Source: https://www.federalregister.gov/documents/2011/05/23/2011-12631/rate-increase-disclosure-and-review
Timestamp: 2016-09-27 10:38:46
Document Index: 317969973

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:: Rate Increase Disclosure and Review
A Rule by the Health and Human Services Department on 05/23/2011
29963-29988
1. Basis and Scope (§ 154.101)
2. Definitions (§ 154.102)
3. Applicability (§ 154.103)
1. Rate Increases Subject to Review (§ 154.200)
2. Unreasonable Rate Increase (§ 154.205)
3. Review of Rate Increases Subject to Review by CMS or by a State (§ 154.210)
4. Submission of Disclosure to CMS for Rate Increases Subject to Review (§ 154.215)
5. Timing of Preliminary Justification (§ 154.220) 6. Determination by CMS or a State of an Unreasonable Rate Increase (§ 154.225) 7. Submission and Posting of Final Justifications for Unreasonable Rate Increases (§ 154.230) C. Subpart C—Effective Rate Review Programs CMS's Determination of Effective Rate Review Programs (§ 154.301) III. Provisions of the Final Rule
B. Information Collection Requirements (ICRs) Regarding the Rate Review Preliminary Justification Form (§§ 154.215 and 154.220)
C. ICRs Regarding State Determinations (§ 154.210 and § 154.225)
D. ICRs Regarding the Final Justification and Final Notification (§ 154.230)
E. ICRs Regarding CMS' Determinations of Effective Rate Review Programs (§ 154.301)
https://www.federalregister.gov/d/2011-12631
Start Printed Page 29964
Center for Consumer Information and Insurance Oversight, Centers for Medicare & Medicaid Services (CMS), HHS.
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.
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.
Section 154.101 of the proposed rule indicated that this rule would implement section 2794 of the PHS Act. Specifically, the rule would establish Start Printed Page 29965disclosure 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.
Certain key definitions in § 154.102 of the proposed rule are discussed below.
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 Start Printed Page 29966include individual coverage and small employer coverage sold through associations in the rate review process, the amendment will only be applied prospectively.
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.
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 Start Printed Page 29967regulation and noted the importance of such coverage to children.
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 Start Printed Page 29968are 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.
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 Start Printed Page 29969rule. 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.
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 Start Printed Page 29970included 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 risk-based capital information as confidential, thereby leaving consumers without important information needed to scrutinize proposed rate increases. Another consumer commenter recommended that issuers be required to submit data on provider reimbursement and contracts and that issuers not be permitted to designate such data as confidential. While provider commenters generally recommended that as much information as possible from the Preliminary Justification be publicly released, they expressed concern about maintaining the confidentiality of provider reimbursement rates. Industry commenters were concerned about the impact of disclosing market sensitive information and generally recommended that the information in Part III be kept confidential and not disclosed. Industry commenters requested that CMS provide additional information on how the “confidential” information exemption under the Freedom of Information Act (FOIA), 5 U.S.C. section 552, would apply so that they could designate information in Part III of the Preliminary Justification appropriately. They also requested more guidance on CMS's review and appeal process for FOIA requests and disclosures. Response: The final rule essentially adopts the confidentiality approach taken in the proposed rule; that is, information contained in Part III of a Preliminary Justification will be posted on our Web site unless the FOIA exemption for trade secrets and confidential commercial or financial information applies. As a Federal agency, we generally are required to utilize the FOIA standard in determining confidentiality. As discussed in more detail in the preamble to the proposed rule, CMS's FOIA rule, 45 CFR Part 5, establishes the process and standards that generally apply to determining whether information designated as confidential is subject to disclosure. Issuers will be able to designate the information that they believe is protected by the exemption and we will determine whether the exemption applies. We reviewed the approaches currently taken by States concerning the public disclosure of rate filings. Some States make all parts of a rate filing public; some States provide standards for which parts of a rate filing will be made public; and other States follow a freedom of information process and standard under State law that is similar to FOIA. Based on a review of State filing guidelines and State Web sites, it appears at least 12 states do not redact any information when making rate filings available to the public. Given that Part III is based on State rate filing requirements, this means that many States do not regard the types of information found in Part III to be confidential or protected from disclosure. Based on the fact that the information contained in Part III appears to be widely available across the country and that many States already are making this information available, it may be difficult for an issuer to assert that the information in Part III is confidential or protected from disclosure under Federal law. Comment: Industry commenters recommended that issuers be provided additional time beyond five business days to respond to an inquiry from CMS regarding an incomplete Part III of the Preliminary Justification. Commenters noted that, for example, a more complex request might require an issuer to gather and organize information from different internal departments, which could take longer than five business days. Start Printed Page 29971
