CMS-10379 Rate Review - Part A Supporting Statement _RRJ_30d_3-18-14

Supporting Statement for Paperwork Reduction Act Submission
Rate Increase Disclosure and Review Requirements (45 CFR Part 154)
(CMS – 10379)
A. Background
The Patient Protection and Affordable Care Act (Pub. L. 111–148) was enacted on
March 23, 2010; the Health Care and Education Reconciliation Act (Pub. L. 111–152) was
enacted on March 30, 2010. In this statement, we refer to the two statutes collectively as the
Affordable Care Act. The Affordable Care Act reorganizes, amends, and adds to the provisions
of Part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health
plans and health insurance issuers in the group and individual markets.
Section 1003 of the Affordable Care Act adds a new section 2794 of the PHS Act which directs
the Secretary of the Department of Health and Human Services (the Secretary), in conjunction
with the states, to establish a process for the annual review of “unreasonable increases in
premiums for health insurance coverage.” The statute provides that health insurance issuers
must submit to the Secretary and the applicable state justifications for unreasonable premium
increases prior to the implementation of the increases. Section 2794 also specifies that beginning
with plan years beginning in 2014, the Secretary, in conjunction with the states, shall monitor
premium increases of health insurance coverage offered through an Exchange and outside of an
Exchange.
B. Justification
1. Need and Legal Basis
On May 23, 2011, CMS published a final rule with comment period (76 FR 29964) to implement
the annual review of unreasonable increases in premiums for health insurance coverage called
for by section 2794. The regulation established a rate review program to ensure that all rate
increases that meet or exceed an established threshold are reviewed by a state or CMS to
determine whether the rate increases are unreasonable. Under the regulation, if CMS determines
that a state has an Effective Rate Review Program in a given market, using the criteria set forth
in the rule, CMS will adopt that state’s determinations regarding whether rate increases in that
market are unreasonable, provided that the state reports its final determinations to CMS and
explains the bases of its determinations. For all other states or markets, CMS will conduct its
own review of rates that meet or exceed the applicable threshold to determine whether they are
unreasonable.
The final rule titled “Patient Protection and Affordable Care Act; Health Insurance Market
Rules; Rate Review” amends the standards under the rate review program. The amendments
revise the timeline for states to propose state-specific thresholds for review and approval by
CMS. The amendments also direct health insurance issuers to submit data relating to proposed
rate increases in a standardized format specified by the Secretary of HHS (the Secretary), and
modify criteria and factors for states to have an effective rate review program. These changes
were necessary to reflect the new market reform provisions discussed above and to fulfill the
statutory requirement beginning in 2014 that the Secretary, in conjunction with the states,
1

monitor premium increases of health insurance coverage offered through an Exchange and
outside of an Exchange. Additionally, CMS collects premium and claims data broken out by
Essential Health Benefit (EHB) and non-EHB to support the single risk pool and market rating
rules validations for effective rate review
Section 2794 directs the Secretary to ensure the public disclosure of information and justification
relating to unreasonable rate increases. The regulation therefore develops a process to ensure the
public disclosure of all such information and justification. Section 2794 requires that health
insurance issuers submit justification for an unreasonable rate increase to CMS and the relevant
state prior to its implementation. Additionally, section 2794 requires that rate increases effective
in 2014 (submitted for review in 2013) be monitored by the Secretary, in conjunction with the
states. To those ends the regulation establishes various reporting requirements for health
insurance issuers, including a Preliminary Justification for a proposed rate increase, a Final
Justification for any rate increase determined by a state or CMS to be unreasonable, and a
notification requirement for unreasonable rate increases which the issuer will not implement.
On November 14, 2013, CMS issued a letter to State Insurance Commissioners outlining
transitional policy for non-grandfathered coverage in the small group and individual health
insurance markets. If permitted by applicable State authorities, health insurance issuers may
choose to continue coverage that would otherwise be terminated or cancelled, and affected
individuals and small businesses may choose to re-enroll in such coverage. Under this
transitional policy, non-grandfathered health insurance coverage in the individual or small group
market that is renewed for a policy year starting between January 1, 2014, and October 1, 2014,
will not be considered to be out of compliance with certain market reforms if certain specific
conditions are met. These transitional plans continue to be subject to the requirements of section
2794, but are not subject to 2701 (market rating rules), 2702 (guaranteed availability), 2704
(prohibition on health status rating), 2705 (prohibition on health status discrimination) and 2707
(requirements of essential health benefits) and the because the single risk pool (1311(e)) is
dependent on all of the aforementioned sections (2701, 2702, 2704, 2705 and 2707), the
transitional plans are also exempt from the single risk pool The Unified Rate Review Template
and system are exclusively designed for use with the single risk pool plan, and any attempt to
include non-single risk pool plans in the Unified Rate Review template or system will create
errors, inaccuracies and limitations on submissions that would prevent the effectiveness of
reviews of both sets of non-grandfathered plans (single risk pool and transitional). For these
many reasons, CMS is requiring issuers with transitional plans that experience rate increases
subject to review to use the Rate Review Justification system and templates which were required
and utilized prior to April 1, 2013.
Health insurance issuers that choose to continue coverage that would otherwise be terminated or
cancelled will be required provide a Preliminary Justification to both CMS and states, if they are
seeking to implement rate increases that meet or exceed the reporting threshold described in
§154.200. The Preliminary Justification includes data supporting the potential rate increase as
well as a written explanation of the rate increase. For those rates CMS will be reviewing,
issuers’ submissions must also include data and information that CMS will need to make a valid
actuarial determination regarding whether a rate increase is unreasonable.
The Preliminary Justification consists of three Parts. Part I consists of summary-level
quantitative data, collected in a standardized format. Part II of the Preliminary Justification is a
brief written explanation of the rate increase. Issuers would be required to submit Parts I and II to
2

