The U.S. Department of Health and Human Service’s Centers for Medicare & Medicaid Services (CMS) has issued a final rule (pdf) implementing the requirement of the Affordable Care Act that health insurance issuers disclose and justify “unreasonable premium increases” before implementing them. 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.” The final rule takes effect 60 days after its publication in the Federal Register, which is scheduled for May 23, 2011.

Section 2794 of the Public Health Service (PHS) Act directs HHS to work with states to establish a process for the annual review of “unreasonable increases in premiums for health insurance coverage.” Health insurance issuers will be required to justify the increases to HHS and consumers before such increases are implemented, and to post these justifications on their company’s website as well as on the HHS Affordable Care Act’s website. While HHS has no authority to reject unreasonable rates itself, many states do have authority to deny proposed rate increases, and supplemental performance funding is available under the PHS Act for States that have or seek such authority. States receiving grants under section 2794(b) of the PHS Act may recommend to State Exchanges that issuers be excluded from participation in the Exchanges based upon a pattern or practice of excessive or unjustified premium increases. Section 1311(e)(2) of the Affordable Care Act will require Exchanges to take such recommendations into consideration when determining whether to make health plans available through the Exchanges.

In a statement, HHS Secretary Kathleen Sebelius said: “During the past year we have worked closely with states to strengthen their ability to review, revise or reject unreasonable rate hikes. This final rule helps build on that partnership to protect consumers.”

According to the HHS fact sheet, highlights of the new rule include:

• Starting September 1, 2011, independent experts will be required to scrutinize any proposed increase of 10 percent or more for non-grandfathered plans in the individual and small group market. States will have the primary responsibility for reviewing rate increases, although HHS will assist states that lack the resources or authority to conduct actuarial reviews. Disclosure forms explaining the proposed increases will be make available through web sites of HHS, states and insurers. More information on these proposed forms can be found here.
• As of September 1, 2012, the 10 percent threshold will be replaced by state-specific thresholds that reflect the insurance and health care cost trends in each state. HHS will work with states in developing these standards.
• The final rule includes a new requirement that states provide an opportunity for public input in the evaluation of rate increases subject to review. According to HHS, this change “will strengthen the consumer transparency aspects of the new rule.”

HHS is soliciting comments on whether to apply the final rule to individual and small group coverage sold through associations, an area the agency says is sometimes exempt from state oversight. Specifically, HHS seeks comments and data on a series of questions that include:

• 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?
• How do rate increases for association and out-of-state trust coverage sold to individuals and small groups compare to rate increases in the traditional market? What explains the differences (if any) between rate increases for association and out-of-state trust coverage and traditional market coverage?

Comments on these questions must contain the identification number CMS-9999-FC and be received on or before the rule becomes effective. Comments may be submitted electronically through the federal eRulemaking portal, or by regular mail to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9999-FC, P.O. Box 8010, Baltimore, MD 21244-8010.

Photo credit: Bartek Szewczyk