The Center for Consumer Information & Insurance Oversight
Rate Review Training
Technical FAQs - Set 2
CCIIO has provided training to issuers and States on the new rate review requirements. This page contains answers to questions that CCIIO has received through the training process.
- Public Disclosure of Rate Review Information
- HIOS/Plan Finder
- State Requirements
- Issuer Reporting Requirements
- Preliminary Justification
- Technical Questions Related to Filings
- What rate information will be displayed on HealthCare.gov for consumers?
After a health insurance issuer (issuer) attests to a Preliminary Justification, CMS will post a standardized, consumer-friendly presentation of Parts I and II of the Preliminary Justification on HealthCare.gov. Consumers may find this information for their state by going to http://companyprofiles.healthcare.gov/ - Opens in a new window . Each consumer disclosure will be displayed on a separate webpage.
- Does the issuer prepare the consumer disclosure, or does the State or CMS generate it based on the Preliminary Justification Rate Summary Worksheet data submitted by issuers?
CMS generates the consumer disclosure electronically. The consumer disclosure is a consumer-friendly standardized presentation on the Healthcare.gov website of the information submitted by issuers in Parts I and II of the Preliminary Justification. After issuers submit the Preliminary Justification to CMS, CMS’ data collection system calculates the data elements that are used to populate the consumer disclosure. Each consumer disclosure will be posted in HTML format on HealthCare.gov (as opposed to document file such as a PDF). Issuers are not required to prepare a separate “consumer disclosure” document.
- What information will be displayed on HealthCare.gov if an issuer withdraws a rate increase after CMS or the State has made a review determination?
The consumer disclosure information from Parts I and II of the Preliminary Justification that CMS posts on HealthCare.gov will remain posted for two years.
When information is first posted on HealthCare.gov, the review status will be displayed as “review pending.” Following the completion of the review, the review status will be updated on HealthCare.gov to reflect the final review determination (e.g., “not unreasonable”). If the record is subsequently withdrawn by the issuer after the review determination, the status will be updated on HealthCare.gov for a third time. The updated status will provide information on the final determination (e.g., “not unreasonable”) and will state that the issuer withdrew the increase prior to implementation.
- If contractors work for more than one State, do they have to submit a separate HIOS registration for each State that they work for?
Yes, each State needs to independently request HIOS access for its contractor(s) in the State’s registration request. Contractors will be assigned a separate login for each State they work for.
- Is HIOS set up to identify whether a given product will be reviewed by States or CMS?
Yes, HIOS will automatically identify whether a given product will be reviewed by the State or CMS during the issuer’s Preliminary Justification upload process. Information on who is conducting the review is clearly displayed in HIOS
- What is the significance of the “review in progress” status in HIOS?
For CMS reviews, CMS will assign this status to records within two days of issuer attestation. CMS intends to use this intermediate status to help us distinguish between new records that have just been submitted in the system and existing records that we have already looked at.
For State reviews, the State HIOS users may use the “review in progress” status at their own discretion.
- The training materials state that HIOS is pre-populated with Plan Finder “products” and that issuers will only be able to submit rate review information for products that are already registered on Plan Finder. Where can I find more information on Plan Finder?
The Plan Finder consumer tool is available on the HealthCare.gov website (click on the tab labeled “Find Insurance Options”). Technical guidance regarding Plan Finder can be found at /ccciio/programs/healthcare/index.
- If there are States where issuers have products that were not required on Plan Finder, when will issuers receive a HIOS issuer ID for those States/products?
Issuers are required to report on all of the their individual and small group major medical products in Plan Finder and in general all of the products subject to the rate review reporting requirements should be captured in HIOS. Issuers recently received information about registering association plans that were not previously considered to be individual and small group market plans in Plan Finder.
- Are issuers required to combine all rate changes within a product/State into one HIOS ID? For example, if there are individual major medical, conversion, and HIPAA plans in the same product and State, are these required to be within one HIOS issuer ID for the purposes of the threshold test and Preliminary Justification?
Rate increases are reported at the HIOS Plan Finder level. Issuers do not need to make any changes to their existing Plan Finder product designations in order to accommodate the rate review reporting requirements. In general, the issuer reported Plan Finder product IDs track to how issuers report on products at the State level.
A given Plan Finder product may contain a mix of conversion, HIPPA, and other plan types. Issuers do not have to make any changes to these products in Plan Finder. For the purposes of rate review reporting, issuers should consider the average increase assessed to enrollees across all of these product types that are grouped together in Plan Finder.
