 

information from the State. 

Comment: One State commenter 

suggested that States with Effective Rate 

Review Programs not be required to post 

brief explanations and analyses that 

were more in-depth than those posted 

by CMS in cases where it reviews rates. 

Response: We have modified the final 

rule to clarify that the brief explanations 

and analyses posted by CMS and States 

are intended to be consistent in format 

and content. 

Comment: Numerous industry 

commenters suggested that CMS 

establish safe harbors or expedited rate 

review procedures. For example, some 

commenters suggested that if a health 

insurance issuer’s proposed rate 

increases were expected to satisfy the 

Federal medical loss ratio standard, the 

increases should be exempt from 

review. Another commenter suggested 

that proposed rates in insurance markets 

that were determined to be competitive 

should either be exempt from review or 

subject to an expedited process. One 

commenter stated generally that the 

review process applied should vary 

based on the circumstances of the 

proposed increase. 

Response: We have not modified the 

final rule to provide safe harbors or 

expedited rate review procedures given 

that many factors are relevant in 

determining whether a particular 

proposed rate increase is unreasonable, 

thus supporting the need for a more 

detailed review process. 

7. Submission and Posting of Final 

Justifications for Unreasonable Rate 

Increases (§ 154.230) 

If a health insurance issuer declines to 

implement a rate increase that has been 

determined to be unreasonable, or 


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chooses to implement a lower increase, 

under the proposed rule, the issuer 

would be required to provide CMS 

timely notice of its decision. A lower 

increase that meets or exceeds the 

applicable thresholds for review would 

require a new Preliminary Justification. 

However, if an issuer chooses to lower 

its request for a proposed increase while 

the increase is under review and before 

a determination or unreasonableness 

has been made, the issuer can do so by 

filing a modification to the filing under 

review. If the revised rate falls below the 

review threshold, the review will cease 

and the revised rate will be displayed 

on the posting. 

If a health insurance issuer 

implements an unreasonable rate 

increase, it must, within 10 days of the 

later of implementing the increase or 

receiving the final determination, 

provide CMS with a ‘‘Final Justification’’ 

responding to CMS’s or the State’s 

determination, using information 

consistent with that provided by the 

issuer in the Preliminary Justification. 

The health insurance issuer must 

prominently post on its Web site: (1) the 

portions of the Preliminary Justification 

posted on the CMS Web site; (2) CMS’s 

or the State’s final determination; and 

(3) the issuer’s Final Justification. This 

information must be made available on 

the issuer’s Web site for at least three 

years. In addition, CMS will make an 

issuer’s Final Justification available 

through the healthcare.gov Web site for 

three years. 

Note: We did not receive any major 

comments on this section. 

C. Subpart C—Effective Rate Review 

Programs 

CMS’s Determination of Effective Rate 

Review Programs (§ 154.301) 

Under the proposed rule, CMS would 

apply the following criteria in 

evaluating whether a State has an 

Effective Rate Review Program for the 

individual market and small group 

market, including different types of 

products within those markets. CMS 

will examine information publicly 

available concerning each States’ 

authority to receive the data needed in 

order to review a proposed rate increase. 

This includes State statutes, regulations, 

bulletins, filing guidance, and so forth. 

CMS will also review available 

information that describes each State’s 

practices in conducting rate reviews. 

This information primarily consists of 

State applications for rate review grants, 

quarterly reports of activity undertaken 

with grant funds, and conversations 

between CMS staff and state regulators 

relating to grant activities. 

CMS will then conduct a phone call 

with each State insurance regulator to 

confirm the information CMS has 

gathered and to ask for any additional 

information the State believes is 

relevant to the determination of whether 

it has an Effective Rate Review Program. 

CMS will notify States of its 

determinations by July 1, 2011, two 

months in advance of the date filings are 

first due pursuant to this regulation. 

States will have the right to bring any 

new information bearing on this 

decision to CMS at any time, and CMS 

will consider whether based on this new 

information the State should be 

determined to have an Effective Rate 

Review Program. CMS will also monitor 

States that have determined to be 

effective in order to ascertain that their 

processes continue to satisfy the 

requirements of the regulation. 

CMS would consider whether the 

State receives data and documentation 

from issuers concerning rate increases 

sufficient to conduct an examination of 

the reasonableness of the assumptions 

used to develop proposed rate increases, 

the validity of the historical data 

underlying the assumptions, and the 

issuers’ data related to past projections 

and actual experience. CMS also would 

consider whether the State conducts 

effective and timely reviews of the 

information submitted by issuers in 

support of proposed rate increases. The 

examination would need to include an 

analysis of: (1) Medical trend changes 

by major service categories; (2) 

utilization changes by major service 

categories; (3) cost-sharing changes by 

major service categories; (4) benefit 

changes; (5) changes in enrollee risk 

profile; (6) impact of over- or underestimate of medical trend in previous 

years on the current rate; (7) reserve 

needs; (8) administrative costs related to 

programs that improve health care 

quality; (9) other administrative costs; 

(10) applicable taxes and licensing or 

regulatory fees; (11) medical loss ratio; 

and (12) the health insurance issuer’s 

risk-based capital status relative to 

national standards. Finally, the State’s 

determination whether a rate increase is 

unreasonable would need to be made 

under a standard set forth in State 

statute or regulation. 

CMS would determine whether a 

State has an Effective Rate Review 

Program for each market based on 

documentation and information 

received by CMS from the State or any 

other information otherwise available to 

CMS indicating that its rate review 

program meets these criteria. CMS 

would reserve the right to determine 

that a State no longer had an Effective 

Rate Review Program if it no longer met 

these criteria. The NAIC individual rate 

filing guidelines—the basis of many 

states current rate review practices— 

require the collection and review of a 

larger, more detailed set of data than the 

review criteria provided in the rule. 

Thus, the review criteria provided in the 

rule incorporates practices that are 

already in place in many states. 

Comment: The NAIC recommended 

that the final rule allow flexibility for 

States to conduct rate reviews within 

their statutory frameworks. One State 

regulator commenter recommended that 

the final rule defer to State law on what 

constitutes an Effective Rate Review 

Program and not require States to 

conform to any Federal definition of an 

Effective Rate Review Program. In the 

alternative, the commenter suggested 

that the NAIC establish rate review 

standards that could be required for 

State accreditation. In addition, some 

commenters including State regulators 

and an organization representing the 

actuarial profession generally 

recommended that reviews conducted 

by CMS and the States should be subject 

to the same standards under the final 

rule. For example, the commenter 

believed that the lists of informational 

elements required under § 154.215(g)(1) 

and § 154.301(a)(3) should be the same. 

Industry commenters argued that review 

standards in the proposed rule did not 

reflect the variation that currently exists 

among the States and the rule could 

drive States towards a national 

standard. Industry commenters also 

expressed concern that the criteria were 

overly prescriptive and that their 

application could be unduly subjective. 

Consumer and provider commenters 

expressed concern that the proposed 

rule’s standards overall were too low 

and that States with limited review 

capabilities could be designated as 

having effective programs. Commenters 

also noted that the effectiveness of State 

review processes in practice, in addition 

to a State’s statutory authority, was 

relevant to determining if an Effective 

Rate Review Program existed in a State. 

Response: We believe it is necessary 

for the rule to set forth minimum review 

standards so that CMS can determine 

which States meet those standards and 

subsequently defer to their 

determinations concerning whether 

proposed rate increases are 

unreasonable. We agree with 

commenters that the minimum 

standards for reviews for CMS and the 

States should be consistent. Therefore, 

we have modified the proposed rule in 

this final rule so that the information 

that CMS will review in Part III of the 

Preliminary Justification will be the 

same information that will be reviewed 


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as part of a State Effective Rate Review 

Program under § 154.301(a)(3) and (4). 

In addition, we have modified 

§ 154.301(a)(4) to clarify that CMS and 

States with Effective Rate Review 

Programs will have to take into 

consideration the various factors listed 

in paragraph (4) to the extent applicable 

to the filing under review. This change 

is meant to reflect that reviewers for 

CMS or the State will have flexibility to 

use their expert judgment in evaluating 

the relevance of the different factors in 

the context of a particular rate filing. 

Comment: Many consumer 

commenters urged that public hearings 

and comment periods be required as 

part of an Effective Rate Review 

Program. One commenter recommended 

that excessive or frequent increases give 

rise to public hearings. Another 

commenter suggested that the public 

hearings be held at the health insurance 

issuer’s expense if the proposed 

increase exceeded medical inflation. 

Lastly, one commenter suggested that 

issuers be required to mail information 

to consumers concerning proposed rate 

increases and their opportunities to 

participate in the rate review process. 

Response: We did not include public 

hearings as a required element for 

Effective Rate Review Programs in 

deference to the fact that most States 

today do not hold public hearings as 

part of the rate review process. 

However, in response to the comments 

urging a greater opportunity for input 

from the public, we modified the final 

rule to require that in order to be 

deemed to have an Effective Rate 

Review Program, a State must: (1) 

Provide access on a State Web site to 

Parts I and II of the Preliminary 

Justifications for those proposed rate 

increases that meet or exceed the 

threshold, and (2) have a mechanism for 

receiving public comments on those 

proposed rate increases. For example, a 

State could provide Web site access 

either by directly posting the relevant 

Parts I and II on its own Web site or by 

posting a regularly-updated list of the 

relevant Parts I and II with a link to the 

CMS Web site where they can be found. 

States could choose to accept public 

comments through the mail, their Web 

sites, public hearings, or other means. 

We believe that posting the Parts I and 

II of the Preliminary Justifications and 

allowing public input will encourage 

public participation in the rate review 

process, but be less burdensome than 

requiring all States with Effective Rate 

Review Programs to hold public 

hearings. In addition, we added a 

parallel requirement in § 154.215 that 

we accept public comments on the 

proposed rate increases we review. We 

note that CMS has encouraged States to 

undertake efforts to increase the 

transparency of their rate review 

programs under the grants authorized by 

PHS Act section 2794 and that many 

States are responding with innovative 

programs to increase public input. We 

also note that this is a criteria for States 

with Effective Rate Review Programs 

and not a requirement for a health 

insurance issuer filing for a rate 

increase. 

Comment: Several consumer 

commenters stated that States should be 

required to have prior approval 

authority over proposed rate increases 

in order to qualify as having Effective 

Rate Review Programs. 

Response: Prior approval authority 

over proposed rate increases can be an 

important part of a State’s rate review 

program. States that have or propose 

this authority qualify for a supplemental 

performance grant under the grants 

provided under section 2794(b) of the 

PHS Act. Section 2794 of the PHS Act 

requires CMS to establish a process for 

reviewing unreasonable rates; it does 

not provide CMS with prior approval 

authority. We therefore did not think it 

would be appropriate for CMS to 

mandate that States have prior approval 

authority in order to qualify as having 

Effective Rate Review Programs. 

Comment: Several State regulator and 

industry commenters asked for 

clarification concerning the role of 

medical loss ratios in the rate review 

process. 

Response: Both Federal and State 

medical loss ratios are relevant to the 

rate review process. We recognize that 

aggregation standards and relevant time 

periods differ between this rule and the 

Federal medical loss ratio interim final 

rule, 45 CFR part 158. For purposes of 

this rule, when CMS is reviewing rates, 

we will consider whether a product, 

along with the other products in the 

same market with which it will be 

aggregated for purposes of the Federal 

medical loss ratio, will be reasonably 

likely to satisfy the Federal medical loss 

ratio standards on a projected basis. We 

note that an issuer’s explanation with 

regard to its projected medical loss ratio 

in a Part III submission has no bearing 

on its obligations under section 2718 of 

the PHS Act (for example, medical loss 

ratio rebates). In addition, CMS will 

consider whether a product satisfies the 

applicable State medical loss ratio 

standards in those States in which it 

reviews rates. In the absence of a State 

standard for the individual market, CMS 

will apply NAIC Model 134–1, 

‘‘Guidelines for Filing of Rates for 

Individual Health Insurance Forms.’’ In 

the absence of a State standard for the 

small group market, CMS will apply 

NAIC Model 134–1 until it releases its 

own guidelines for the small group 

market. The CMS guidelines will be 

released in future guidance and will be 

developed following a review of current 

State requirements and practices, 

medical loss ratio data, and other 

relevant information concerning the 

small group market. 