both CMS and the applicable State prior to implementation of a rate increase that is subject to
review, regardless of whether CMS is reviewing the rate increase or adopting the State’s review.
Issuers will be required to complete Part III of the Preliminary Justification only when CMS is
reviewing a rate increase to determine whether it is unreasonable. The information provided
under Part III is typical of the information included in a rate filing reviewed by State regulators.
The information will allow CMS to make a valid actuarial determination as to whether the rate
increase is unreasonable or not.
For each rate increase that is under review, either CMS or the state will prepare a final
determination as to whether the proposed rate increase is unreasonable or not, as well as a brief
explanation of relevant review findings. If a rate increase is determined to be unreasonable and
the health insurance issuer plans to implement the increase, it is required to submit a Final
Justification of the increase to CMS and to the relevant state. The issuer also must display the
justification on its website. If an issuer is legally permitted to implement an unreasonable rate
increase and declines to implement the increase, the issuer will provide notice to CMS that it will
not implement the increase.
2. Information Users
CMS will post on its website the information contained in each Preliminary Justification for each
rate increase reported under §154.200. States will either post the Preliminary Justification on
their websites or will provide a link to the postings on CMS’ website. For consumer clarity,
CMS will also post on its website the final disposition of each rate increase reviewed under the
regulation by either CMS or a state. As required by the statute and noted above, issuers will also
be required to post on their websites Final Justifications for unreasonable rate increases they plan
to implement. These disclosures are intended to provide consumers with information about the
rate increases that are reviewed under this program.
As noted above, issuers will be required to submit Part III of the Preliminary Justification when
CMS is reviewing a rate increase. CMS will use the data provided under this section to conduct a
thorough actuarial review of the rate increase and to make an unreasonable rate increase
determination.
3. Use of Information Technology
Health insurance issuers and states will provide rate review information via the Health Insurance
Oversight System (HIOS)—a web-based data collection system that is already being used by
states and issuers to provide information for the healthcare.gov website (additional PRA-related
information regarding HIOS is provided in the Web Portal PRA package (0938-1086)) including
all current rate review submissions exceeding the review threshold since September 1, 2011. All
data submissions will be made electronically and no paper submissions are required.
Issuers and states will continue to use HIOS to upload their rate review reporting submissions.
The burden estimates provided in this Statement include the time and effort that will be
dedicated to uploading information in HIOS. For example, the 11 hour issuer burden estimate
for completing and submitting the Preliminary Justification includes the time associated with
uploading the record in HIOS (2-3 minutes).
3