- Are issuers required to update their Plan Finder product and plan information to track with their rate filings
No, products should not be organized in Plan Finder to track with rate filings. Issuers are required to report on products in a manner that is consistent with their product reporting at the State level (e.g., State financial reporting). In some cases this may not align with how plans are grouped together in filings.
For example, a product with conversion and non-conversion plans may be subject to two separate State filing requirements (a conversion plan filing and a non-conversion plan filing). In this case, the issuer would calculate the threshold rate increase test at the two points in time corresponding to each rate filing. In the calculation of the threshold test for the rate filing, the issuer would consider all enrollment in the product (enrollment in the plans with and without the rate increase). The cumulative effect of both rate increases would be taken into account during the threshold test for any second filing, provided that the second filing occurs within 12 months of the first (the issuers would take the weighted average of the increases assessed across all plans).
- What should an issuer do if it is not currently reporting product information in Plan Finder?
Organizations must have an existing HIOS Plan Finder issuer ID in order to register for the rate review data reporting system (this information is required as part of the registration request). This means that organizations must first register for access to the Plan Finder system and establish HIOS issuer and product IDs before they can register or use the rate review data reporting system.
The Plan Finder website contains technical information on HIOS Plan Finder reporting requirements, including the Plan Finder Excel template, detailed technical instructions, and Q&As. This information may be found on the CCIIO website at /cciio/resources/forms-reports-and-other-resources/index#content requirements for Healthcare.gov. The materials on this site should provide issuers with the information they need to register for Plan Finder and to report products in Plan Finder.
CMS has dedicated issuer support services for additional guidance on Plan Finder reporting:
- For policy questions regarding the HealthCare.gov Plan Finder, please email CCIIOPlanFinder@cms.hhs.gov.
- For technical assistance regarding Plan Finder data submissions, please contact the HIOS Help Desk at 1-877-343-6507 or firstname.lastname@example.org.
- .If issuers discover a product that is subject to review but is not listed in the HIOS Rate Review module, what is the process for getting that product added?
In general, new products may only be registered in Plan Finder during a scheduled data refresh period (the next refresh period is scheduled to run from November 16 through November 23, 2011). HIOS rate review users should work through their organizations’ designated HIOS Plan Finder data submitters to make changes to update the products displayed in HIOS.
This may mean that there will be a short delay between when an issuer submits a rate filing to a State and when the corresponding Preliminary Justification is submitted in HIOS. While issuers are required by 45 C.F.R. § 154.220 to submit a Preliminary Justification to the State and CMS by the date the State requires the filing to be made. CMS appreciates that there may be isolated cases where issuers must add additional products into HIOS to accommodate the rate filing requirements. It is acceptable for the issuer to first submit a rate increase to the State (if the State requires filings) and follow up with CMS with a Preliminary Justification submission as soon as the Plan Finder product data has been added to HIOS (i.e., issuers do not have to delay submitting rate filings to States). In this situation, we recommend that issuers submit an email to RateReview@hhs.gov explaining the discrepancy between the filing date and the Preliminary Justification submission date.
As it is likely that organizations may assign two different sets of HIOS users for the Plan Finder and Rate Review modules, HIOS rate review users should contact and work through their organization’s designated Plan Finder users to make any modifications to their existing list of products
- Plan Finder is mislabeling plans as products. How can we fix that problem?
Your organization’s designated Plan Finder user can resolve the issues involving products already entered in Plan Finder by notifying the Plan Finder help desk at email@example.com. An organization does not need to wait until a Plan Finder refresh period (period during which new products can be added) to reclassify products as plans. The Plan Finder team in CMS can make these changes in the system for issuers.
- The rate review reporting requirements do not apply to grandfathered plans. Do issuers have to make any changes to Plan Finder products that contain a mix of grandfathered and non-grandfathered plans (i.e., should these products be split into a grandfathered only and non-grandfathered only product in HIOS)?
No. Issuers do not need to make any changes in the way these products are reported in Plan Finder. However, issuers should base the rate increase threshold test on the rate increases applied to only the non-grandfathered segment of product.
- Do issuers have to report on any types of coverage that are currently not reported in Plan Finder, such as hospital only coverage or short term medical coverage?
No. Issuers are required to report only on the products that are currently captured in the Plan Finder reporting requirements.
- Do issuers have to report on low enrollment plans?