Comment: Some State regulator and 

industry commenters recommended that 

CMS not mandate that risk-based capital 

information be reviewed as part of the 

rate review process, stating that use of 

such information is not part of most 

State rate review processes. Consumer 

commenters emphasized that the overall 

financial condition of an issuer is 

relevant and should be taken into 

account. 

Response: We understand that few 

States specifically consider risk-based 

capital information as part of the rate 

review process, although many States 

do consider more general information 

concerning issuers’ capital and surplus. 

Therefore, we deleted risk-based capital 

as a factor in the final rule and have 

replaced it with capital and surplus. We 

believe that information concerning an 

issuer’s capital and surplus may be 

useful in certain instances (for example, 

where an issuer has low surplus levels 

and needs to build reserves, or 

conversely where an issuer might be 

able to moderate a rate increase without 

causing solvency concerns). In addition, 

we note that capital and surplus 

information is only one of several items 

that would be taken into account as part 

of the rate review process, many of 

which will be of greater importance 

than capital and surplus information in 

making a determination of whether a 

proposed rate is unreasonable. 

Comment: Several commenters 

suggested different ways to use the Rate 

Review Grant Program to support State 

efforts to conduct effective rate reviews. 

Some consumer groups urged that the 

grant program be used to award funds, 

either directly or through States, to 

voluntary health agencies and other 

groups to educate the public about the 

rate review process and to assist them 

in selecting coverage appropriate to 

their individual circumstances. One 

consumer group commenter suggested 

that grant funds be used to develop rate 

review models that include financial 

incentives for issuers that meet 

predetermined goals and that 

implement cost containment, quality 

improvement, and clinical effectiveness 

measures. Another consumer group 

commenter recommended that the grant 

program should be used to encourage 

states to enact legislation necessary to 


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secure rate review and prior approval 

authority. 

Response: Grants awarded during 

Cycle I of the Rate Review Grant 

Program are being used to improve State 

rate review programs in a number of 

ways. Grant funds are being used to hire 

actuaries, improve information 

technology systems, and expand State 

rate review authority. Transparency is 

another goal of the rate review grant 

program and many States submitted 

work plans to improve public 

engagement in the rate review process. 

Cycle II grants, to be awarded in the Fall 

of 2011, will be awarded to States that 

have developed, or are in the process of 

developing, Effective Rate Review 

Programs. In Cycle II, CMS also will 

offer supplemental awards to States that 

have or obtain prior approval authority 

during the three-year grant period. 

Improving quality, implementing cost 

containment, and clinical effectiveness 

measures, while laudable goals, are 

outside the scope of the rate review rule. 

III. Provisions of the Final Rule 

For the most part, this final rule 

incorporates the provisions of the 

proposed rule. Those provisions of this 

final rule that differ from the proposed 

rule are as follows: 

• Applicability (§ 154.103). We 

deleted extraneous language. 

• Rate increases subject to review 

(§ 154.200). We streamlined language 

concerning when the 10 percent or 

State-specific threshold will be 

applicable, provided additional 

information on State-specific 

thresholds, and clarified the rate 

increase calculation formula. In 

addition, we changed the program’s 

effective date from July 1, 2011 to 

September 1, 2011. We also changed the 

date of the publication of state specific 

threshold to no later than June 1 of each 

year for the 12 month period that begins 

on September 1. 

• Review of rate increases subject to 

review by CMS or by a State (§ 154.210). 

We clarified that CMS and the States 

will provide similar explanations on 

final determinations concerning 

unreasonable rates. 

• Submission of disclosure to CMS for 

rate increases subject to review 

(§ 154.215). We replaced or deleted 

certain elements required for Parts I and 

II of the Preliminary Justification. In 

addition, we conformed the information 

requirements for Part III of the 

Preliminary Justification submitted to 

CMS to be the same as the information 

requirements for an Effective Rate 

Review Program maintained by a State; 

clarified that further instructions for 

Part III will be provided in guidance; 

and provided issuers with 10 business 

days (instead of 5 business days) to 

respond to a request for more 

information from CMS concerning a Part 

III submission. We shortened the 

language describing how CMS will treat 

confidential information in Part III 

under FOIA. We stated that the 

disclaimer that will accompany the 

Preliminary Justifications will be 

provided in guidance. Lastly, we added 

a requirement that CMS accept public 

comments on the proposed rate 

increases it reviews. 

• Timing of Providing the Preliminary 

Justification (§ 154.220). We clarified 

the section’s title and changed the 

program’s effective date from July 1, 

2011 to September 1, 2011. 

• Determination by CMS or a State of 

an unreasonable rate increase 

(§ 154.225). We clarified that CMS will 

make timely determinations whether 

proposed rate increases are 

unreasonable and that CMS and the 

States will provide similar explanations 

on final determinations concerning 

unreasonable rates. In addition, we 

made a technical correction to clarify 

that CMS will provide a State’s final 

determination to an issuer within five 

business days (rather than five days) of 

receipt. 

• Submission and posting of Final 

Justifications for unreasonable rate 

increases (§ 154.230). We made a 

technical correction to clarify that 

issuers have 10 business days (rather 

than 10 days) to submit a Final 

Justification. 

• CMS’s determinations of Effective 

Rate Review Programs (§ 154.301). We 

clarified that States will need to take 

into account the listed factors in 

conducting their rate reviews. We 

replaced the risk-based capital factor 

with a capital and surplus factor. We 

required that States provide access to 

Parts I and II of the Preliminary 

Justifications through their Web sites 

and accept public comments on them. 

Lastly, we clarified that CMS will 

determine whether a State had an 

Effective Rate Review Program based on 

the information available to CMS and 

that CMS will revisit these 

determinations in light of changed 

circumstances. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We requested comments on these 

requirements in the proposed rule. In 

addition, on March 1, 2011, CMS 

published a draft version of the 

Preliminary Justification in the Federal 

Register and requested public 

comments as required under the 

Paperwork Reduction Act (PRA). The 

public comment period closed on May 

2, 2011, and 9 comments were 

submitted from consumer advocacy 

organizations, health insurance issuers, 

a state regulatory organization, and an 

actuarial professional association. 

CMS has reviewed all of the 

comments and will release as soon as 

possible but no later than 7–10 days 

after publication of this final rule an 

updated version of the preliminary 

justification that incorporates the 

feedback received through the PRA 

comment process. The description of 

the preliminary justification in the final 

rule outlines the overall structure of the 

updated preliminary justification that is 

still pending release. 

A description of the information 

collection requests is given in the 

following paragraphs with an estimate 

of the annual burden, and summarized 

in table A. Included in the estimate is 

the time for reviewing instructions, 

searching existing data sources, 

gathering and maintaining the data 

needed, and completing and reviewing 

each collection of information. Because 

we have not yet made a determination 

on the comments received pertaining to 

the draft forms published on March 1, 

2011, these estimates are not final and 

are subject to change. Further, the 

information collection requirements 

associated with this final rule will not 

become effective until approved by 

OMB. HHS will issue a notice in the 

Federal Register announcing OMB 

approval once it is obtained. 

A. Background 

Section 2794 requires the Secretary to 

develop, in conjunction with the States, 

a process for the annual review of 

unreasonable rate increases. The 


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regulation establishes a rate review 

program to ensure that all rate increases 

that meet or exceed an established 

threshold are reviewed by a State or 

CMS to determine whether the rate 

increases are unreasonable. Under the 

regulation, if CMS determines that a 

State has an Effective Rate Review 

Program in a given market, using the 

criteria set forth in the rule, CMS will 

adopt that State’s determinations 

regarding whether rate increases in that 

market are unreasonable, provided that 

the State reports its final determinations 

to CMS, and explains the bases of its 

determinations. For all other States or 

markets, CMS will conduct its own 

review of rates that meet or exceed the 

applicable threshold to determine 

whether they are unreasonable. 

Section 2794 directs the Secretary to 

ensure the public disclosure of 

information on unreasonable rate 

increases and justification for those 

increases. The regulation therefore 

develops a process to ensure the public 

disclosure of information on 

unreasonable rate increases and 

justifications for those increases. 

Section 2794 also requires that health 

insurance issuers submit a justification 

for an unreasonable rate increase to 

CMS and the relevant State prior to its 

implementation. The regulation 

therefore establishes various reporting 

requirements for health insurance 

issuers, including a Preliminary 

Justification for a proposed rate 

increase, a Final Justification for any 

rate increase determined by a State or 

CMS to be unreasonable, and a 

notification requirement for 

unreasonable rate increases which the 

issuer will not implement. 

B. Information Collection Requirements 

(ICRs) Regarding the Rate Review 

Preliminary Justification Form 

(§§ 154.215 and 154.220) 

This final rule describes the 

Preliminary Justification that each 

health insurance issuer would be 

required to submit to both CMS and 

States, if it is seeking to implement a 

rate increase that meets or exceeds the 

threshold described in § 154.200. The 

Preliminary Justification includes data 

supporting the potential rate increase as 

well as a written explanation of the rate 

increase. For those rates CMS will be 

reviewing, issuers’ submissions must 

also include supplemental data and 

information that CMS will need to make 

a valid actuarial determination 

regarding whether a rate increase is 

unreasonable. 

Each health insurance issuer seeking 

to implement a rate increase that meets 

or exceeds the established threshold 

would be required to complete a 

Preliminary Justification. The 

Preliminary Justification consists of 

three Parts. Part I consists of a document 

(Excel spreadsheet) to be completed by 

issuers for all proposed rate increases 

that meet or exceed the threshold. Part 

II of the Preliminary Justification is a 

brief written narrative explaining the 

methodology used to derive the rate 

increase. Issuers would be required to 

submit to both CMS and the applicable 

State Parts I and II prior to 

implementation of a rate increase, 

regardless of whether CMS is reviewing 

the rate increase or adopting the State’s 

review. Issuers typically calculate these 

figures in order to develop their rates 

and submit a rate filing to State 

regulators. The data elements and 

methodologies are commonly calculated 

by issuers and are often required by 

States that review rates. 

Issuers will be required to complete 

Part III of the Preliminary Justification 

only when CMS rather than the State is 

reviewing a rate increase to determine 

whether it is unreasonable or not, and 

submit Part III to CMS only (and not to 

the applicable State). Part III of the 

Preliminary Justification defines an 

additional set of information that issuers 

must submit only when CMS is 

reviewing a rate increase. The 

information provided under Part III will 

allow CMS to make a valid actuarial 

determination as to whether the rate 

increase is unreasonable or not. If an 

issuer completes and submits Part III of 

the Preliminary Justification, but does 

not provide sufficient information for 

CMS to conduct its review, CMS will 

request the additional information 

necessary to make its determination. 

Issuers have 10 business days to 

respond to any request for outstanding 

information from CMS. 

Using 2010 data, CMS estimates the 

number of rate filings in 2010 that 

would have been subject to the rule had 

it been in force to be between 4,580 and 

5,059 in the individual and small group 

markets nationwide. CMS estimates that 

the total number of rate filings is 

expected to increase slightly in 2011, 

due in part to an increased number of 

issuers required to file based on those 

factors discussed in the impact analysis 

section. 

Therefore, CMS estimates that, in 

2011, there would be 6,733 rate filings 

subject to the rule. As discussed in the 

impact analysis section, CMS estimates 

that approximately 974 of these rate 

filings will require review under the 

rule because they meet or exceed the 

established threshold. CMS estimates 

the total number of burden hours to be 

10,714. 

