HHS Final Rule on Controlling Premium Increases

On May 19, 2011, The Department of Health and Human Services (HHS) issued a final regulation aimed at controlling large health insurance premium increases.

This regulation was implemented to comply with the provision of health care reform that required HHS to establish a new process to annually review "unreasonable increases in premium for health insurance coverage." The reform provision mandated that the process must require health insurance issuers to submit justifications for unreasonable premium increases prior to implementing the increase.

• Rate increases of 10 percent or more by insurers in the small group and individual markets must be reviewed by state or federal officials.
• Insurance companies will be required to justify significant rate increases and provide information to consumers about the reasons for the increases.
• Grandfathered plans and excepted benefits (such as separate dental-only and vision-only plans) do not have to comply with these requirements.

Effective Sept. 1, 2011, insurers seeking rate increases of 10 percent or more for non-grandfathered plans in the small group and individual markets must publicly disclose the proposed increases, along with justification for the increases. (Effective Sept. 1, 2012, the 10 percent threshold will be replaced with a state-specific threshold to reflect trends particular to that state.)

The increases will be reviewed by either state or federal experts to determine if they are unreasonable. States with effective rate review systems will conduct reviews, but if a state does not have the resources, the Centers for Medicare & Medicaid Services will conduct them.

Increases are considered unreasonable if found to be any of the following:

• Excessive: The premium charged for the health insurance coverage is unreasonably high in relation to the benefits provided.
• Unjustified: Justification data provided by the insurer is incomplete, inadequate or otherwise does not provide a basis upon which the reasonableness of an increase may be determined.
• Unfairly discriminatory: Premium differences between insureds within similar risk categories that are not permissible under state law or do not reasonably correspond to differences in expected costs.

This rule is designed to make more information available to consumers regarding premium increases. Details on the outcome of all reviews for increases of 10 percent or more, including the justification for the increase, will be posted on the HHS website, www.healthcare.gov.

In addition, HHS will publish forms that insurers must use to propose rate increases and inform consumers about the proposed increases.