Employee Benefits Compliance

HHS Issues Regulations Requiring Insurers to Justify Rate Increases of 10% or More in 2011

HHS issued regulations yesterday that require insurers who intend to raise rates by 10% or more in 2011 to publicly detail the reasons for the increase, through both a narrative description and a quantitative analysis. HHS will then review the proposed rate increases and determine whether they are unreasonable. The law does not authorize HHS to reject proposed increases, but only to deem them reasonable or unreasonable. The proposed regulations apply to policies sold in the individual and small group markets.

The new regulations were issued pursuant to Section 1003 of the Affordable Care Act, which added new section 2794 to the Public Health Service Act, directing HHS, in conjunction with the States, to establish a process for the annual review of “unreasonable increases in premiums for health insurance coverage.” The law requires health insurance issuers to submit to HHS and to the applicable State a justification for an unreasonable premium increase prior to the implementation of the increase.

In making the determination whether proposed rate increases are unreasonable, HHS will consider three factors, including whether the insurer meets the Minimum Loss Ratio (MLR) requirements (that it spend at least 80% of its revenue on medical costs and quality of care).

The HHS review process does not preempt or supplant any existing State laws or processes governing the review of insurance premiums. According to HHS, 43 of the 50 States currently have some rate review process, in either the individual or small group markets, or both.

The HHS regulations (136 pages) are at http://www.ofr.gov/OFRUpload/OFRData/2010-32143_PI.pdf