C. ICRs Regarding State Determinations 

(§ 154.210 and § 154.225) 

Under the final rule, if CMS 

determines that a State has satisfied 

specific criteria for an Effective Rate 

Review Program under § 154.301, CMS 

would adopt the State’s determinations 

regarding whether a rate increase that 

meets or exceeds the established 

threshold is unreasonable, providing the 

State reports its final determinations to 

CMS and explains the basis of its 

determination as required under 

§ 154.210(b)(2). As discussed in the 

impact analysis section, since many 

States are already performing these 

functions, the cost burden to States 

would be small and would largely be 

offset by rate review grants provided by 

CMS to help States improve their rate 

review processes. In those cases where 

a State does not have an Effective Rate 

Review Program, CMS will make its 

own determinations regarding whether a 

rate increase that meets or exceeds the 

established threshold is unreasonable. 

CMS and the States would post on 

their Web sites the information 

contained in each Preliminary 

Justification for each rate increase 

subject to review under § 154.200. For 

consumer clarity, CMS will also post on 

its Web site the final disposition of each 

rate increase reviewed by either CMS or 

a State. Therefore, either a State or CMS 

would make a final disposition for all 

rate increases reviewed under the rule, 

similar to current rate filing practices 

under the NAIC System for Electronic 

Rate and Form Filing (‘‘SERFF’’) or 

similar State-based filing systems. 

As explained in the impact analysis 

section, CMS estimates that 974 rates 

would be reviewed under the rule 

because they meet or exceed the 

established threshold and that 25 to 35 

States, in whole or in part based on 

market segment, would be reporting to 

CMS and posting dispositions on 

approximately two-thirds of these rates 

(or 649 filings) for at least one market. 

The RIA also estimates that reporting 

information from the State to CMS will 

require approximately 20 minutes per 

filing. Thus the annual burden for this 

requirement is approximately 214 

hours. CMS believes that posting the 

final disposition would not pose any 

additional burden on States. 

D. ICRs Regarding the Final Justification 

and Final Notification (§ 154.230) 

The final rule requires health 

insurance issuers to submit to CMS and 

the relevant State a Final Justification 

for any unreasonable rate increase that 

would be implemented and to display 

this information on their Web sites. If an 


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issuer is legally permitted to implement 

an unreasonable rate increase and 

declines to implement the increase, the 

issuer will provide notice to CMS that 

it will not implement the increase. As 

discussed in the impact analysis 

section, CMS estimates that 417 issuers 

will submit an estimated 468 to 1,723 

rates for review and that it will take 

between 6 to 16 hours to complete the 

entire justification process. CMS 

estimates that 974 rates will meet or 

exceed the threshold and for the 

purposes of providing an upper bound 

of the potential number of final 

notifications further assumes issuers 

will implement 100 percent of rates 

found unreasonable. 

E. ICRs Regarding CMS’ Determinations 

of Effective Rate Review Programs 

(§ 154.301) 

As discussed earlier in the preamble, 

CMS will determine whether a State’s 

rate review program meets the 

requirements of an Effective Rate 

Review Program set forth in § 154.301(a) 

based on information received from the 

State through the grant process, through 

review of applicable State law, and 

through any other information 

otherwise available to CMS. The 

information collection for the ‘‘Grants to 

States for Health Insurance Premium 

Review’’ is approved under OMB 

Control number 0938–1121. Since CMS 

does not believe additional data from 

States are necessary to make these 

determinations, we assume the 

additional burden from this provision is 

zero. 

TABLE A—ESTIMATED ANNUAL BURDEN

Regulation section(s) OMB control 

No. 

Number of 

respondents 

Number of 

responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting ($) 

Total labor 

cost of 

reporting ($) 

Total capital/ 

maintenance 

costs ($) 

Total cost 

($) 

§ 154.210 ICRs Regarding 

State Determinations.

0938–New .. 35 649 .33 214 200 42,800 0 42,800 

§§ 154.215, and 154.220, 

ICRs Regarding the 

Rate Review Preliminary 

Justification Form.

0938–New .. 417 974 11 10,714 200 2,142,800 0 2,142,800 

§ 154.230, ICRs Regarding the Final Justification.0938–New .. 417 974 .5 487 200 97,400 0 97,400 

§ 154.230, ICRs Regarding the Final Notification.0938–New .. 417 974 .5 487 200 97,400 0 97,400 

Total ........................... .................... 452 3,571 .................... 11,902 .................... 2,380,400 ........................ 2,380,400 

We initiated an information collection 

request under a separate notice and 

comment period from that associated 

with the proposed rule that was 

published on December 23, 2010 (75 FR 

81004). Specifically, the 60-day Federal 

Register notice soliciting public 

comment on the aforementioned 

information collection requirements was 

published on March 1, 2011 (76 FR 

11248) and the comment period closed 

on May 2, 2011. We plan to publish the 

requisite 30-day Federal Register notice 

to announce the formal submission of 

the information collection request to 

OMB and to announce another 

opportunity for the public to submit 

comments in the near future. 

V. Response to Comments 

Because of the large number of public 

comments we receive on Federal 

Register documents, we are not able to 

acknowledge or respond to them 

individually. A discussion of the 

comments we received is included in 

the preamble of this document. 

VI. Regulatory Impact Analysis 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

A. Summary 

As stated earlier in the preamble, this 

final rule implements section 2794 of 

the PHS Act (as added by Section 1003 

of the Affordable Care Act), which 

requires the Secretary, in conjunction 

with the States, to establish a process for 

the annual review of unreasonable 

increases in health insurance premiums 

(referred to in the rule as ‘‘rates’’). This 

final rule outlines the methodology by 

which CMS would review proposed rate 

increases. This regulation implements 

statutory provisions designed to help 

make private health insurance more 

affordable, and to increase the 

transparency of the process by which 

health insurance issuers calculate 

premiums. CMS has quantified costs 

where possible and provided a 

qualitative discussion of the benefits 

and of the transfers and costs that may 

stem from this regulation. 

In the preamble to this regulation, we 

solicit comments on whether we should 

amend the final rule to include 

individual and small employer coverage 

sold through associations in the rate 

review process. This final regulation 

does not specifically include such 

coverage in the rate review process 

unless the State reviews it as either 

individual coverage or small employer 

coverage. Many States currently 

consider coverage sold through 

associations as large group coverage, in 

which case it would not be subject to 

the rate review process of this 

regulation. Since we did not specifically 

require in this regulation that coverage 

sold through associations be included in 

the rate review process, we did not 

include in this RIA an estimate of the 

additional burden of including 

association coverage in the rate review 

process. We do, however, include below 

a separate estimate of the burden 

associated with including association 

coverage in the rate review process for 

the purpose of soliciting comments on 

the burden estimate. 

In the proposed rule we requested 

comments on the burden and cost 

estimates in the RIA but did not receive 

any such comments. 

B. Executive Order 13563 and 12866 

Executive Orders 13563 and 12866 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated a ‘‘significant 

regulatory action’’ although not 

economically significant, under section 

3(f) of Executive Order 12866. 


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Accordingly, the rule has been reviewed 

by the Office of Management and 

Budget. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any one year); and 

a ‘‘significant’’ regulatory action is 

subject to review by the Office of 

Management and Budget (OMB). As 

discussed below, CMS has concluded 

that this final rule would likely not have 

economic impacts of $100 million or 

more in any one year, nor would it 

adversely or materially affect a sector of 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local or tribal 

governments or communities. This 

assessment is based primarily on the 

administrative costs to issuers of 

completing the Preliminary Justification 

form they are required to submit when 

proposing rate increases of 10 percent or 

greater, and on the costs to States and 

the Federal government of reviewing 

these justifications. As discussed below, 

CMS is not able to quantify the effect of 

this final rule on rates charged by 

issuers, and it is possible that the effect 

on rates will be large enough to cause 

the final rule to be considered a major 

rule. CMS solicited comments on this 

issue in the proposed rule but did not 

receive any response. 

Nevertheless, CMS opted to provide 

an assessment of the potential costs, 

benefits, and transfers associated with 

this final rule. 

1. Need for Regulatory Action 

Consistent with the provisions in 

section 2794 of the PHS Act, this final 

rule requires health insurance issuers 

offering non-grandfathered coverage in 

the individual and small group markets 

to report information concerning rate 

increases to CMS and the applicable 

State if the proposed increase is 10 

percent or higher. Section 2794(a) of the 

PHS Act requires the Secretary to 

‘‘establish a process for the annual 

review of unreasonable increases in 

premiums for health insurance 

coverage.’’ The section further provides 

that issuers ‘‘submit to the Secretary and 

the relevant State a justification for an 

unreasonable premium increase prior to 

the implementation of the increase.’’ 

Many States currently review rate 

filings in all or some portion of the 

insurance market, therefore, the burden 

of implementing this final rule on States 

will be small. In the States that do not 

currently conduct effective rate review, 

CMS will initially review those rate 

filings that meet or exceed the 10 

percent threshold. CMS anticipates that 

those States will use the rate review 

grants described in the preamble to 

enhance their capacity for review. 

Moreover, CMS anticipates gradually 

transitioning rate review responsibilities 

to these States as they build their 

capacity and as a result, reducing 

Federal costs over time. 

In addition, this final rule requires 

issuers proposing rate increases 10 

percent and above to provide a 

Preliminary Justification for the 

proposed increase. That Preliminary 

Justification will use data typically 

assembled by the issuers in computing 

their rate request. Because the 

Preliminary Justification requires the 

restating of existing data rather than the 

generation of new information, CMS 

expects the burden on issuers in filing 

the justification will be relatively small. 

2. Summary of Impacts 

In accordance with OMB Circular A– 

4, Table 1 below depicts an accounting 

statement summarizing CMS’ 

assessment of the benefits, costs, and 

transfers associated with this regulatory 

action. CMS limited the period covered 

by the regulatory impact analysis (RIA) 

to 2011 through 2013. Estimates are not 

provided for subsequent years because 

there will be significant changes in the 

marketplace in 2014 related to the 

offering of new individual and small 

group plans through the health 

insurance Exchanges, and the wide 

ranging scope of these changes makes it 

difficult to project results for 2014 and 

beyond. 

As described in this RIA, CMS 

estimates that this regulatory action will 

result in better information for 

consumers about their health insurance 

premiums and is likely to lower 

premiums. The final rule also imposes 

costs on insurers associated with 

preparing and filing proposed rate 

increases, and imposes costs on State 

and Federal governments associated 

with reviewing proposed rate increases. 

In accordance with Executive Order 

12866, CMS believes that the benefits of 

this regulatory action justify the costs. 

TABLE 1—ACCOUNTING TABLE

Benefits: 

Qualitative: 

* Increased transparency in health insurance markets, promoting competition 

* To the extent that unreasonable rate increases are prevented as a result of this rule, reduction in the deadweight loss to the economy 

from the exercise of monopolistic power by issuers 

Costs: Low 

estimate 

Mid-range 

estimate 

High 

estimate 

Year 

dollar 

Discount 

rate percent 

Period 

covered 

Annualized Monetized ($millions/year) 11 15 20 2010 .................... 2011–2013 

10 14 19 2010 .................... 2011–2013 

One-time costs to create systems to report data, and annual costs related to reporting data to the Secretary, providing rate increase justifications, and costs to the States and Federal government of reviewing the justifications 

Transfers: 

Qualitative: 

* To the extent that rate increases are reduced as a result of this rule, money will be transferred from issuers/shareholders to consumers. 


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1The analytic sample excludes companies that 

are regulated by the Department of Managed Health 

Care in California, as well as small, single-State 

insurers that are not required by State regulators to 

submit NAIC annual financial statements. The 

excluded companies are estimated to account for 

approximately 9 percent of the comprehensive 

major medical fully insured market. In addition, 

among the 579 companies that filed with the NAIC, 

137 were excluded because of data anomalies. 

These 137 excluded companies are estimated to 

account for approximately 5 percent of the 

individual market and less than one percent of the 

group market. 