Response: We have modified the final rule so that, after receiving a request from CMS, an issuer will have 10 business days to respond to provide additional Part III information. Comment: Several State regulator, consumer, and industry commenters expressed concerns that the proposed rule's disclaimer language would be misleading to consumers and that a clearer description of both the purpose of the Preliminary Justification and the rate review process was needed. State regulator and industry commenters requested an explicit statement that rates subject to review had not yet been determined to be unreasonable by a State or CMS. Commenters also recommended including statements regarding: (1) The availability of additional information if a rate was determined to be unreasonable; (2) the actuarial factors that impact the reasonableness of rates; (3) the possibility that a proposed increase might change prior to implementation; and (4) whether a product was available for purchase notwithstanding review of its proposed rates. Response: We have modified the final rule to state more generally that a disclaimer will accompany the Preliminary Justifications posted on our Web site. Guidance concerning this disclaimer will be provided at a later date and the commenters' concerns will be considered when that guidance is developed. 5. Timing of Preliminary Justification (§ 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 Start Printed Page 29972chooses 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:
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 under-estimate of medical trend in previous years on the current rate; (7) reserve needs; (8) administrative costs related to programs that improve health care quality; (9) other administrative costs; (10) applicable taxes and licensing or regulatory fees; (11) medical loss ratio; and (12) the health insurance issuer's risk-based capital status relative to national standards. Finally, the State's determination whether a rate increase is unreasonable would need to be made under a standard set forth in State statute or regulation.
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 Start Printed Page 29973as 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.
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 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 Start Printed Page 29974secure rate review and prior approval authority.
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.
Section 2794 requires the Secretary to develop, in conjunction with the States, a process for the annual review of unreasonable rate increases. The Start Printed Page 29975regulation 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.
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.
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.
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 Start Printed Page 29976issuer 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.
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 BurdenRegulation section(s)OMB control No.Number of respondentsNumber of responsesBurden 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 Determinations0938-New35649.3321420042,800042,800§§ 154.215, and 154.220, ICRs Regarding the Rate Review Preliminary Justification Form0938-New4179741110,7142002,142,80002,142,800§ 154.230, ICRs Regarding the Final Justification0938-New417974.548720097,400097,400§ 154.230, ICRs Regarding the Final Notification0938-New417974.548720097,400097,400Total4523,57111,9022,380,4002,380,400
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. Start Printed Page 29977Accordingly, the rule has been reviewed by the Office of Management and Budget.
Table 1—Accounting TableBenefits: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 issuersCosts:Low estimateMid-range estimateHigh estimateYear dollarDiscount rate percentPeriod coveredAnnualized Monetized ($millions/year)11152020102011-2013 10141920102011-2013One-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 justificationsTransfers: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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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 MarketDescriptionIssuers (companies) offering coverage 1 3% of totalEnrollees 2% of totalNumberNumber (in thousands)Total (Unduplicated)417100.034,792100.0Number Offering Coverage In: Individual Market31174.610,60330.5Small Group Market 434282.024,18969.51 Issuers represents companies (for example, NAIC company codes).2 Enrollment represents “life years” (total member months divided by 12).3 Total issuers represents 2009 NAIC Health and Life Blank filers with valid data, which excludes approximately 8 percent of comprehensive major medical premium among NAIC filers. Also excludes data for companies that are regulated by the California Department of Managed Health Care.4 Small group is defined based on the current definition (for example, 2 to 50 employees).