Under certain circumstances, issuers do not have to report low enrollment plans in the HIOS Plan Finder module. However, the rate review reporting requirements apply to products, not plans. Issuers are required to report information on all products in Plan Finder, regardless of the total enrollment at the product level. The Plan Finder low enrollment exclusion policy applies to plans, not products. So while some individual plans might be missing from HIOS, there should not be any missing products due to the low enrollment exclusion rule.
Specifically, as issuers are required to report rate increases at the product level (not the plan level), there is no need for issuers to amend their existing Plan Finder data with additional information on low enrollment plans that are currently not included in Plan Finder.
- How will association products be reported on in HIOS?
The Rate Increase Disclosure and Review Final Rule was amended on September 6, 2011. As a result, effective November 1, 2011, the definitions of individual and small group markets that apply for rate review purposes now include coverage sold to individuals and small groups through associations, even if the State does not include association coverage in its definitions of individual and small group markets.
Prior to the September 6, 2011 amendment, issuers were already required to report on any association product that was included in a State’s definition of individual or small group products (45 C.F.R. § 154.102). In light of the amendment, issuers must now report on any individual and small group products sold through associations, even if a State otherwise excluded or excludes such coverage from its definitions of individual and small group markets.
Because the original final rule deferred to State definitions of a large group and the regulation did not cover large group plans, Plan Finder does not yet include association products that are considered to be large group under a State’s definition. If such association products fall under the new amendment and are subject to the rate review regulation, the association product must be added to Plan Finder. Issuers will have to add these products during the refresh running from November 17 to 23, 2011 (the period during which new products can be added to Plan Finder).
- States with Effective Rate Review Programs are required by 45 C.F.R. § 154.301(b) to provide access to Parts I and II of the Preliminary Justification and can satisfy this requirement by linking from their websites to HealthCare.gov. What link to HealthCare.gov should a State use on its website to comply with this requirement, and when does the requirement take effect?
CMS will be posting a standardized, consumer-friendly version of Parts I and II of the Preliminary Justification on HealthCare.gov. We refer to this as the “consumer disclosure.” States may provide links on their website to the product-specific consumer disclosure located on CMS’ HealthCare.gov website at http://companyprofiles.healthcare.gov/ - Opens in a new window . To make it easier for States to comply with this web-posting requirement, it is also acceptable for a State to provide a hyperlink to the State’s rate filing search result page on http://companyprofiles.healthcare.gov/ - Opens in a new window . We are aware that some States are linking to the main HealthCare.gov company profile search page instead of the State-specific search result page. It is not sufficient to link to the main search page; the link must go to the State’s search result page that lists all rate filings (and corresponding consumer disclosures) for the State.
In addition, States may continue to provide a hyperlink to the particular consumer disclosure on HealthCare.gov for each rate filing under review. To assist States in providing the consumer disclosure hyperlinks, we created a new report in HIOS with a listing of records posted on HealthCare.gov. The new report labeled “Rate Review Records on HealthCare.gov” has been added to the Announcements page for State HIOS users. This report provides the links to all rate review records that are posted for a respective State on Healthcare.gov (it is updated in real time as new records are posted to HealthCare.gov). The report is provided in XML format, so that States can use their reports to create automated processes for updating the rate review information on their websites. States should consult with their website development staff to get the maximum benefit from this feature.
If you have about any questions about the web-posting requirement or the new HIOS enhancement, please email us at RateReview@hhs.gov.
- The State Rate Review Instructions Manual says that States should notify CMS of instances where issuers fail to submit to CMS Preliminary Justifications for rate increases that are at or above the threshold. How should States communicate this information to CMS?
States may advise CMS of such filings by sending an email to RateReview@hhs.gov. If possible, please include the following information in your email: 1) the company; 2) the HIOS ID; 3) the product; and 4) a brief description of the rate increase and why it should have been submitted to CMS. We appreciate the States working with us in this regard.
- If CMS is performing the rate review, what information will the State have access to in HIOS?
When CMS is doing the review, States will have access in HIOS to Parts I, II, and III of the Preliminary Justification. States will get an email from CMS when a Preliminary Justification has been submitted and attested to in HIOS by an issuer in their State. States will have immediate access to this information in HIOS, before the information is publicly available on CMS’ website. States will also have access to CMS’ final determination in HIOS, which will allow States to view it before the determination is publicly posted.
- Will CMS provide to the States its rate review process and how CMS is using the data from the Preliminary Justification to determine if a rate increase is unreasonable?