2As noted above, issuers that are regulated by the 

Department of Managed Health Care in California 

are not required to file annual statements with the 

NAIC, and are not included in the estimates 

provided here. 

3. Qualitative Discussion of Anticipated 

Benefits, Costs and Transfers 

a. Benefits 

Reliable information on prices is a 

prerequisite for well-functioning 

competitive markets. Consumers in the 

individual and small-group health 

insurance markets, which are highly 

concentrated, may have difficulty 

knowing whether an increase in their 

premium is actuarially justifiable—for 

example, because it is due to a change 

in the scope of covered services—or 

whether it is the result of insurers 

exercising market power to set rates 

above the level that is actuarially 

justifiable. 

The final rule subjects proposed rate 

increases of 10 percent or more to 

additional scrutiny in order to safeguard 

against this exercise of market power by 

insurers. The final rule’s reporting 

requirements should result in better 

information for consumers about prices, 

promoting competition and potentially 

increasing the volume of trade, thereby 

yielding a net benefit to society. 

b. Costs 

CMS has identified the primary 

sources of costs that will be associated 

with this final rule as the costs to 

issuers associated with reporting, 

recordkeeping, notifications, and the 

costs to State and Federal governments 

of conducting reviews of the 

justifications filed by issuers. 

CMS estimates that issuers will incur 

approximately $10 million to $15 

million in one-time administrative 

costs, and $0.6 million to $5.5 million 

in annual ongoing administrative costs 

related to complying with the 

requirements of this final rule from 2011 

through 2013. In addition, States will 

incur very small additional costs for 

reporting the results of their reviews to 

the Federal government, and the Federal 

government will incur approximately 

$0.7 million to $5.9 million in annual 

costs to conduct reviews of justifications 

filed by issuers in States that do not 

perform effective reviews. Additional 

details relating to these costs are 

discussed later in this regulatory impact 

analysis. 

C. Estimated Number of Affected 

Entities and Number of Rate Filings 

Meeting or Exceeding the Threshold and 

Subject to Review 

Section 2794 of the PHS Act specifies 

that the rate review provisions apply to 

health insurance issuers offering 

individual or group health insurance 

coverage, not including grandfathered 

health plans. As discussed earlier in the 

preamble, in this context, the term 

‘‘issuer’’ has the same meaning provided 

in 45 CFR 144.103, which states that an 

issuer is ‘‘an insurance company, 

insurance service, or insurance 

organization (including an HMO) that is 

required to be licensed to engage in the 

business of insurance in a State and that 

is subject to State law that regulates 

insurance (within the meaning of 

section 514(b)(2) of ERISA).’’ As 

discussed in the preamble, the rate 

review provisions in this final rule 

apply to issuers that offer individual 

and small group coverage, and these 

issuers will be required to submit a 

Preliminary Justification for rate 

increases meeting or exceeding the rate 

review threshold of 10 percent, to file 

with the Secretary and the applicable 

State a Final Justification for those rate 

increases found unreasonable, and 

disclose information about the proposed 

increase, if implemented, on their Web 

sites. The following sections summarize 

CMS’ estimates of the number of entities 

and rate filings that would be affected 

by the requirements being implemented 

in this final rule. 

D. Estimated Number of Affected 

Entities 

The rate review provisions will apply 

to all health insurance issuers offering 

coverage in the individual and small 

group markets except for grandfathered 

plans. The number of issuers is 311 in 

the individual market and 342 in the 

small group market, for a total of 417 

(unduplicated) issuers, as determined 

for the interim final rule for 

implementing the medical loss ratio 

requirements under the Affordable Care 

Act (Federal Register, December 1, 

2010). 

Table 2 shows the estimated 

distribution of the 417 issuers offering 

coverage in the individual and small 

group markets for the analytic sample 

used in this RIA.1 Approximately 75 

percent (311) of these issuers offer 

coverage in the individual market and 

82 percent (342) offer coverage in the 

small group market. Additionally, CMS 

estimates that there are 34.8 million 

enrollees in coverage that will be subject 

to the requirements being proposed in 

this final rule, including approximately 

10.6 million enrollees in individual 

market coverage and 24.2 million 

enrollees in small group coverage 

(estimated based on ‘‘life years’’ for 2009 

NAIC Health and Life Blank filers, 

which excludes data for companies that 

are not required to file annual 

statements with NAIC).2

TABLE 2—ESTIMATED NUMBER OF ISSUERS SUBJECT TO THE RATE REVIEW REQUIREMENTS BY MARKET

Description 

Issuers 

(companies) 

offering 

coverage 1 3 % of total 

Enrollees 2

% of total 

Number 

Number 

(in thousands) 

Total (Unduplicated) ................................................................................ 417 100.0 34,792 100.0 

Number Offering Coverage In: 

Individual Market .............................................................................. 311 74.6 10,603 30.5 

Small Group Market 4 ....................................................................... 342 82.0 24,189 69.5 

1 Issuers represents companies (for example, NAIC company codes). 

2Enrollment represents ‘‘life years’’ (total member months divided by 12). 3Total issuers represents 2009 NAIC Health and Life Blank filers with valid data, which excludes approximately 8 percent of comprehensive 

major medical premium among NAIC filers. Also excludes data for companies that are regulated by the California Department of Managed Health 

Care. 4Small group is defined based on the current definition (for example, 2 to 50 employees). 


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3According to the Kaiser Family Foundation, a 

number of States have already enhanced their rate 

review and filing process under their current 

authority and several other States will seek 

additional authority to review rates from their 

legislature. See Rate Review: Spotlight on State 

Efforts to Make Health Insurance More Affordable, 

Kaiser Family Foundation, December 2010. 

E. Estimated Number of Rate Filings 

This section of the regulatory impact 

assessment provides estimates of the 

number of filings that would be subject 

to review under this final rule. 

1. Estimation Methods and Sources of 

Uncertainty 

In the proposed rule, CMS estimated 

the total number of rate filings using 

data on the number of filings in 2010 

made through the NAIC System for 

Electronic Rate and Form Filing 

(‘‘SERFF’’). However, not all issuers are 

required to file through SERFF, and 

CMS is required to make assumptions 

about the total number of filings in 

2010, as well as the expected change in 

the number of filings between 2010 and 

2011. 

For the proposed rule, CMS 

conducted research to compile 

information regarding the regulatory 

structure in place by State and market. 

CMS analyzed information provided by 

States in their applications for rate 

review grants, analyzed State 

Department of Insurance Web sites, and 

surveyed State Insurance Department 

staff via telephone to obtain information 

regarding the number of licensed issuers 

and filings in the individual and small 

group markets. In its original estimate 

for the number of filings, CMS used ten 

representative States with relatively 

complete data to estimate the average 

number of filings that could be expected 

per State and by market. Those average 

values were used for all States to 

estimate the total number of filings in 

the individual and small group markets. 

CMS also gathered information from 

State Insurance Departments to obtain 

data for 2008 through 2010 on the 

estimated number of filings processed, 

by market, and approval/rejection rate, 

stratified by the magnitude of the 

increase. Separately CMS received from 

the NAIC an extract showing the final 

disposition for all comprehensive major 

medical filings in SERFF for the first 

three quarters of calendar year 2010, by 

market type. This information was used 

to estimate the total number of filings in 

2010 received and processed by the 49 

States and the District of Columbia 

which use SERFF. 

Another SERFF extract provided the 

number of comprehensive major 

medical filings filed for 2009 by 31 

States. All 19 States that did not use the 

field ‘‘market type’’ were excluded from 

the extract. Using the data pertaining to 

the 31 States included in the 2009 data, 

CMS estimated the proportion of filings 

submitted by quarter, and used that 

distribution, along with the 2010 data, 

to project the number of filings for all 

States using SERFF for the 4th quarter 

of 2010. The increase in the number of 

number of filings from 2009 to 2010, by 

State and market, was added to the 2010 

estimates to trend the number of filings 

forward to 2011. CMS has determined 

that there is insufficient data to estimate 

the number of rate filings beyond 2011. 

For this final rule, in addition to 

reviewing the 2010 SERFF data, CMS 

reviewed data on the number of rate 

filings included in the grant reports 

submitted by the States to CMS for the 

4th quarter of 2010. Since this is data 

directly reported by the States to CMS, 

we believe that this is more reliable than 

what is reported in SERFF, which 

contains data from the health insurance 

issuers. There were 26 States for which 

both SERFF and the grant reports 

contained the number of rate filings for 

the fourth quarter of 2010. In comparing 

the numbers, the numbers of rate filings 

in the grant reports were higher than the 

SERFF numbers by 26 percent. 

Although we did not have the numbers 

for all the States, the data for the 26 

States is a sufficient representative 

sample because it is statistically 

significant and it reflects a 

representative cross-section of the set of 

different types of State filing authority. 

Accordingly, based on the grant reports 

data, we increased the rate filing 

estimates of the proposed rule by 26 

percent for this final rule. 

Although there is some uncertainty 

concerning the number of filings in 

2011, a much larger source of 

uncertainty is uncertainty about the 

number of filings that will have 

proposed rate increases greater than or 

equal to 10 percent. Data on rate 

requests made by issuers are available 

from a handful of States, and CMS has 

used these data to estimate the 

proportion of rate filings with requested 

rate increases of 10 percent or greater. 

However, given the small number of 

States for which data is available, there 

is substantial uncertainty about the 

number of filings in 2010 with proposed 

rate increases that are greater than or 

equal to 10 percent. Further, even if 

CMS had precise data on the 

distribution of rate increase requests in 

2010, it is unclear to what extent that 

distribution might change in 2011 as a 

result of this final rule. Given the 

combination of data imperfections and 

limitations and behavioral uncertainties, 

CMS has chosen to provide a range of 

estimates, based on a range of 

assumptions. 

2. Estimated Number of Rate Filings 

Meeting or Exceeding the Threshold and 

Subject to Review 

Twenty-five States require issuers to 

use the NAIC System for Electronic Rate 

and Form Filing (SERFF) and many 

issuers also use SERFF for filings in 

States that have no SERFF requirement. 

Based on the number of SERFF filings 

from 31 States for the first three quarters 

of 2010 and the 2010 4th quarter 

number of rate filings in both SERFF 

and the grant reports, CMS estimates a 

range of rate filings from 4,580 to 5,059 

in the individual and small group 

markets for all States for all of 2010. 

The total number of filings in 2011 is 

expected to be larger than the number 

of filings in 2010 in part due to an 

increased number of issuers required to 

file and additional filings to meet the 

justification requirements.3 Based on 

actuarial estimates using data from 2009 

and 2010, CMS estimates that the 

number of 2011 rate filings will be in 

the range of 6,121 to 7,343 (see Table 3). 

Issuers are not required to submit 

Preliminary Justifications for their 

grandfathered enrollees. The percentage 

of individuals covered under policies 

that will lose grandfathered status in the 

individual market is estimated to be 40 

to 67 percent, according to 

Grandfathered Health Plan Regulation 

(Federal Register, June 17, 2010). The 

percentage of small group plans 

relinquishing their grandfathered status 

in the small group market is estimated 

to be 20 to 42 percent in 2011. CMS uses 

40 percent, 54 percent, and 67 percent 

for the low, mid, and high estimates of 

the percentage of non-grandfathered rate 

filings in the individual market and 20 

percent, 30 percent and 42 percent in 

the small group market. 

An issuer will be required to submit 

a Preliminary Justification report to the 

Secretary and the applicable State if the 

rate increase is 10 percent or higher. 

The estimates in this regulatory impact 

analysis are based on this provision of 

the final rule. 

