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July 2011 St@teside

Insurance Premium Rate Review Update

On June 6, the Center for Consumer Information and Insurance Oversight (CCIIO) announced that, effective September 1, 2011, the federal government will review premium rate increases in 10 states that do not have effective rate review programs. The U.S. Department of Health and Human Services (HHS) is taking this action to comply with rate review regulations finalized on May 19, 2011.

The regulations include a requirement in the Patient Protection and Affordable Care Act (ACA) that HHS, in conjunction with the states, establish a process for annual review of “unreasonable” rate increases for non-grandfathered health plans. The final rule stipulates that there must be a review of any proposed increase of 10 percent or more for individual and small group health insurance plans that meet certain criteria listed under §154.200 of the federal regulations. Starting in 2012, “unreasonable” rate increases will be set based on medical inflation trends in each state. If the state lacks the resources or authority to conduct rate reviews, HHS will conduct them.

In its fact sheet, CCIIO outlines what HHS deems as an effective rate review system.  Factors that fulfill the requirements for an effective system include whether states have “sufficient data and documentation concerning rate increases to conduct an examination” and whether they weighed factors such as medical cost trends, changes in benefits and adjustments to cost-sharing.

Based on these criteria, 40 states and the District of Columbia have effective rate review for all insurance markets and issuers. Of the 10 states where HHS will step in to review premium rate increases of more than 10 percent, seven states—Alabama, Arizona, Idaho, Louisiana, Missouri, Montana, and Wyoming—will have both their individual and their small group markets be reviewed by HHS. In the remaining three states—Iowa, Pennsylvania, and Virginia—HHS will only conduct rate review for the small group market, while the states will review rate increases in the individual market.

According to HHS, the purpose of the regulations is to hold premiums down and provide transparency to the rate review process so that consumers can understand why they pay higher rates. Beginning September 1, 2011, insurers in all states will be required to post justifications for rate increases above 10 percent in a consumer-friendly format on their websites. The Centers for Medicare & Medicaid Services will also post on its website its determination of whether an insurance plan’s increase above 10 percent is unreasonable and provide a brief explanation of its analysis.