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).
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 Start Printed Page 299802010.[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 IndividualSmall groupTotalEstimated number of filings for 2011:Low Range1,3954,7266,121Mid Range1,5715,1626,733High Range1,7465,5977,343Percent of filings subject to review (non-grandfathered):Low Range40%20%Mid Range54%30%High Range67%42%Number of filings subject to review:Low Range5589451,503Mid Range8481,5492,397High Range1,1702,3513,521Estimated percentage of filings meeting or exceeding threshold:Low Range50%20%Mid Range60%30%High Range70%40%Estimated number of filings meeting or exceeding threshold:Low Range279189468Mid Range509465974High Range8199401,759
In reviewing data submitted by health insurance issuers to the NAIC, it is estimated that there would be 986 filings annually that would have to be submitted for individual or small group coverage sold through associations.[7] In applying the factors for non-grandfathered coverage (.42) and filings above the 10% threshold (.45), both of which are discussed above, this results in a total of 186 additional filings that would be subject to rate review. We further estimate that 34 percent of these filings would occur in States that require prior approval before a rate increase can be implemented, in which case the rate filings are already subject to review by a State. Accordingly, 123 additional filings above the 10% threshold would occur if coverage sold through associations were subject to the rate review process, all of which would be reviewed by CMS.
Table 4—Estimated Costs for Reporting, Record Retention, and Website Notification[Actual dollars]DescriptionTotal number of issuersTotal number of reportsEstimated total hours (1)Estimated average cost per hour (2)Estimated total costEstimated average cost per issuerEstimated average cost per reportLOW RANGE ASSUMPTIONS:One-Time Costs41746852,125$200$10,425,000$25,000$22,276Ongoing Costs4174682,808200561,6001,3471,200Total Year One Costs41746854,93320010,986,60026,34723,476MID RANGE ASSUMPTIONSOne-Time Costs41797462,55020012,510,00030,00012,844Ongoing Costs41797410,7142002,142,8005,1392,200Total Year One Costs41797473,26420014,652,80035,13915,044HIGH RANGE ASSUMPTIONSOne-Time Costs4171,75972,97520014,595,00035,0008,471Ongoing Costs4171,75927,5682005,513,60013,2223,200Total Year One Costs4171,759100,54320020,108,60048,22211,671Notes: Estimated costs are stated in 2010 dollars.(1) Estimated number of one-time start up hours and annual ongoing hours.(2) Actuary salary/fee.
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 Start Printed Page 29982small 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—Estimated Actuarial RatesEstimated actuarial ratesLowMidHighPrincipal Actuaries$340.00$350.00$360.00Support Actuaries200.00234.00275.00Actuarial Analyst120.00150.00180.00Administrative Support80.00100.00120.00Estimated time to complete average reviewAverage time requiredPrincipal Actuaries4.255.506.75Support Actuaries8.509.5011.00Actuarial Analyst12.0014.0015.00Administrative Support9.009.5012.00Actuarial Staff Hours24.7529.0032.75Total Staff Hours33.7538.544.75 LowMidHighEstimated Cost per Review$5,305$7,198$9,595Number of Rate Reviews131321620Total Expected Contracting Cost$695,167$2,313,581$5,948,900
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] Start Printed Page 29983
Table 6—State Rate Review Actions[State filings from 2005 to 2010]StateMarketNumber of filingsRange of rate requestsRange of actual increasesNumber of rate reductionsAIndividual967%-40%0%-21%15 Small Group2114%-26%9%-22%5BIndividual314%-30%1%-25%14 Small Group371%-17%1%-17%5CCombined341%-32%1%-32%8
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.Start Printed Page 29984
States would continue to apply State law requirements regarding rate and policy filings. State rate review processes that are more stringent than Start Printed Page 29985the 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.
Rate increases subject to review.
Unreasonable rate increases.
Review of rate increases subject to review by CMS or by a State.
Submission of disclosure to CMS for rate increases subject to review.
Timing of providing the Preliminary Justification.