Data from a small group of States for 

their individual market show the 

percentage of rate requests at or above 

10 percent ranged from 50 percent to 72 

percent during the time period 2008 to 


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4The sources for the rate increases in the 

individual market are: Iowa list of proposed rate 

increases as of October 25, 2010, http:// 

www.iid.state.ia.us/docs/0_Multi-year%20A

&H%20Rate%20Increase_PPACA%20Types.pdf; 

Illinois list of proposed rate increases as of 

September 2010, http://www.insurance.illinois.gov/ 

Reports/special_reports/IMMHPRFR.pdf; North 

Carolina rate filings, http://infoportal.ncdoi.net/ 

filelookup.jsp?divtype=3; Oregon list of proposed 

rate increases as of November 30, 2010, http:// 

www.oregoninsurance.org/insurer/rates_forms/

health_rate_filings/health-rate-filing-search.html; 

Pennsylvania announcement of each proposed rate 

increases, 

http://www.pabulletin.com/secure/search.html; and 

Washington list of proposed rate increases from the 

State. 

5The sources for the rate increases in the small 

group market are: Colorado list of rate increases, 

http://www.dora.state.co.us/pls/real/

Ins_RAF_Report.main; Minnesota list of final rate 

increases from the State; and Oregon list of 

proposed rate increases, http:// 

www.oregoninsurance.org/insurer/rates_forms/ 

health_rate_filings/health-rate-filing-search.html. 

6Rate filings in which each of the products 

covered in the filing are grandfathered plans will 

not be subject to the provisions of this final rule. 

However, in the small group market, CMS believes 

that most filings are made for products which are 

still being actively marketed. To the extent that 

there are filings in the individual market that 

include no products which are being actively 

marketed, the estimates provided here of the 

number of filings that will be subject to review are 

overestimates of the true burden that will be 

imposed by this final rule. 

7The data on which this estimate is based may 

exclude some issuers selling association coverage in 

States that do not require issuers to include data on 

this coverage in their annual financial reports 

submitted to the NAIC. In addition, this estimate 

did not take into account data for companies that 

are regulated by the California Department of 

Managed Health Care. 

2010.4 The fraction of enrollees in plans 

requesting an increase of 10 percent or 

greater ranged from 34 percent to 77 

percent. CMS uses 50 percent, 60 

percent, and 70 percent as the low, mid, 

and high estimates for the percentage of 

rate requests at or above the rate review 

threshold of 10 percent in the 

individual market, and 35 percent, 50 

percent, and 75 percent for the 

percentage of enrollees affected. 

Data on rate requests in the small 

group market are available from three 

States (Colorado and Oregon, data for 

2009 and 2010, and Minnesota, 2007 

through 2010).5 On average, 

approximately 35 percent of rate 

requests were for 10 percent or greater, 

and with one exception, in each State 

and year combination, between 20 

percent and 40 percent of rate requests 

were above that threshold. CMS uses 20 

percent, 30 percent, and 40 percent for 

the low, medium, and high-range 

estimates of the percentage of rate 

requests at or above the rate review 

threshold of 10 percent in the small 

group market. For the percentage of 

enrollees affected in the small group 

market, CMS estimates 15 percent, 30 

percent, and 50 percent.6

The following table (Table 3) shows 

the low, mid and high range estimates 

(468, 974, and 1,723) of the number of 

filings that will be subject to review and 

require the submission of a justification 

report because the proposed rate 

increase is 10 percent or greater. 

TABLE 3—ESTIMATED NUMBER OF FILINGS SUBJECT TO REVIEW

Individual Small group Total 

Estimated number of filings for 2011: 

Low Range ........................................................................................................................... 1,395 4,726 6,121 

Mid Range ............................................................................................................................ 1,571 5,162 6,733 

High Range ........................................................................................................................... 1,746 5,597 7,343 

Percent of filings subject to review (non-grandfathered): 

Low Range ........................................................................................................................... 40% 20% ........................

Mid Range ............................................................................................................................ 54% 30% ........................

High Range ........................................................................................................................... 67% 42% ........................

Number of filings subject to review: 

Low Range ........................................................................................................................... 558 945 1,503 

Mid Range ............................................................................................................................ 848 1,549 2,397 

High Range ........................................................................................................................... 1,170 2,351 3,521 

Estimated percentage of filings meeting or exceeding threshold: 

Low Range ........................................................................................................................... 50% 20% ........................

Mid Range ............................................................................................................................ 60% 30% ........................

High Range ........................................................................................................................... 70% 40% ........................

Estimated number of filings meeting or exceeding threshold: 

Low Range ........................................................................................................................... 279 189 468 

Mid Range ............................................................................................................................ 509 465 974 

High Range ........................................................................................................................... 819 940 1,759 

3. Estimated Number of Additional 

Filings Subject to Review if Coverage 

Sold Through Associations Are Subject 

to the Rate Review Process 

In this preamble, we discuss a 

proposal to amend the definitions of 

individual and small group markets in 

order for individual and small group 

coverage sold through associations to be 

subject to the rate review process. While 

we did not make this change in the final 

rule, we solicit comments in the 

preamble on this issue and indicate that 

we may amend the final rule after the 

comment period to include individual 

and small group coverage sold through 

associations in the rate review process. 

Although we did not estimate the 

burden of including coverage sold 

through associations for the PRA 

package or for this RIA, an estimate is 

provided below for purposes of 

soliciting comments on the potential 

burden of including individual and 

small group coverage sold through 

associations in the rate review process. 

In reviewing data submitted by health 

insurance issuers to the NAIC, it is 

estimated that there would be 986 

filings annually that would have to be 

submitted for individual or small group 

coverage sold through associations.7 In 

applying the factors for nongrandfathered coverage (.42) and filings 

above the 10% threshold (.45), both of 

which are discussed above, this results 

in a total of 186 additional filings that 

would be subject to rate review. We 

further estimate that 34 percent of these 

filings would occur in States that 

require prior approval before a rate 

increase can be implemented, in which 

case the rate filings are already subject 

to review by a State. Accordingly, 123 

additional filings above the 10% 

threshold would occur if coverage sold 

through associations were subject to the 

rate review process, all of which would 

be reviewed by CMS. 


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We welcome comments on any aspect 

of this burden estimate. We also 

welcome any additional data on the 

additional number of rate filings that 

would occur if individual and small 

group coverage sold through 

associations is subject to the rate review 

process. 

F. Estimated Administrative Costs 

Related to Rate Review Provisions 

As stated earlier in this preamble, this 

final rule will implement the reporting 

requirements of section 2794, describing 

the type of information that will be 

included in the Preliminary Justification 

to the Secretary and the applicable State 

and the disclosure that will be made 

available to consumers on the issuer’s 

Web site if the rate increase is found to 

be unreasonable. CMS has quantified 

the primary sources of start-up costs 

that issuers in the individual and small 

group market will incur to bring 

themselves into compliance with this 

final rule, as well as the ongoing annual 

costs that they will incur related to 

these requirements. These costs and the 

methodology used to estimate them are 

discussed below. 

In order to assess the potential 

administrative effect of the requirements 

in this final rule, CMS consulted with 

the NAIC and industry experts to gain 

insight into the tasks and level of effort 

required. Based on these discussions, 

CMS estimates that issuers will incur 

one-time start-up costs associated with 

developing teams to review the 

requirements in this final rule, and 

developing processes for capturing the 

necessary data (for example, automating 

systems). CMS estimates that issuers 

will also incur ongoing annual costs 

relating to data collection, completing 

the justification reports, conducting a 

final internal review, submitting the 

reports to the Secretary and applicable 

State, record retention, and Web site 

notifications. 

1. One-Time Start-Up Costs 

Based on discussions with NAIC and 

industry experts, start-up costs are 

estimated at $25,000 to $35,000 per 

issuer, calculated from assumptions of 

125 to 175 hours at $200 per hour 

(senior actuary fee) to review the 

requirements for this final rule and 

developing processes for data collection. 

2. Ongoing Costs Related to Rate Review 

Reporting 

For each rate review reporting year, 

issuers offering coverage in the 

individual and small group markets will 

be required to submit a Preliminary 

Justification to the Secretary and 

applicable State prior to the 

implementation of a rate increase for 

each proposed rate increase of 10 

percent or greater. 

Ongoing annual costs are estimated at 

6 to 16 hours per justification report at 

$200 per hour or $1,200 to $3,200 per 

report. Most of the hours are for 

populating the justification reports with 

an additional hour for record retention 

and Web site notification. 

CMS estimates that the one-time costs 

relating to the rate review reporting 

requirements in this final rule will range 

from $10 million to $15 million, and 

that annual costs will be between $0.6 

million and $5.5 million per year (Table 

4). 

TABLE 4—ESTIMATED COSTS FOR REPORTING, RECORD RETENTION, AND WEBSITE NOTIFICATION

[Actual dollars] 

Description 

Total number of 

issuers 

Total number of 

reports 

Estimated 

total hours 

(1) 

Estimated 

average 

cost per 

hour (2) 

Estimated 

total cost 

Estimated 

average 

cost per 

issuer 

Estimated 

average 

cost per 

report 

LOW RANGE ASSUMPTIONS: 

One-Time Costs .............................. 417 468 52,125 $200 $10,425,000 $25,000 $22,276 

Ongoing Costs ................................ 417 468 2,808 200 561,600 1,347 1,200 

Total Year One Costs .............. 417 468 54,933 200 10,986,600 26,347 23,476 

MID RANGE ASSUMPTIONS 

One-Time Costs .............................. 417 974 62,550 200 12,510,000 30,000 12,844 

Ongoing Costs ................................ 417 974 10,714 200 2,142,800 5,139 2,200 

Total Year One Costs .............. 417 974 73,264 200 14,652,800 35,139 15,044 

HIGH RANGE ASSUMPTIONS 

One-Time Costs .............................. 417 1,759 72,975 200 14,595,000 35,000 8,471 

Ongoing Costs ................................ 417 1,759 27,568 200 5,513,600 13,222 3,200 

Total Year One Costs .............. 417 1,759 100,543 200 20,108,600 48,222 11,671 

Notes: Estimated costs are stated in 2010 dollars. 

(1) Estimated number of one-time start up hours and annual ongoing hours. 

(2) Actuary salary/fee. 

3. Estimated Costs to the States and 

Federal Government Related to Rate 

Review Provisions 

Section 2794 directs the Secretary, in 

conjunction with the States, to establish 

a process for the annual review of 

unreasonable increases in premiums for 

health insurance coverage. In doing so, 

both the Federal Government and States 

will incur certain administrative costs. 

However, CMS estimates that the 

additional costs to the States will be 

negligible given that the majority 

already conducts some level of rate 

review, and the costs to the Federal 

Government and States will be 

extremely small. 

4. Estimated Costs to the Federal 

Government 

States currently have primary 

responsibility for the review of rate 

increases and will continue to under 

this final rule. If a State does not have 

an Effective Rate Review Program in 

place for all or some markets within the 

State, CMS will review rate increases 

that meet or exceed the 10 percent 

threshold and make its own 

determinations of whether the rate 

increases were excessive, unjustified, or 

unfairly discriminatory, or otherwise 

unreasonable, within those markets. 

This activity could be conducted with 

in-house resources and/or with the use 

of contracted services. Given the fact 

that, as noted above, some States do not 

have review authority in either the 


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29982 Federal Register / Vol. 76, No. 99 / Monday, May 23, 2011 / Rules and Regulations 

8 Data provided by States on recent rate review 

actions from informal discussions between CMS 

and State Department of Insurance actuaries. 

small group or individual markets, and 

assuming filings are evenly distributed 

across markets, CMS estimates a range 

between 28 percent and 36 percent of 

the rate filings requiring review in 2011 

will fall under CMS’s review 

responsibility. Based on these filing 

estimates and the necessary actuarial 

expertise, this rate review process 

would range in cost from $0.7 million 

to $5.9 million. 

Table 5 describes the assumptions 

used in the estimates for the 

administrative costs to the Federal 

Government associated with its rate 

review activities. 

