The Centers for Medicare and Medicaid Services (CMS) plans to use a 10% cut-off to decide whether to look more closely at individual and small group health insurance rate hikes in states.

The 10% threshold will apply both in states where CMS handles rate reviews and in states that do the reviews themselves, officials say.

CMS, an arm of the U.S. Department of HealthPPACA toolkit and Human Services (HHS), will begin to apply the review program rules Sept. 1.

Starting Sept. 1, 2012, each state will get its own review threshold, officials say.

CMS has described the rate review program regulations in an early version of the 94-page Rate Increase Disclosure and Review final rule.

The final rule, set to appear Monday in the Federal Register, will implement Section 1003 of the Patient Protection and Affordable Care Act of 2010 (PPACA).

PPACA Section 1003 requires HHS and the states to develop a process for conducting annual reviews of “unreasonable increases in premiums for health insurance coverage.”

HHS is encouraging states to conduct their own rate reviews. In states where regulators cannot or will not conduct reviews, an arm of CMS will conduct the reviews.

Originally, the rules were set to take effect July 1; CMS responded to pleas for relief from industry commenters by pushing the effective date back two months.

Many state regulators and insurance industry commenters also had asked CMS to reconsider using a 10% review threshold in every state. They suggested that the 10% threshold would lead to reviewers reviewing virtually all proposed rate increases in many states.

CMS declined to change cut-off.

PPACA Section 1003 gives CMS the authority to require

justification and disclosure of proposed rate increases but no direct authority to block rate increases.

“However, if an issuer fails to comply with the requirements set forth in this final rule, CMS could seek a court order against the issuer to enforce compliance,” officials say in the preamble to the final rule.

Many insurance industry commenters had asked CMS to establish safe harbors or an expedited rate review procedure.

The commenters asked, for example, for a rate increase that seemed likely to satisfy the new federal minimum medical loss ratio requirements for individual and small group health insurance.

“We have not modified the final rule to provide safe harbors or expedited rate review procedures given that many factors are relevant in determining whether a particular proposed rate increase is unreasonable, thus supporting the need for a more detailed review process,” officials say.

Also in the preamble, CMS officials say:

  • The definition of the word “state” used in the rate review program regulations includes District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.
  • A state that reviews rates itself and excludes short-term health insurance from its definition of “individual health insurance” can keep short-term health insurance out of the rate review program.
  • The rate review program will not affect grandfathered health insurance, retiree-only health plans or self-funded health plans.

CMS officials say they have not made up their mind about how to handle individual or small group coverage provided through associations.

CMS has included a list of questions aimed at commenters with an interest in the association health plan market.

CMS may grant confidential status for some information submitted to rate reviewers on a case-by-case basis.

Today, however, “based on a review of state filing guidelines and state websites, it appears at least 12 states do not redact any information when making rate filings available to the public,” officials say.

Karen Ignagni, president of America’s Health Insurance Plans (AHIP), Washington, put out a statement suggesting that focusing solely on health insurance premiums while ignoring the underlying medical cost drivers will do nothing to make coverage more affordable.

“The public policy discussion needs to be enlarged to focus on the soaring cost of medical care that threatens our economic competitiveness, our public safety net, and the affordability of health care coverage,” Ignagni says. “Health plans are doing their part to restrain health care cost growth by partnering with providers across the country to change payment models to promote and reward safe, high-quality, cost-effective care.

“Premium review must adequately factor in all of the components that determine premium rates, including geographic variation, the cost of new benefit mandates, and the impact of younger and healthier people dropping coverage. An arbitrary threshold for review will establish a de facto presumption of unreasonableness in what should be an objective, actuarially-based evaluation.”

Any reviews that are conducted should be done at the state level, because state officials have the experience, infrastructure, and local market knowledge needed to ensure that consumers are protected and that health plans are solvent, Ignagni says.

Other rate review coverage from National Underwriter Life & Health: