HHS Issues Final Rule Regarding Federal Review of “Unreasonable” Health Insurance Premium Rate Increases Under PPACA

On May 19, 2011, the HHS issued the final rule establishing the process and standards by which the HHS will review increases in health insurance premium rates to determine whether such increases are “unreasonable” as required by PPACA.
As discussed in a previous article on the history of insurance regulation in the United States, the Patient Protection and Affordable Care Act ("PPACA") is one of several recent federal legislative efforts that encroaches into the traditionally state-run insurance regulatory scheme.

A number of the insurance regulatory provisions of PPACA are already in effect, such as the mandated minimum loss ratios: effective January 1, 2011, health insurers must spend at least 85% of large group and 80% of small group and individual plan premiums on healthcare and improving healthcare quality, or else rebate the overage to policyholders.[1]

The federal review of health insurance premium increases is another insurance regulatory provision of PPACA that will likely have significant repercussions in the health insurance industry, and may have a lasting impact on the future of insurance regulation as a whole.

The federal review of health insurance premium increases is an insurance regulatory provision of PPACA that will likely have significant repercussions in the health insurance industry.
PPACA authorizes and directs the United States Department of Health and Human Services (“HHS”) to establish a process for the annual review of “unreasonable” increases in premium rates for health insurance coverage. Additionally, health insurers must submit to the HHS a written justification for an “unreasonable” premium rate increase prior to the implementation of that increase, and must prominently post that information on their Internet websites.[2]

The HHS issued proposed regulations relative to health insurance premium rate increase disclosure and review on December 21, 2010. The Proposed Regulations were open for public comment until February 22, 2011. The final rule (the “Rule”), with a sixty (60) day comment period, was issued by the HHS on May 19, 2011, and published in the Federal Register on May 23, 2011.[3] The Rule becomes effective on July 18, 2011.

The Rule subjects any rate increase to review by the Centers for Medicare & Medicaid Service (“CMS”) if the average increase for all enrollees weighted by premium volume is ten percent (10%) or more, or if certain other standards apply.[4] However, the Rule is only applicable to individual and small group health insurance coverage, and it is not applicable to health plans that are grandfathered under PPACA or to certain excepted benefits such as dental or vision coverage.[5]

A health insurance rate increase is “unreasonable” if it is “an excessive rate increase, an unjustified rate increase, or an unfairly discriminatory rate increase.”
Under the Rule, a health insurance rate increase will be deemed “unreasonable” by CMS if the rate increase is “an excessive rate increase, an unjustified rate increase, or an unfairly discriminatory rate increase.”[6] An “excessive rate increase” is described as a rate increase that “causes the premium charged for the health insurance coverage to be unreasonably high in relation to the benefits provided under the coverage.” To make this determination, the Rule requires CMS to consider:
  1. Whether the rate increase results in a projected medical loss ratio below the Federal medical loss ratio standard in the applicable market to which the rate increase applies, after accounting for any adjustments allowable under Federal law;
  2. Whether one or more of the assumptions on which the rate increase is based is not supported by substantial evidence; and
  3. Whether the choice of assumptions or combination of assumptions on which the rate increase is based is unreasonable.”[7]
A rate increase will be deemed an “unjustified rate increase” if the insurer provides data or documentation to CMS regarding the rate increase that does not provide a basis upon which the reasonableness of the increase may be determined, or if the information provided is incomplete or inadequate to establish such reasonableness.[8]

Finally, the CMS will find a rate increase “unfairly discriminatory” if the increase “results in premium differences between insureds within similar risk categories that:
  1. Are not permissible under applicable State law; or
  2. In the absence of an applicable State law, do not reasonably correspond to differences in expected costs.”[9]
CMS will adopt a state regulator's review of a rate increase only if it determines that the regulator has an "Effective Rate Review Program" under the Rule.
Significantly, state insurance regulators are to submit their findings to CMS on any health insurance rate review they undertake. The Rule indicates that CMS will adopt the determination of a state regulator as to whether a rate increase is unreasonable if the state has “an Effective Rate Review Program” and if the state regulator provides a written explanation of its analysis of the relevant factors for “unreasonableness” under the Rule.[10]

Finally, the Rule also sets out lengthy considerations that CMS is to evaluate in determining whether a state rate review program qualifies as “Effective” under the Rule.[11]

1. PPACA, Pub L. No. 111-148 § 10101(f).
2. PPACA, Pub L. No. 11-148 § 1003.
3. 45 CFR Part 154; Rate Increase Disclosure and Review; Department of Health and Human Services; http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/2011-12631.pdf.
4. 45 CFR § 154.200.
5. 45 CFR § 154.103.
6. 45 CFR § 154.205(a).
7. 45 CFR § 154.205(b).
8. 45 CFR § 154.205(c).
9. 45 CFR § 154.205(d).
10. 45 CFR § 154.210(b).
11. 45 CFR § 154.301(a). YVAFZ3Z94HDR


  1. This is good information, thanks. It still boils down to some regulator or committee of regulators determining whether they think a certain premium increase is "unreasonable" in their opinion.

  2. Geri MckinleyFebruary 08, 2012

    Finally, someone has brought light to this issue faced by health insurance plans providers. Thank you for sharing the rules associated with insurance plans.