TABLE 5—ESTIMATED ACTUARIAL RATES

Estimated actuarial rates Low Mid High 

Principal Actuaries ....................................................................................................................... $340.00 $350.00 $360.00 

Support Actuaries ........................................................................................................................ 200.00 234.00 275.00 

Actuarial Analyst .......................................................................................................................... 120.00 150.00 180.00 

Administrative Support ................................................................................................................. 80.00 100.00 120.00 

Estimated time to complete average review Average time required 

Principal Actuaries ....................................................................................................................... 4.25 5.50 6.75 

Support Actuaries ........................................................................................................................ 8.50 9.50 11.00 

Actuarial Analyst .......................................................................................................................... 12.00 14.00 15.00 

Administrative Support ................................................................................................................. 9.00 9.50 12.00 

Actuarial Staff Hours .................................................................................................................... 24.75 29.00 32.75 

Total Staff Hours .................................................................................................................. 33.75 38.5 44.75 

Low Mid High 

Estimated Cost per Review ......................................................................................................... $5,305 $7,198 $9,595 

Number of Rate Reviews ............................................................................................................ 131 321 620 

Total Expected Contracting Cost ......................................................................................... $695,167 $2,313,581 $5,948,900 

In addition to the costs to the Federal 

government of conducting rate reviews 

in States that do not conduct effective 

reviews, there will be a small, largely 

one-time cost to the Federal government 

to determine whether States are 

conducting effective reviews. 

5. Estimated Costs to States 

CMS recognizes that States have 

significant experience reviewing rate 

increases. As discussed earlier in this 

preamble, most States have existing 

Effective Rate Review Programs that will 

meet the requirements of this regulation 

in substituting for CMS’ review of rate 

filings that meet or exceed the 

threshold. Rate review grants provided 

by CMS are expected to increase the 

effectiveness of State rate review 

processes, but are not a direct measure 

of the cost of this regulation. 

CMS estimates that the cost burden on 

States will be small because most States 

currently conduct rate review. For these 

States the incremental costs and 

requirements of this regulation will be 

minimal. Some States do not already 

have a rate review process or have a 

process that applies to only a portion of 

the individual and small group markets 

that this regulation addresses. In these 

States, the implementation costs to 

develop effective rate review processes 

at the State level will be offset by the 

rate review grants provided by CMS. 

However, from a Federal budget 

perspective, these Federal costs from 

grants will be largely balanced by a 

decrease in the Federal cost of 

performing reviews directly. For States 

not currently conducting effective rate 

review, there are likely a variety of 

factors affecting the decision to institute 

an effective rate review process, 

including the need for resources, as well 

as potential legislative hurdles. The rate 

review grants are expected to help 

States overcome some of these hurdles. 

States with Effective Rate Review 

Programs will be required to report on 

their rate review activities to the 

Secretary. CMS believes that this 

reporting requirement will involve 

minimal cost. CMS estimates that 

reporting information from the State to 

CMS will require approximately 20 

minutes per filing. Based on an 

actuary’s fee of $200 per hour, CMS 

estimates an average cost per filing of 

$66.60. The estimated cost of reporting 

the two-thirds of filings meeting or 

exceeding the 10 percent threshold, 

which are reviewed by States, is 

$42,800. 

G. Transfers 

The final rule will likely result in 

lower premiums, although the 

magnitude of this effect is difficult to 

predict. To the extent that premiums are 

lower as a result of the final rule, this 

represents a transfer from insurers/ 

shareholders to consumers. The 

experience of States that engage in rate 

review, summarized in Table 6, suggests 

that the review process may result in 

premium increases that are lower than 

they would otherwise be.8


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TABLE 6—STATE RATE REVIEW ACTIONS

[State filings from 2005 to 2010] 

State Market Number of filings Range of rate 

requests 

Range of actual 

increases 

Number of rate 

reductions 

A ....................... Individual ........................................................... 96 7%–40% 0%–21% 15 

Small Group ...................................................... 21 14%–26% 9%–22% 5 

B ....................... Individual ........................................................... 31 4%–30% 1%–25% 14 

Small Group ...................................................... 37 1%–17% 1%–17% 5 

C ....................... Combined .......................................................... 34 1%–32% 1%–32% 8 

It is difficult, however, to draw strong 

conclusions from this information about 

the effects of additional rate review on 

rates because we are uncertain about 

insurers’ behavioral response. Further, a 

substantial number of States currently 

operate effective rate review processes, 

and it is likely that any potential effect 

in these States will be less than in States 

that have not previously had a strong 

rate review process. 

Although CMS did not estimate the 

impact of this proposed regulation on 

the reduction in premium rate increases, 

CMS estimates that comprehensive 

major medical premiums are $28 billion 

in the individual market and $95 billion 

in the small group market, for a total of 

$123 billion in 2011 (Medical Loss Ratio 

Regulation Technical Appendix, 

December 1, 2010 and National Health 

Expenditure projection factors). The 

percentage of individuals covered under 

policies that will lose grandfathered 

status in the individual market is 

estimated to be 40 to 67 percent 

(Grandfathered Health Plan Regulation, 

June 17, 2010). The percentage of small 

group plans relinquishing their 

grandfathered status in the small group 

market is estimated to be 20 to 42 

percent in 2011 (Grandfathered Health 

Plan Regulation, June 17, 2010). Thus, 

CMS estimates that approximately $30 

to $59 billion of premiums will be 

written by issuers in the individual and 

small group markets to nongrandfathered subscribers. Given the 

magnitude of the premiums that may be 

affected, CMS invited comments in the 

proposed rule on how to calculate 

premium savings so as to determine 

whether the $100 million threshold is 

met but did not receive any responses. 

H. Regulatory Alternatives 

Under the Executive Order, CMS is 

required to consider alternatives to 

issuing regulations and alternative 

regulatory approaches. CMS considers a 

variety of regulatory alternatives 

described below. 

1. Establish a Lower or Higher 

Threshold for Rate Increase Review 

Section 2794(a) requires the Secretary, 

in conjunction with the States to 

conduct an annual review of 

unreasonable increases in premiums. In 

establishing a threshold for rate 

increases that would be subject to 

review, CMS: (1) Examined national 

trends in rate increases and health care 

costs; and (2) weighed the 

administrative burden on issuers and 

States against the level of protection for 

consumers. 

In the proposed rule, CMS proposed 

a threshold of 10 percent. Comments 

received from issuers indicated that this 

was too low and that a 10 percent 

threshold would virtually capture all 

proposed rate increases thereby 

imposing a large burden on issuers and 

state regulators. Consumer advocates, on 

the other hand, felt that the threshold 

was too high since there would be rate 

increases below 10 percent that will be 

unreasonable. Consumer advocates also 

feared that issuers could game the 

process by keeping their rate increases 

at no higher than 9.9 percent. 

If CMS established a threshold lower 

than 10 percent, this would impose a 

larger burden on issuers, States, and 

CMS, and CMS judged that it would not 

yield a substantial benefit for 

consumers. In addition, CMS has also 

taken into consideration the fact that 

many States, as discussed below, 

conduct a rate review process for all rate 

increases without regard to the 

magnitude of the increase, and we 

expect the number of States conducting 

the reviews to increase. Therefore, as a 

practical matter, in a growing number of 

States, the prospect that an 

unreasonable increase that is also below 

the 10 percent threshold would be 

implemented without review is 

mitigated by the State review processes. 

CMS recognizes that there may be rate 

increases that fall below the 10 percent 

threshold that are unjustified. However, 

given the practice of many States to 

review all increases, CMS considered 

the costs and benefits of the additional 

Federal resources to potentially catch 

unjustified or unreasonable rates versus 

fairness to consumers and the additional 

administrative burden for insurers. CMS 

decided against spending additional 

resources to potentially catch only a 

small number of unreasonable rates 

below the threshold. 

CMS also examined establishing a 

threshold higher than 10 percent for rate 

increases that would be subject to 

review. However, in attempting to strike 

the balance discussed above, CMS 

decided on the 10 percentage point 

threshold. Specifically, with a threshold 

higher than 10 percent, consumers 

would face greater exposure to rate 

increases that were either unjustified or 

excessive with no assurance that those 

rates were given a careful review. 

2. Establish a Threshold Based on the 

Market Share of the Insurer 

An alternative approach would have 

established a lower threshold for 

insurers with larger market share, with 

the justification that such insurers were 

more likely to be able to exert market 

power. However, analysis of data from 

a limited number of States suggested 

showed no evidence that larger insurers 

proposed higher rates of increase. 

Further, to the extent that market power 

exists in the individual market because 

subscribers with health problems are 

unable to switch to a competing insurer, 

this power exists equally for small 

companies as for large ones. As a result, 

CMS decided to utilize a uniform 

threshold for all insurers, regardless of 

their size. 

3. Apply Rate Review Standards to the 

Large Group Market 

As discussed in the Preamble, CMS 

discussed applying this final rule to the 

large group market as well as the 

individual and small group markets. 

Comments were received in response to 

the proposed rule that supported 

including the large group market in the 

rate review process. However, because 

of the current rate-setting practices of 

the large group market and States’ 

limited authority over this segment of 

the market, CMS concluded that this 

regulation should only apply to the 

individual and small group markets. 


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4. Including Individual and Small 

Group Coverage Sold Through 

Associations in the Rate Review Process 

We generally deferred in the proposed 

rule to the State definitions of 

individual and small group markets. In 

response to the proposed rule, we 

received comments indicating that, in 

some States, association coverage is 

considered to be large group coverage, 

resulting in individual and small group 

coverage sold through associations not 

being subject to the rate review process. 

We considered amending the definitions 

of individual market and small group 

market for the final rule in order to 

include all individual and small group 

coverage in the rate review process. 

However, since including all individual 

and small group coverage sold through 

associations in the rate review process 

could have a large impact on the 

markets in some States, we are 

incorporating the proposed definitions 

of individual market and small group 

market into the final rule and solicit 

additional comments on this issue, with 

the possibility of amending the final 

rule after receiving comments in order 

to include coverage sold through 

associations in the rate review process. 

I. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires agencies that issue a regulation 

to analyze options for regulatory relief 

of small businesses if a final rule has a 

significant impact on a substantial 

number of small entities. The RFA 

generally defines a ‘‘small entity’’ as: 

(1) A proprietary firm meeting the size 

standards of the Small Business 

Administration (SBA), (2) a nonprofit 

organization that is not dominant in its 

field, or (3) a small government 

jurisdiction with a population of less 

than 50,000 (States and individuals are 

not included in the definition of ‘‘small 

entity’’). CMS uses as its measure of 

significant economic impact on a 

substantial number of small entities a 

change in revenues of more than 3 to 5 

percent. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, if a final rule has a 

significant impact on a substantial 

number of small entities. For purposes 

of the RFA, small entities include small 

businesses, nonprofit organizations, and 

small government jurisdictions. Small 

businesses are those with sizes below 

thresholds established by the Small 

Business Administration (SBA). We 

examined the health insurance industry 

in depth in the Regulatory Impact 

Analysis we prepared for the proposed 

rule on establishment of the Medicare 

Advantage program (69 FR 46866, 

August 3, 2004). In that analysis we 

determined that there were few if any 

insurance firms underwriting 

comprehensive health insurance 

policies (in contrast, for example, to 

travel insurance policies or dental 

discount policies) that fell below the 

size thresholds for ‘‘small’’ business 

established by the SBA. 

Further, the one-time costs of this 

final rule are approximately $25,000 per 

covered entity (regardless of size or nonprofit status) and approximately $4,000 

annually in ongoing costs. Numbers of 

this magnitude do not remotely 

approach the amounts necessary to be 

considered a ‘‘significant economic 

impact’’ on firms with revenues of tens 

of millions of dollars (usually hundreds 

of millions or billions of dollars 

annually). Accordingly, we have 

determined, and certify, that this final 

rule will not have a significant 

economic impact on a substantial 

number of small entities and that a 

regulatory flexibility analysis is not 

required. 