CMS will determine if a rate increase is unreasonable in accordance with 45 C.F.R. § 154.205, which states that CMS will determine that a rate increase is unreasonable if it is excessive, unjustified, or unfairly discriminatory. Additionally, the Issuer Rate Review Manual provides significant detail on the information that will be assessed during CMS’ review process. CMS and reviewing States are required to post a brief explanation of the reasons for their determinations.
- If a State is performing the review and the increase is modified, should the State enter the modified “Threshold Rate Increase” or the modified “Overall Rate Increase” in the "Modified Rate Change (%)" field?
States must enter the modified threshold rate increase amount. In other words, the modified rate increase amount should be calculated using the threshold rate increase calculation so that the modified increase amount is comparable to the original increase.
- Are there any reporting requirements if the rate increase is below 10% based on the calculation as outlined in the Preliminary Justification form?
Federal reporting is not required under the federal rate filing requirements only if the rate increase is less than the 10% threshold. Issuers must continue to comply with all State laws and filings requirements.
- Do health insurance issuers in a State with an Effective Rate Review Program have to register for HIOS and submit rate increase data to CMS?
Yes. Pursuant to 45 C.F.R. § 154.215 et seq., issuers in effective rate review States must register for the rate review module in HIOS (and should take the rate review training webinars). Regardless of whether the State or CMS is doing the review, health insurance issuers are required to submit in HIOS the Preliminary Justification, Parts I, II, and III, as applicable, to CMS. Please note that issuers must separately register with CMS for the Rate Review HIOS module even if they are already registered in HIOS for other programs.
- Do self-funded plans have to comply with the rate filing requirements under section 2794 of the Public Health Service Act or 45 C.F.R. Part 154?
No. The federal rate filing requirements do not apply to self-funded plan rates.
- When do issuers need to submit the Preliminary Justification in HIOS? Does the submission have to precede enrollee notification?
The submission deadlines for the Preliminary Justification are based on State rate filing requirements. If a State has a filing requirement, issuers must submit the Preliminary Justification in HIOS by the State’s rate filing date (45 C.F.R. § 154.220(a)). In States without filing requirements, issuers must submit the Preliminary Justification prior to the implementation date of the rate increase (45 C.F.R. § 154.220(b)). The enrollee notification date has no bearing on the submission deadline for the Preliminary Justification.
- Under section (1) of the Preliminary Justification Part III Reporting Requirements, what do the terms “Form Number” and “Product Number” mean?
These are two items from a list of items to be reported in Part III. The purpose of some of the items on this list, including these two, is to distinguish between an issuer’s multiple filings, and to identify the business that is the subject of the filing. Many States require a listing of the form numbers covered in a filing. Typically this is an alpha/numeric code that identifies an insurance benefit. A product number is used less frequently, and varies with the regulatory entity requesting it. If a State requires issuers to use a product number, then the issuer could furnish it in the Part III filing.
For purposes of federal rate increase filing requirements, if a State does not require an issuer to use form numbers and/or product numbers, and the issuer does not have any comparable internal identifier to distinguish one filing from another, the issuer does not have to furnish these items to CMS as part of its rate filing.
- If a filing involves both grandfathered and non-grandfathered plans, should grandfathered plan data be included in the data for the Preliminary Justification?
The rate review reporting requirements do not apply to grandfathered plans. However, issuers should fill out Part I of the Preliminary Justification using the same underlying data that was used to develop the rate increase (i.e., the experience of a grandfathered plan should be included in the Preliminary Justification if these data were used to develop the rate increase). If CMS is reviewing the filing, only the non-grandfathered plan data will be considered in the review.
- Can you please clarify how the “overall rate increase” in Section C can be different from the “threshold rate increase” in Section F, regardless of whether or not the issuer implements multiple periodic increases?
The worksheet uses the inputted data on claims, administrative, and underwriting information for the 12-month periods immediately before and after the rate increase effective date to calculate an overall rate increase in Section C. This rate increase may not always match the rate increase derived from the subject to review threshold test.
The two rate increase values may be the same when issuers are not implementing multiple or phased-in rate increases, such as a one-time 11% increase that is assessed to all beneficiaries on the rate increase effective date.
However, the calculated rate increase amount in Section C will not match the threshold rate increase in cases where an issuer implements multiple periodic increases. For example, the threshold increase will not match the overall rate increase calculation in Section C if the issuer is proposing a rate increase implemented quarterly upon policy renewal.