Determination by CMS or a State of an unreasonable rate increase.
Submission and posting of Final Justifications for unreasonable rate increases.
CMS's determinations of Effective Rate Review Programs.
§ 154.101 Basis and scope.
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.
Rate increase subject to review means a rate increase that meets the criteria set forth in § 154.200.
(1) When CMS is conducting the review required by this part, a rate increase that CMS determines under § 154.205 is:
§ 154.103 Applicability.
(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.
§ 154.200 Rate increases subject to review.
(2) The rate increase meets or exceeds a State-specific threshold applicable to Start Printed Page 29986a 12-month period that begins on September 1, as calculated under paragraph (c) of this section, determined by the Secretary. In establishing a State-specific threshold, the Secretary shall consult with the State and may consider relevant information provided by other interested parties. A State-specific threshold shall be based on factors impacting rate increases in a State to the extent that data relating to such State-specific factors is available.
(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.
§ 154.210 Review of rate increases subject to review by CMS or by a 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.
§ 154.215 Submission of disclosure to CMS for rate increases subject to review.
(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.
(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 Start Printed Page 29987§ 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.
§ 154.220 Timing of providing the Preliminary Justification.
§ 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.
(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).
§ 154.230 Submission and posting of Final Justifications for unreasonable rate increases.
(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.
(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
§ 154.301 CMS's determinations of Effective Rate Review Programs.
(2) The State conducts an effective and timely review of the data and Start Printed Page 29988documentation submitted by a health insurance issuer in support of a proposed rate increase.
The analytic sample excludes companies that are regulated by the Department of Managed Health Care in California, as well as small, single-State insurers that are not required by State regulators to submit NAIC annual financial statements. The excluded companies are estimated to account for approximately 9 percent of the comprehensive major medical fully insured market. In addition, among the 579 companies that filed with the NAIC, 137 were excluded because of data anomalies. These 137 excluded companies are estimated to account for approximately 5 percent of the individual market and less than one percent of the group market.
As noted above, issuers that are regulated by the Department of Managed Health Care in California are not required to file annual statements with the NAIC, and are not included in the estimates provided here.
According to the Kaiser Family Foundation, a number of States have already enhanced their rate review and filing process under their current authority and several other States will seek additional authority to review rates from their legislature. See Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable, Kaiser Family Foundation, December 2010.
The sources for the rate increases in the individual market are: Iowa list of proposed rate increases as of October 25, 2010, http://www.iid.state.ia.us/​docs/​0_​Multi-year%20A&​H%20Rate%20Increase_​PPACA%20Types.pdf;​ Illinois list of proposed rate increases as of September 2010, http://www.insurance.illinois.gov/​Reports/​special_​reports/​IMMHPRFR.pdf; North Carolina rate filings, http://infoportal.ncdoi.net/​filelookup.jsp?​divtype=​3;​ Oregon list of proposed rate increases as of November 30, 2010, http://www.oregoninsurance.org/​insurer/​rates_​forms/​health_​rate_​filings/​health-rate-filing-search.html;​ Pennsylvania announcement of each proposed rate increases, http://www.pabulletin.com/​secure/​search.html;​ and Washington list of proposed rate increases from the State.
The sources for the rate increases in the small group market are: Colorado list of rate increases, http://www.dora.state.co.us/​pls/​real/​Ins_​RAF_​Report.main;​ Minnesota list of final rate increases from the State; and Oregon list of proposed rate increases, http://www.oregoninsurance.org/​insurer/​rates_​forms/​health_​rate_​filings/​health-rate-filing-search.html.
Rate filings in which each of the products covered in the filing are grandfathered plans will not be subject to the provisions of this final rule. However, in the small group market, CMS believes that most filings are made for products which are still being actively marketed. To the extent that there are filings in the individual market that include no products which are being actively marketed, the estimates provided here of the number of filings that will be subject to review are overestimates of the true burden that will be imposed by this final rule.
The 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.
Data provided by States on recent rate review actions from informal discussions between CMS and State Department of Insurance actuaries.