In addition, section 1102(b) of the 

Social Security Act requires us to 

prepare a regulatory impact analysis if 

a final rule may have a significant 

economic impact on the operations of a 

substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. This final rule will not affect small 

rural hospitals. Therefore, the Secretary 

has determined that this final rule will 

not have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

J. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits before issuing any final 

rule that includes a Federal mandate 

that could result in expenditure in any 

one year by State, local or tribal 

governments, in the aggregate, or by the 

private sector, of $100 million in 1995 

dollars, updated annually for inflation. 

In 2011, that threshold level is 

approximately $136 million. 

UMRA does not address the total cost 

of a final rule. Rather, it focuses on 

certain categories of cost, mainly those 

‘‘Federal mandate’’ costs resulting from: 

(1) Imposing enforceable duties on 

State, local, or tribal governments, or on 

the private sector; or (2) increasing the 

stringency of conditions in, or 

decreasing the funding of, State, local, 

or tribal governments under entitlement 

programs. 

This final rule includes no mandates 

on State, local, or tribal governments. 

Under the final rule, issuers would be 

required to submit rate justification 

reports for rate increases of 10 percent 

or greater directly to CMS. A State may 

voluntarily choose to use its existing 

rate review process, if deemed an 

Effective Rate Review Program, to make 

a determination as to whether a rate 

increase is unreasonable. If a State 

chooses to review the rate increase, the 

State would be required to submit to 

CMS the final determination and an 

explanation of its analysis. However, if 

a State chooses not to do so, CMS would 

review a rate increase subject to review 

to determine whether it is unreasonable. 

Thus, the law and this regulation do not 

impose an unfunded mandate on States. 

However, consistent with policy 

embodied in UMRA, this final rule has 

been designed to be the least 

burdensome alternative for State, local 

and tribal governments, and the private 

sector while achieving the objectives of 

the Affordable Care Act. 

K. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

In CMS’ view, while the requirements 

proposed in this final rule would not 

impose substantial direct costs on State 

and local governments, this final rule 

has federalism implications due to 

direct effects on the distribution of 

power and responsibilities among the 

State and Federal governments relating 

to determining the reasonableness of 

rate increases for coverage that Statelicensed health insurance issuers offer 

in the individual and small group 

markets. 

CMS recognizes that there are 

federalism implications with regard to 

CMS’ evaluation of Effective Rate 

Review Programs and its subsequent 

review of rate increases. Under Subpart 

C of this final rule, CMS outlines those 

criteria that States would have to meet 

in order to be deemed to have an 

Effective Rate Review Program. If CMS 

determines that a State does not meet 

those criteria, then CMS would review 

a rate increase subject to review to 

determine whether it is unreasonable. If 

a State does meet the criteria, then CMS 

would adopt that State’s determination 

of whether a rate increase is 

unreasonable. 

States would continue to apply State 

law requirements regarding rate and 

policy filings. State rate review 

processes that are more stringent than 


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Federal Register / Vol. 76, No. 99 / Monday, May 23, 2011 / Rules and Regulations 29985 

the Federal requirements likely would 

be deemed effective and satisfy the 

requirements under this final rule. 

Accordingly, States have significant 

latitude to impose requirements with 

respect to health insurance issuers that 

are more restrictive than the Federal 

law. 

In compliance with the requirement 

of Executive Order 13132 that agencies 

examine closely any policies that may 

have federalism implications or limit 

the policy making discretion of the 

States, CMS has engaged in efforts to 

consult with and work cooperatively 

with affected States, including 

participating in conference calls with 

and attending conferences of the 

National Association of Insurance 

Commissioners (NAIC), participating in 

a NAIC workgroup on rate reviews and 

consulting with State insurance officials 

on an individual basis. 

Throughout the process of developing 

this final rule, CMS has attempted to 

balance the States’ interests in 

regulating health insurance issuers, and 

Congress’ intent to provide uniform 

protections to consumers in every State. 

By doing so, it is CMS’ view that it has 

complied with the requirements of 

Executive Order 13132. Under the 

requirements set forth in section 8(a) of 

Executive Order 13132, and by the 

signatures affixed to this regulation, 

CMS certifies that the Center for 

Consumer Information and Insurance 

Oversight has complied with the 

requirements of Executive Order 13132 

for the attached final rule in a 

meaningful and timely manner. 

List of Subjects in 45 CFR Part 154 

Administrative practice and 

procedure, Claims, Health care, Health 

insurance, Health plans, Penalties, 

Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services amends 45 CFR 

Subtitle A, Subchapter B, by adding part 

154 to read as follows: 

PART 154—HEALTH INSURANCE 

ISSUER RATE INCREASES: 

DISCLOSURE AND REVIEW 

REQUIREMENTS 

Subpart A—General Provisions 

Sec. 

154.101 Basis and scope. 

154.102 Definitions. 

154.103 Applicability. 

Subpart B—Disclosure and Review 

Provisions 

154.200 Rate increases subject to review. 

154.205 Unreasonable rate increases. 

154.210 Review of rate increases subject to 

review by CMS or by a State. 

154.215 Submission of disclosure to CMS 

for rate increases subject to review. 

154.220 Timing of providing the 

Preliminary Justification. 

154.225 Determination by CMS or a State of 

an unreasonable rate increase. 

154.230 Submission and posting of Final 

Justifications for unreasonable rate 

increases. 

Subpart C—Effective Rate Review 

Programs 

154.301 CMS’s determinations of Effective 

Rate Review Programs. 

Authority: Section 2794 of the Public 

Health Service Act (42 USC 300gg–94). 

Subpart A—General Provisions 

§ 154.101 Basis and scope. 

(a) Basis. This part implements 

section 2794 of the Public Health 

Service (PHS) Act. 

(b) Scope. This part establishes the 

requirements for health insurance 

issuers offering health insurance 

coverage in the small group or 

individual markets to report information 

concerning unreasonable rate increases 

to the Centers for Medicare & Medicaid 

Services (CMS). This part further 

establishes the process by which it will 

be determined whether the rate 

increases are unreasonable rate 

increases as defined in this part. 

§ 154.102 Definitions. 

As used in this part: 

CMS means the Centers for Medicare 

& Medicaid Services. 

Effective Rate Review Program means 

a State program that CMS has 

determined meets the requirements set 

forth in § 154.301(a) and (b) for the 

relevant market segment in the State. 

Federal medical loss ratio standard 

means the applicable medical loss ratio 

standard for the State and market 

segment involved, determined under 

subpart B of 45 CFR part 158. 

Health insurance coverage has the 

meaning given the term in section 

2791(b)(1) of the PHS Act. 

Health insurance issuer has the 

meaning given the term in section 

2791(b)(2) of the PHS Act. 

Individual market has the meaning 

given the term under the applicable 

State’s rate filing laws, except that 

where State law does not define the 

term, it has the meaning given in section 

2791(e)(1)(A) of the PHS Act. 

Product means a package of health 

insurance coverage benefits with a 

discrete set of rating and pricing 

methodologies that a health insurance 

issuer offers in a State. 

Rate increase means any increase of 

the rates for a specific product offered 

in the individual or small group market. 

Rate increase subject to review means 

a rate increase that meets the criteria set 

forth in § 154.200. 

Secretary means the Secretary of the 

Department of Health and Human 

Services. 

Small group market has the meaning 

given under the applicable State’s rate 

filing laws, except that where State law 

does not define the term, it has the 

meaning given in section 2791(e)(5) of 

the PHS Act; provided, however, that 

for the purpose of this definition, ‘‘50’’ 

employees is substituted for ‘‘100’’ 

employees in the definition of ‘‘small 

employer’’ under section 2791(e)(4). 

State has the meaning given the term 

in section 2791(d)(14) of the PHS Act. 

Unreasonable rate increase means: 

(1) When CMS is conducting the 

review required by this part, a rate 

increase that CMS determines under 

§ 154.205 is: 

(i) An excessive rate increase; 

(ii) An unjustified rate increase; or 

(iii) An unfairly discriminatory rate 

increase. 

(2) When CMS adopts the 

determination of a State that has an 

Effective Rate Review Program, a rate 

increase that the State determines is 

excessive, unjustified, unfairly 

discriminatory, or otherwise 

unreasonable as provided under 

applicable State law. 

§ 154.103 Applicability. 

(a) In general. The requirements of 

this part apply to health insurance 

issuers offering health insurance 

coverage in the individual market and 

small group market. 

(b) Exceptions. The requirements of 

this part do not apply to grandfathered 

health plan coverage as defined in 45 

CFR § 147.140, or to excepted benefits 

as described in section 2791(c) of the 

PHS Act. 

Subpart B—Disclosure and Review 

Provisions 

§ 154.200 Rate increases subject to 

review. 

(a) A rate increase filed in a State on 

or after September 1, 2011, or effective 

on or after September 1, 2011, in a State 

that does not require a rate increase to 

be filed, is subject to review if: 

(1) The rate increase is 10 percent or 

more, applicable to a 12-month period 

that begins on September 1, as 

calculated under paragraph (c) of this 

section; or 

(2) The rate increase meets or exceeds 

a State-specific threshold applicable to 


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a 12-month period that begins on 

September 1, as calculated under 

paragraph (c) of this section, determined 

by the Secretary. In establishing a Statespecific threshold, the Secretary shall 

consult with the State and may consider 

relevant information provided by other 

interested parties. A State-specific 

threshold shall be based on factors 

impacting rate increases in a State to the 

extent that data relating to such Statespecific factors is available. 

(b) The Secretary will publish a notice 

no later than June 1 of each year 

concerning whether a threshold under 

paragraph (a)(1) or (2) of this section 

applies to a State; except that, with 

respect to the 12-month period that 

begins on September 1, 2011, the 

threshold under paragraph (a)(1) of this 

section applies. 

(c) A rate increase meets or exceeds 

the applicable threshold set forth in 

paragraph (a) of this section if the 

average increase for all enrollees 

weighted by premium volume meets or 

exceeds the applicable threshold. 

(d) If a rate increase that does not 

otherwise meet or exceed the threshold 

under paragraph (c) of this section 

meets or exceeds the threshold when 

combined with a previous increase or 

increases during the 12-month period 

preceding the date on which the rate 

increase would become effective, then 

the rate increase must be considered to 

meet or exceed the threshold and is 

subject to review under § 154.210, and 

such review shall include a review of 

the aggregate rate increases during the 

applicable 12-month period. 

§ 154.205 Unreasonable rate increases. 

(a) When CMS reviews a rate increase 

subject to review under § 154.210(a), 

CMS will determine that the rate 

increase is an unreasonable rate increase 

if the increase is an excessive rate 

increase, an unjustified rate increase, or 

an unfairly discriminatory rate increase. 

(b) The rate increase is an excessive 

rate increase if the increase causes the 

premium charged for the health 

insurance coverage to be unreasonably 

high in relation to the benefits provided 

under the coverage. In determining 

whether the rate increase causes the 

premium charged to be unreasonably 

high in relationship to the benefits 

provided, CMS will consider: 

(1) Whether the rate increase results 

in a projected medical loss ratio below 

the Federal medical loss ratio standard 

in the applicable market to which the 

rate increase applies, after accounting 

for any adjustments allowable under 

Federal law; 

(2) Whether one or more of the 

assumptions on which the rate increase 

is based is not supported by substantial 

evidence; and 

(3) Whether the choice of assumptions 

or combination of assumptions on 

which the rate increase is based is 

unreasonable. 

(c) The rate increase is an unjustified 

rate increase if the health insurance 

issuer provides data or documentation 

to CMS in connection with the increase 

that is incomplete, inadequate or 

otherwise does not provide a basis upon 

which the reasonableness of an increase 

may be determined. 

(d) The rate increase is an unfairly 

discriminatory rate increase if the 

increase results in premium differences 

between insureds within similar risk 

categories that: 

(1) Are not permissible under 

applicable State law; or 

(2) In the absence of an applicable 

State law, do not reasonably correspond 

to differences in expected costs. 

§ 154.210 Review of rate increases subject 

to review by CMS or by a State. 