The rate increase exercise on the worksheet requires issuers to show how their anticipated costs will change between the current year (status quo) and under the rate increase. Issuers should always complete Sections A, B, and C with historical and projected data that represents their actual experience and trend assumptions. Issuers should not modify their data in order to make the overall rate increase calculation in Section C match the threshold rate increase.
The information contained in Sections A, B, and C of the Preliminary Justification are intended to give consumers a standardized presentation of changes in issuers’ claims, administrative and underwriting gain/loss revenue needs. These data are not intended to directly tie to the threshold rate increase.
- Is it acceptable to use more than 12 months of data in Section A? If yes, then would the trend be applied for a longer period (from the mid-point of the base period to the mid-point of the projection period)?
It is acceptable for the experience in Section A to cover more than 12 months. And if that is the case, then the trending would be from the middle of the experience period to the middle of the projection period.
- Please explain the “prior estimate of current rate” in Section C? What if we do not have this data from a prior filing?
Please use the prior estimate for the premium in force before the effective date of the proposed rate change, and include the estimate of the claims and other components based on the assumptions used then.
Regarding the second question, it would be unusual for the information to be unavailable. If this information cannot be obtained, or if there is some other barrier that cannot be resolved, the issuer should contact CMS with specific details.
- If the requested increase in the rate filing is different than the rate increase in Part C of the Rate Summary Worksheet, which increase will the consumer disclosure explain?
The threshold rate increase value will be displayed on the consumer disclosure (the rate increase value from Part C is not displayed).
- Similarly, should the written explanation of the increase (Part II) discuss the increase actually requested, or the rate increase in Part C of the Rate Summary Worksheet?
The written explanation should discuss the increase actually assessed to individuals. Note that the instructions for Part II direct issuers to describe the range and scope of the increase. To this end, issuers should describe the increase actually assessed to the different cohorts affected by the increase.
- In the case where there are quarterly rates filed, for a year in advance, is it correct that we must weight those together to determine if the overall increase meets the threshold? If so, then what goes into C (and B)?
For quarterly rates filed a year in advance, the issuer should independently evaluate the impact of each quarterly impact. Specifically, for each quarter, the issuer should calculate the overall rate increase, based on the average rate under each quarterly increase compared to the average rate twelve months before the quarterly increase. The filing would be subject to review if any of these calculations resulted in an increase at or above 10% (the issuer should report the largest of these increases).
In Section F of the Preliminary Justification, the issuer should report the rate increase that is calculated using our threshold rate increase formula. The issuer should complete sections B and C of the Preliminary Justification based on their estimated costs for the 12 months immediately before and after the rate increase effective date (this would be the date of the first quarterly increase under the example provided in this question). The resultant overall rate increase calculated in Section F may not be the same as the threshold rate increase.
For Sections A-C of the Part I of the Preliminary Justification, issuers should provide data on their claims, administrative, and underwriting estimates for the 12-month periods immediately before and after the rate increase effective date. An overall rate increase that is calculated in Section C based on these data may not always match the rate increase derived from the subject to review threshold test (this value is reported separately on the form in Section F).
The two rate increase values may be the same when issuers are not implementing multiple or phased in rate increases, such as for example a one-time 11% increase that is assessed to all beneficiaries on the rate increase effective date. However, the calculated rate increase amount in Section C will not match the threshold rate increase in cases where an issuer implements multiple periodic increases. For example, the threshold increase will not match the overall rate increase calculation in Section C if the issuer is proposing a rate increase implemented quarterly upon policy renewal.
- Assume an issuer has to submit a Preliminary Justification for four products. The pool increase was calculated by pooling all four products together. The final difference between the annual product increases occurs due to things like leverage and other impacts on benefits. When the issuer fills out Part 1, should it use the experience of the pool, or just the experience specific to the particular product?
The answer to this question depends on the exact base experience that was used in the pricing. If the products were priced from base period data that was aggregated to form a single pool, then that pool experience should be used to complete Part 1. If the different products were priced based on each product's separate experience, then the experience of each separate product should be used to fill out Part 1 for that particular product and four separate Part 1 forms – one for each product – should be submitted.
- The rate review regulation defines the term "product" as a package of health insurance coverage benefits with a discrete set of rating and pricing methodologies that a health insurance issuer offers in a State. It also states that two or more products can be submitted together in one "pooled" Preliminary Justification submission if the product's experience is combined or pooled for purposes of rate making and the products submitted together have the same increase. Assume that (1) an issuer operates under more than one legal entity in a State: HMO Company and Insurance Company; (2) the rating and pricing methodologies for the products under both companies are the same; (3) the experience of such products under both companies are pooled for purposes of rate making and the rate increase is the same. May the issuer submit one Preliminary Justification to encompass both legal entities?
