Today the U.S. Department of Health and Human Services (HHS) issued a final rule requiring thorough review of health insurance premium increases. The 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 the Centers for Medicare and Medicaid Services (CMS) to determine whether they are “unreasonable.” The rule also requires that insurance companies make certain rate information public.

As of September 1, 2011, rate increases of 10% or more must be reviewed by state or federal officials. CMS will adopt state determinations if the state: (1) has an effective rate review program in a given market, as determined by CMS; and (2) provides CMS with a timely final determination that includes an explanation for the state analysis. In all other situations, CMS will review rate increases. Starting September 2012, the 10% threshold will be replaced by state-specific thresholds reflecting trends in each state.

The rule sets forth three criteria for determining whether a rate increase is excessive, unjustified, or unfairly discriminatory, and therefore, unreasonable:

1. A rate increase is excessive if it causes the premium to be unreasonably high in relation to benefits. In making this determination, CMS will consider whether the projected medical loss ratio would fall below the applicable federal standard.
2. A rate increase is 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.
3. A rate increase is 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.

The rule also requires insurance companies that implement unreasonable rate increases to submit to CMS a final justification responding to CMS’ or the state’s determination. The insurance company must also provide this justification, in an easily understood form, on its company website and the Affordable Care Act website for a minimum of three years.

The HHS press release is available at the following link. The final rule is available at the following link.