(a) Except as provided in paragraph 

(b) of this section, CMS will review a 

rate increase subject to review to 

determine whether it is unreasonable, as 

required by this part. 

(b) CMS will adopt a State’s 

determination of whether a rate increase 

is an unreasonable rate increase, if the 

State: 

(1) Has an Effective Rate Review 

Program as described in § 154.301; and 

(2) The State provides to CMS, on a 

form and in a manner prescribed by the 

Secretary, its final determination of 

whether a rate increase is unreasonable, 

which must include a brief explanation 

of how its analysis of the relevant 

factors set forth in § 154.301(a)(3) 

caused it to arrive at that determination, 

within five business days following the 

State’s final determination. 

(c) CMS will post and maintain on its 

Web site a list of the States with market 

segments that meet the requirements of 

paragraph (b) of this section. 

§ 154.215 Submission of disclosure to 

CMS for rate increases subject to review. 

(a) For each rate increase subject to 

review, a health insurance issuer must 

submit a Preliminary Justification for 

each product affected by the increase on 

a form and in the manner prescribed by 

the Secretary. 

(b) The Preliminary Justification must 

consist of the following Parts: 

(1) Rate increase summary (Part I), as 

described by paragraph (e) of this 

section; 

(2) Written description justifying the 

rate increase (Part II), as described by 

paragraph (f) of this section; and 

(3) When CMS is reviewing the rate 

increase under § 154.210(a), rate filing 

documentation (Part III), as described by 

paragraph (g) of this section. 

(c) A health insurance issuer must 

complete and submit Parts I and II of the 

Preliminary Justification described in 

paragraphs (b)(1) and (2) of this section 

to CMS and, as long as the applicable 

State accepts such submissions, to the 

applicable State for any rate increase 

subject to review. If a rate increase 

subject to review is for a product offered 

in the individual market or small group 

market and CMS is reviewing the rate 

increase under § 154.210(a), then the 

health insurance issuer must also 

complete and submit Part III of the 

Preliminary Justification described in 

paragraph (b)(3) of this section to CMS 

only. 

(d) The health insurance issuer may 

submit a single, combined Preliminary 

Justification for rate increases subject to 

review affecting multiple products, if 

the claims experience of all products 

has been aggregated to calculate the rate 

increases and the rate increases are the 

same across all products. 

(e) Content of rate increase summary 

(Part I): The rate increase summary must 

include the following as determined 

appropriate by the Secretary: 

(1) Historical and projected claims 

experience; 

(2) Trend projections related to 

utilization, and service or unit cost: 

(3) Any claims assumptions related to 

benefit changes; 

(4) Allocation of the overall rate 

increase to claims and non-claims costs; 

(5) Per enrollee per month allocation 

of current and projected premium; and 

(6) Three year history of rate increases 

for the product associated with the rate 

increase. 

(f) Content of written description 

justifying the rate increase (Part II): The 

written description of the rate increase 

must include a simple and brief 

narrative describing the data and 

assumptions that were used to develop 

the rate increase and include the 

following: 

(1) Explanation of the most significant 

factors causing the rate increase, 

including a brief description of the 

relevant claims and non-claims expense 

increases reported in the rate increase 

summary; and 

(2) Brief description of the overall 

experience of the policy, including 

historical and projected expenses, and 

loss ratios. 

(g) Content of rate filing 

documentation (Part III): (1) The rate 

filing documentation must be sufficient 

for CMS to conduct an examination 

satisfying the requirements of 


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§ 154.301(a)(3) and (4) and determine 

whether the rate increase is an 

unreasonable increase. Instructions 

concerning the requirements for the rate 

filing documentation will be provided 

in guidance issued by CMS. 

(2) If the health insurance issuer is 

also required to submit a rate filing to 

a State in connection with the rate 

increase under State law, CMS will 

accept a copy of the filing provided that 

the filing includes all of the information 

described in paragraph (g)(1) of this 

section. 

(h) If the level of detail provided by 

the issuer for the information under 

paragraph (g) of this section does not 

provide sufficient basis for CMS to 

determine whether the rate increase is 

an unreasonable rate increase, CMS will 

request the additional information 

necessary to make its determination. 

The health insurance issuer must 

provide the requested information to 

CMS within 10 business days following 

its receipt of the request. 

(i) Posting of the disclosure on the 

CMS Web site: (1) CMS promptly will 

make available to the public on its Web 

site the information contained in Parts 

I and II of each Preliminary Justification. 

(2) CMS will make available to the 

public on its Web site the information 

contained in Part III of each Preliminary 

Justification that is not a trade secret or 

confidential commercial or financial 

information as defined in CMS’s 

Freedom of Information Act regulations, 

45 CFR 5.65. 

(3) CMS will include a disclaimer on 

its Web site with the information made 

available to the public that explains the 

purpose and role of the Preliminary 

Justification. 

(j) CMS will include information on 

its Web site concerning how the public 

can submit comments on the proposed 

rate increases that CMS reviews. 

§ 154.220 Timing of providing the 

Preliminary Justification. 

A health insurance issuer must 

submit a Preliminary Justification for all 

rate increases subject to review that are 

filed in a State on or after September 1, 

2011, or effective on or after September 

1, 2011 in a State that does not require 

the rate increase subject to review to be 

filed, as follows: 

(a) If a State requires that a proposed 

rate increase be filed with the State 

prior to the implementation of the rate, 

the health insurance issuer must submit 

to CMS and the applicable State the 

Preliminary Justification on the date on 

which the health insurance issuer 

submits the proposed rate increase to 

the State. 

(b) For all other States, the health 

insurance issuer must submit to CMS 

and the State the Preliminary 

Justification prior to the implementation 

of the rate increase. 

§ 154.225 Determination by CMS or a State 

of an unreasonable rate increase. 

(a) When CMS receives a Preliminary 

Justification for a rate increase subject to 

review and CMS reviews the rate 

increase under § 154.210(a), CMS will 

make a timely determination whether 

the rate increase is an unreasonable rate 

increase. 

(1) CMS will post on its Web site its 

final determination and a brief 

explanation of its analysis, consistent 

with the form and manner prescribed by 

the Secretary under § 154.210(b)(2), 

within five business days following its 

final determination. 

(2) If CMS determines that the rate 

increase is an unreasonable rate 

increase, CMS will also provide its final 

determination and brief explanation to 

the health insurance issuer within five 

business days following its final 

determination. 

(b) If a State conducts a review under 

§ 154.210(b), CMS will adopt the State’s 

determination of whether a rate increase 

is unreasonable and post on the CMS 

Web site the State’s final determination 

described in § 154.210(b)(2). 

(c) If a State determines that the rate 

increase is an unreasonable rate increase 

and the health insurance issuer is 

legally permitted to implement the 

unreasonable rate increase under 

applicable State law, CMS will provide 

the State’s final determination and brief 

explanation to the health insurance 

issuer within five business days 

following CMS’s receipt thereof. 

§ 154.230 Submission and posting of Final 

Justifications for unreasonable rate 

increases. 

(a) If a health insurance issuer 

receives from CMS a final determination 

by CMS or a State that a rate increase 

is an unreasonable rate increase, and the 

health insurance issuer declines to 

implement the rate increase or chooses 

to implement a lower increase, the 

health insurance issuer must submit to 

CMS timely notice that it will not 

implement the rate increase or that it 

will implement a lower increase on a 

form and in the manner prescribed by 

the Secretary. 

(b) If a health insurance issuer 

implements a lower increase as 

described in paragraph (a) of this 

section and the lower increase does not 

meet or exceed the applicable threshold 

under § 154.200, such lower increase is 

not subject to this part. If the lower 

increase meets or exceeds the applicable 

threshold, the health insurance issuer 

must submit a new Preliminary 

Justification under this part. 

(c) If a health insurance issuer 

implements a rate increase determined 

by CMS or a State to be unreasonable, 

within the later of 10 business days after 

the implementation of such increase or 

the health insurance issuer’s receipt of 

CMS’s final determination that a rate 

increase is an unreasonable rate 

increase, the health insurance issuer 

must: 

(1) Submit to CMS a Final 

Justification in response to CMS’s or the 

State’s final determination, as 

applicable. The information in the Final 

Justification must be consistent with the 

information submitted in the 

Preliminary Justification supporting the 

rate increase; and 

(2) Prominently post on its Web site 

the following information on a form and 

in the manner prescribed by the 

Secretary: 

(i) The information made available to 

the public by CMS and described in 

§ 154.215(i); 

(ii) CMS’s or the State’s final 

determination and brief explanation 

described in § 154.225(a) and 

§ 154.210(b)(2), as applicable; and 

(iii) The health insurance issuer’s 

Final Justification for implementing an 

increase that has been determined to be 

unreasonable by CMS or the State, as 

applicable. 

(3) The health insurance issuer must 

continue to make this information 

available to the public on its Web site 

for at least three years. 

(d) CMS will post all Final 

Justifications on the CMS Web site. This 

information will remain available to the 

public on the CMS Web site for three 

years. 

Subpart C—Effective Rate Review 

Programs 

§ 154.301 CMS’s determinations of 

Effective Rate Review Programs. 

(a) Effective Rate Review Program. In 

evaluating whether a State has an 

Effective Rate Review Program, CMS 

will apply the following criteria for the 

review of rates for the small group 

market and the individual market, and 

also, as applicable depending on State 

law, the review of rates for different 

types of products within those markets: 

(1) The State receives from issuers 

data and documentation in connection 

with rate increases that are sufficient to 

conduct the examination described in 

paragraph (a)(3) of this section. 

(2) The State conducts an effective 

and timely review of the data and 


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29988 Federal Register / Vol. 76, No. 99 / Monday, May 23, 2011 / Rules and Regulations 

documentation submitted by a health 

insurance issuer in support of a 

proposed rate increase. 

(3) The State’s rate review process 

includes an examination of: 

(i) The reasonableness of the 

assumptions used by the health 

insurance issuer to develop the 

proposed rate increase and the validity 

of the historical data underlying the 

assumptions; and 

(ii) The health insurance issuer’s data 

related to past projections and actual 

experience. 

(4) The examination must take into 

consideration the following factors to 

the extent applicable to the filing under 

review: 

(i) The impact of medical trend 

changes by major service categories; 

(ii) The impact of utilization changes 

by major service categories; 

(iii) The impact of cost-sharing 

changes by major service categories; 

(iv) The impact of benefit changes; 

(v) The impact of changes in enrollee 

risk profile; 

(vi) The impact of any overestimate or 

underestimate of medical trend for prior 

year periods related to the rate increase; 

(vii) The impact of changes in reserve 

needs; 

(viii) The impact of changes in 

administrative costs related to programs 

that improve health care quality; 

(ix) The impact of changes in other 

administrative costs; 

(x) The impact of changes in 

applicable taxes, licensing or regulatory 

fees; 

(xi) Medical loss ratio; and 

(xii) The health insurance issuer’s 

capital and surplus. 

(5) The State’s determination of 

whether a rate increase is unreasonable 

is made under a standard that is set 

forth in State statute or regulation. 

(b) Public disclosure and input. In 

addition to satisfying the provisions in 

paragraph (a) of this section, a State 

with an Effective Rate Review Program 

must provide access from its Web site to 

the Parts I and II of the Preliminary 

Justifications of the proposed rate 

increases that it reviews and have a 

mechanism for receiving public 

comments on those proposed rate 

increases. 

(c) CMS will determine whether a 

State has an Effective Rate Review 

Program for each market based on 

information available to CMS that a rate 

review program meets the criteria 

described in paragraphs (a) and (b) of 

this section. 

(d) CMS reserves the right to evaluate 

from time to time whether, and to what 

extent, a State’s circumstances have 

changed such that it has begun to or has 

ceased to satisfy the criteria set forth in 

paragraphs (a) and (b) of this section. 

Dated: May 3, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: May 18, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2011–12631 Filed 5–19–11; 11:15 am] 

BILLING CODE 4120–01–P 


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