No. If there are two separate legal entities, there must be two separate Preliminary Justifications.
- Assume the following scenario: (1) an issuer operates under the same legal entity in two States; (2) the rating and pricing methodologies for the products in both States are the same; (3) the experience of such products under both companies are pooled for purposes of rate making and the rate increase is the same. We assume the issuer would still fill out two Preliminary Justification forms, one for each State as Section E may vary between the two States.
A) Does the issuer put only the members in State A in Section F of the form or does the issuer put in the members of State A and State B in Section F?
Two Preliminary Justifications are required, one for each State. In each case, Section F should be populated with the data for the State in which the rate is to be implemented. However, note that regarding the experience, if a filing is made for a rate increase that used common experience across several States, each of the different Preliminary Justifications may have some identical data for that common experience base.
B) If a filing requested rate increases of 7%, 12% and 14% for three different products, how many Preliminary Justifications would be required for this filing?
The product with the 7% increase does not trigger the threshold so it does not require a Preliminary Justification. The other products would each require a Preliminary Justification unless they meet the pooling requirements, in which case the issuer can submit them together in a single Preliminary Justification. Since the two products are treated disparately (different increases are applied), they must be submitted in separate Preliminary Justifications
- For the same filing mentioned above with rate increases of 7%, 12% and 14% for three different products, if each increase was derived separately based on the product's own experience, would the issuer be required to submit two Preliminary Justifications for the filing, one for the 12% increase and one for the 14% increase?
Yes, in order to be reported on a pooled basis (in one Preliminary Justification), their experience for rate development purposes must have been combined or pooled, but they also must have the same increase (i.e., they cannot have been treated disparately).
- For the same filing mentioned above with rate increases of 7%, 12% and 14% for three different products, the filer combined the experience from all three products but for some reason he decided to allocate different increases (7%, 12%, & 14%) to each of the products. In this case, is the issuer required to submit only 2 Preliminary Justifications since one of the increases is below the 10% threshold?
Yes. The three products cannot be pooled for Preliminary Justification reporting since they are treated disparately. The product with the 7% increase does not trigger the threshold and is not subject to review; thus no Preliminary Justification must be submitted for it. The other two products each require its own Preliminary Justification data set submission.
- The regulation, in § 154.20(d), states, “If a rate increase that does not otherwise meet or exceed the threshold under paragraph (c) of this section meets or exceeds the threshold when combined with a previous increase or increases during the 12-month period preceding the date on which the rate increase would become effective, then the rate increase must be considered to meet or exceed the threshold and is subject to review . . . .” If a rate increase is being proposed for January 1, 2012 and the last increase for that product was effective January 1, 2011, is the earlier increase considered to have occurred during the 12-month period immediately preceding the increase?
No. Once a calendar year has passed, the 12-month period has expired.
- Do the instructions for meeting the subject to review threshold include any language that addresses the 10% limit as an “annual” limit? If not, is there anything that indicates previous filings for the year should be included to pass the 10% threshold?
Rate increases for the 12-month period preceding the rate increase effective date must be aggregated to determine whether the specified threshold is met or exceeded.
- Please clarify the following example as to whether it is an increase over the 10% threshold.
This example is about a State-mandated Open Enrollment plan in the individual market. The State mandates that in 2012 rates have a limit of 1.5 times the lowest comparable plan new business rate. In 2011 the limit was 2.0 times the lowest comparable plan new business rate. Medical trend caused an increase in the lowest comparable plan new business rate of 14% for all ages. Below are simple numbers for illustration of just one age band. Note the 14% increase is applicable to all age bands.
For example, for one age band the 2011 lowest comparable plan rate was $1,000. The 2.0 times limit allowed an Open Enrollment plan rate of $2,000 for this age band. Trend caused the increase in the lowest comparable plan rate to 1.14 times $1,000 or $1140, for 2012. The 2012 year’s 1.5 times limit allowed an Open Enrollment plan rate of $1,710. Has the threshold been breached for this example?
If the example cited is the only business in this filing, and if the maximum allowable Open Enrollment limits are being used, then the 2011 rate of $2,000 is actually being reduced to a 2012 rate of $1,710, so the 10% increase threshold has not been breached. In a setting such as this, the fact that trend alone exceeds 10% is not dispositive regarding the breaching of the threshold. It is the final rate that matters.
