Key Regulation Concepts

Premium Rate Review

What is rate review?

Rate review refers to the concept that the government has a role to play in protecting people from unfair increases to their health plan premiums imposed by insurance companies. Regulation of health insurance premiums varies dramatically from state to state, and even between different types of health plans within states. Premiums may differ for individuals with plans from the same insurance company. Each variation is called a premium rate.

Some state insurance departments have the authority to reject premium rates and rate increases, while other state insurance departments review rates and their justifications but do not have the authority to reject an increase in premiums. The former process is a prospective review or approval of rates, while the latter is a retrospective form of regulation. A common form of retrospective regulation is called file and use, in which premium rates may go into effect after a certain amount time without any approval. But under file and use, the state can reject the rates later if they are found to be unreasonable. This regulation often relies on consumer complaints to indicate a problem with premiums.

Types of rate review authority in states: 

  • Prior Approval: the state insurance commissioner has the authority to approve, reject, or reduce proposed rate increases, usually through a negotiation with the insurer. Prior approval authority frequently accompanies deemer procedures, whereby if a rate is not disapproved or reduced within a particular time period, the rate is deemed reasonable (see below for more information).
  • File and Use: proposed rate increases are allowed to go into effect after a certain period of time and states can act later if a rate is found unreasonable. In general, complaints from consumers or policyholders indicate a problem with premiums. What, if anything, must be filed by an insurer varies from state to state.
  • Deemer: insurers are required to file proposed rate increases with the insurance agency and the proposed increase is deemed reasonable if the insurance commissioner does not disapprove or reduce the proposed increase within a specified period of time (generally 30, 60 or 90 days). Deemer procedures frequently accompany prior approval authority.
  • Medical Loss Ratio: the proportion of a premium payment that an insurer uses to pay for medical care. Some states maintain that if insurers continue to meet state-mandated medical loss ratios, premium increases are not unreasonable.
  • None: Some states have no formal procedure to review insurance premium rate increases. However, in these states there may still be negotiation between state regulators and insurers over rate increases.

How does rate review change under the federal health care law?

The Affordable Care Act (ACA) creates a joint federal-state process for the review and approval of health plans' premium increases. The rate review provisions of the ACA came out of concern about recent double-digit premium increase approvals without adequate regulatory oversight. Premiums have doubled on average over the last 10 years - growing much faster than wages and inflation - putting health insurance out of reach for millions of American families and businesses. 

The ACA requires the U.S. Department of Health and Human Services (HHS) to work in collaboration with state insurance commissioners to conduct an annual review of unreasonable increases in premiums for non-grandfathered health plans. The ACA does not define unreasonable increases, but on May 19, 2011, HHS issued a regulation that requires proposed increases of 10 percent or more to undergo either a state or federal review. The regulation defines a premium rate increase to be unreasonable if it is unjustified, excessive, or unfairly discriminatory. HHS will defer to state departments of insurance determinations of whether a rate increase is unreasonable, unless the state does not have an effective rate review process in place. If HHS finds the state does not have an effective review process, it will conduct the review.

The ACA requires insurers to submit justifications for any unreasonable rate increases to the states and HHS, and post them on the insurer websites. HHS is also required to make those justifications publicly available. HHS has developed a standard form that all health plans must use to justify unreasonable rate increases. The form will help ensure premium information is available to the public in a way that allows apples-to-apples comparisons of insurers' requests to raise premiums.

The ACA also provides states with a total of $250 million in federal grants to support strengthening their capacity to conduct rate review. Forty-five States and the District of Columbia (D.C.) each were awarded $1 million in the first round of grants in 2010. States pledged to use the funds in the following ways:

  • 15 states and D.C. are seeking additional authority from their legislature to review rates and require insurers to get advanced approval before they can impose a premium hike.
  • 21 states and D.C. will use their regulatory authority to expand what they are currently doing. For example, they will review more rate filings for more health insurance plans.
  • All the state grantees will require insurers to report more information on their premium rates and underlying costs.
  • 42 states and D.C. will increase transparency and create consumer-friendly information about insurance premiums on their websites.
  • All the grantees will develop and upgrade technology to speed up the review process and disseminate information to the public.

As a condition of the rate review grants, states must provide HHS with information about trends in premium increases. 


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