The average rate increase over the entire filing will be reviewed. For example, suppose that an issuer was employing a 1.5 cap in 2011, despite the ability to cap at 2.0. Presumably if the 1.5 cap is retained in 2012, and 14% trend applies without further modifications by other elements, then the threshold would be breached because, as we understand the assumption, all rates would rise by 14% over a one year period.
- How should the cumulative "threshold rate increase" be calculated? In the examples provided, it appears the multiple rate changes over a 12-month period are just being summed. However, the subsequent rate changes would be applied on top of the previous rate changes, creating a slightly higher 12-month cumulative. For example, if a company files quarterly rate changes of 3%, the second quarter rate increase would be a 3% increase on the rates that had already undergone a 3% increase 3 months prior. If rates started at $100, the increasing rates would be as follows: $103, $106.09, $109.27, $112.55; resulting in a 12.55% increase, rather than a 12% increase. Which method of calculation should be used?
For any increase, the rate of change should be determined by the actual increase in the premium rate. If the method used for each increase is multiplicative rather than additive, then indeed the compounding would result in the $100 premium reaching $112.55, as is the case in the example presented, and the threshold rate increase used in the test would be 12.55%, which is the difference of the $112.55 and the $100 (or $12.55), divided by the $100. Generally, to evaluate any particular increase, one has to include any impacts to premium from other increases that have occurred within a year of elapsed time measured from the effective date of the rate increase being evaluated. Thus, a single cliff increase (with no other increase within a year) is evaluated on its own. Regular quarterly increases would require one to include the impact of the previous three quarters. With the proposed increase being evaluated in this example, the compound increase effect is 12.55%. If the premium instead rose by an even $3 every quarter (from $100, to $103, $106, and $112 respectively the additive model) then the threshold rate increase would be 12% not 12.55%.
- How do issuers handle the situation in those States for which they file an annual rate increase as of a given date and a maximum annual trend, which may be applied to the rates for subsequent effective dates? For example, consider the illustrative case where an issuer files an annual rate increase effective January 1 of 9.5% and a maximum annual trend of 12% (which implies a maximum increase in the rate of approximately 0.949% per month).
The threshold testing should be based on the maximum increases that the issuer could apply. This is true both at the date of the filing that first addressed the maximum possible increase, and at the date of any subsequent filing covering a period for which part of the initially requested and approved maximum trend can still be implemented.
- How and when are benefit changes considered for the threshold test? In particular, are distinctions made between:
a. legally required benefit changes;
b. benefit changes that the issuer is choosing to make that will affect all policyholders;
c. benefit changes that will only impact new issues; and
d. optional benefit changes that the policyholder may elect (or reject)
All benefit changes, including those legally required and those the issuer chooses to make are included in the threshold test. Benefit changes that will only impact newly insured individuals are not included in the threshold test. Optional benefit changes that the policyholder may elect (or reject) are changes in premium, not rates, and are not included in the threshold test.
- Consider the below scenario: In one filing an issuer is proposing the following rate increases:
|Quarterly increase||Annual rate increase|
- Given that two of the annual increases are greater than the 10% threshold, is the issuer required to submit two Preliminary Justifications for this filing?
Slide 12 of the Subject to Review Threshold Test training module states: "If a filing has periodic increases with multiple effective dates for its component increases, the greatest threshold rate increase for the filings should be used for the threshold rate increase.” In this example, we have a 3% increase that is implemented quarterly. This is a periodic increase that constitutes a 13% threshold rate increase. The issuer need not submit two Preliminary Justification data sets; it only needs to submit one for the entire filing.
- In general, in a filing that has periodic increases with multiple effective dates, is the issuer required to justify any annual rate increase above the 10% threshold within a Preliminary Justification?
Yes. In this example, we have a 3% increase implemented quarterly. This is a periodic increase that constitutes a 13% threshold rate increase. The issuer must justify any increase that is part of a Preliminary Justification that triggers the threshold.
- The answer given for (a) above was that the issuer is only required to submit one Preliminary Justification (triggered by the 13% annual rate increase). Should the 11% annual increase, effective 4/1/2012, also be justified/supported in the Preliminary Justification?
Yes. When justifying a rate filing with multiple increases that trigger the threshold, the issuer must justify each rate increase. The same holds true if the rate increases were filed separately.
- Below is an example of a rate increase request filing for either individual or small group policies renewing in 2012:
- 1st quarter 2012 renewing business rate increase request is 10.5%
- 2nd quarter 2012 renewing business rate increase request is 10.1%
- 3rd quarter 2012 renewing business rate increase request is 9.7%
- 4th quarter 2012 renewing business rate increase request is 9.2%
The weighted average aggregate rate increase request is 9.8% for 2012. In this example, would the subject to review threshold test be met or not?
No. This does not trigger the subject to review threshold. The threshold is based on a weighted average, and in this example, it does not exceed 10%.
- Please clarify the treatment of changes in demographic, geographic and benefit factors (not changes in the actual demographics or elections). Should these changes be included in the calculation of the threshold rate increase (e.g., if benefit factors increase to adjust for deductible leveraging)? Should these changes be included in the calculation of the minimum and maximum rate increases (e.g., if a change in age factor increases rates an additional 5% for a given cohort, would that factor into the calculation of a maximum rate increase)?
First, when discussing changes in factors, and not changes in individuals or cohorts of individuals that arise solely due to the application of the factors, and not discussing changes to those factors, the impact of changes to the underlying rate factors for demographic, geographic, and electoral factors are changes in the rate structure and would be included in the threshold rate increase test. Such changes would indeed also be included in the minimum and maximum rate increases as well.
Second, when discussing factors that are not being changed, but cause premium changes due to individuals aging (under an issue age rated product), moving across geographic rating areas, or making elective changes in benefits, the changes in premiums are not considered to be changes in the rate structure and do not impact either the threshold rate increase test or the minimum and maximum rate increases.
- On the Rate Summary Worksheet (Part I of Preliminary Justification), should the minimum and maximum percent increases align with the effective date of the threshold rate increase and the effective date of the overall rate increase, or should they be based on increases that are effective at any point during the approval period (assuming rolling increases are pre-approved)? Using Example 3A from the training, if the issuer filed an 8% increase on January 1 and an additional 4% increase on July 1 and increases were consistent across all plans and policyholders for each given effective date, would the minimum increase be 8% and would the maximum increase be 12%? If not, what would they be?
In this example, it appears that all policyholders will get a 12% increase in the aggregate across the board so the minimum, maximum and average increases are the same. In cases where they differ, information for Part I of the Preliminary Justification should be entered using the effective date of the rate increase.
- Please clarify whether the minimum and maximum increases in the Part I Preliminary Justification should be based on hypothetical or actual enrollees. In other words, should the maximum increase be calculated as the maximum increase across the current population, or the highest possible increase, even if it doesn't apply to any actual enrollees?
The minimum and maximum rate increase should be based upon actual enrollees, except in the case where there is a rate increase (not an initial rate filing) and there are no enrollees, then the highest possible should be used.
- For the cumulative threshold test, are increases effective in the 12 months prior to September 1, 2011 considered for filings effective September 1, 2011 and after? For example, a filing was made November 1, 2011, effective January 1, 2012, for 9%, and there is a prior approved increase that was filed in June 2011 and effective August 1, 2011 for 9%. Should the cumulative effect of both 9% increases be considered for the threshold test?
Yes. The 9% increase should be considered when calculating the threshold test.
- If changes made in the underwriting manual or methodology are implemented, would the effect of these changes be included in the threshold test?
Any impact or changes in the underlying rate structure should be included in the threshold rate increase test.
- In the case where rates are filed for a given time period, for example, First Quarter, 2012, and proposed trend factors for the rest of the year are filed, yet issuers have the ability to reevaluate the rates and file new rates each quarter, is the weighting necessary to determine the threshold? Or, would the increase subject to the threshold be based purely on the annual increase effective with January 1, 2012? For example, if January 2012 proposed rates correspond to an annual increase of 9.7%, yet application of the proposed trend factors would lead to an increase over 10% in September 2012, would an issuer need to consider the September increase in determining the threshold? Or would the issuer not need to file a Preliminary Justification with the First Quarter filing and instead need to file one with the Third Quarter filing if rates needed were producing an increase over 10%?
If the September increase that brought the initial increase of 9.7% was effective within 12 months of the earlier increase, the effects of the two increases would be combined for the purpose of the threshold test for the September increase. If the two increases were filed separately, the earlier increase of 9.7% would not trigger the threshold or be subject to review, but the later incremental increase that brought the aggregate effect within one year over the threshold value would. If filed together, the compound increase filing would become subject to review. If any incremental increase in a filing made within a year of an earlier increase(s) triggers the threshold, the entire filing becomes subject to review. The effects of increase to rates from base increases as well as trend increases are both included in the threshold rate increase test.
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