The rate review information that is uploaded and stored in HIOS will also be used to provide
consumer-oriented information about rate increases on the Healthcare.gov website.
4. Duplication of Similar Information
It does not duplicate any other collection.
5. Small Businesses
Small businesses are not affected by this collection. The Excel format of the rate review
notification form is a common business application and no capital costs are required for this
effort. The electronic submission of information also should ease any burden imposed by the
requirement. The information used to populate the Preliminary Justification format is readily
available to issuers, as it is used to develop premium rates. Finally, health insurance issuers are
generally not small businesses, so small businesses are not affected by this collection.
6. Less Frequent Collection
Health insurance issuers must provide the Preliminary Justification prior to implementing any
proposed rate increase. Issuers may not deviate from this collection schedule or provide the
information on a less frequent basis given the time-sensitive nature of the information that is
provided (the statute requires health insurance issuers to provide justifications for rate increases
prior to implementation).
7. Special Circumstances
No special circumstances exist for this information collection.
8. Federal Register Notice/Outside Consultation
A Federal Register notice was published on December 27, 2013 (78 FR 78968), providing the
public with a 60-day period to submit written comments on the Information Collection Request
(ICR). CMS received two comments. One commenter requested that CMS utilize the prior Rate
Review Justification System and templates for transitional plans that experience rate increases
subject to review, which is consistent with CMS’ approach. The other comment was unrelated.
9. Payments/Gifts To Respondents
There will be no payments or gifts to respondents.
10. Confidentiality
CMS will make available to the public on its website the information contained in each
Preliminary Justification that is not a trade secret or confidential commercial or financial
information and is approved for release under the Freedom of Information Act.

4

11. Sensitive Questions
There are no sensitive questions included in this collection effort. CMS does not propose to
collect any private information.
12. Burden Estimates (Hours & Wages)
Health Insurance Issuer Submission of Preliminary Justification
It is estimated that about 65 issuers in the individual and small group markets will need to file a
Preliminary Justification. Based on current experience, we estimate that each issuer in a market,
on average, will have 2.5 submissions each year and each submission will require 11 hours of
work by an actuary (at a cost of $225 per hour) including minimal time required for
recordkeeping. As shown in Table 12.1 below, the burden per issuer in each market is estimated
to be 27.5 hours and estimated cost per issuer in each market is $6,188 each year. The total
annual burden and costs are estimated to be 1,788 hours and $402,188 respectively. .
Table 12.1 Estimated Annualized Burden Hours and Costs for Preliminary Justification

Number of
Respondents
65

Number of
Submissions
per
Respondent
2.5

Total
Number of
Submissions
162.5

Burden
Hours per
Respondent
27.5

Cost per
Respondent
$6,188

Total
Burden
Hours
1,787.5

Total Cost
$402,187.50

Health Insurance Issuer Submission of Final Justification for Unreasonable Rate Increases
Health insurance issuers are required to submit to CMS and the relevant state a Final
Justification for any unreasonable rate increase that would be implemented and to display this
information on their websites. If an issuer is legally permitted to implement an unreasonable rate
increase and declines to implement the increase, the issuer will provide notice to CMS that it will
not implement the increase. This submission will consist of a short, free response narrative that
will take a senior actuary ($225/hour) approximately 60 minutes to prepare and post. Based on
current experience, we estimate that there will be approximately 41 justifications submitted and
posted annually.
Total Annual Burden Hours: 41 justifications x 1 hour to prepare and post = 41 hours
Total Annual Costs: 41hours x $225/hour = $9,225
State Unreasonable Rate Increase Determinations
If CMS determines that a state has satisfied specific criteria for an Effective Rate Review
Program, CMS will adopt the state‘s determinations regarding whether a rate increase that meets
or exceeds the established threshold is unreasonable, providing that, for each increase at or above
the threshold, the state reports its final determination to CMS and explains the basis of its
determination. In those cases where a state does not have an Effective Rate Review Program,
5

CMS will make its own determinations regarding whether a rate increase that meets or exceeds
the established threshold is unreasonable. CMS estimates that 155 rate increases will be reviewed
by states.
States will not have to modify their existing review practices in order to make unreasonable rate
increase determinations and therefore will not incur any new costs associated with reviewing
these rate increases. States with Effective Rate Review Programs will be required to report on
their rate review activities to the Secretary. CMS believes that this reporting requirement will
involve minimal cost. CMS estimates that it will take an actuary ($225/hour) approximately 20
minutes to prepare and submit this information to CMS.
Total Annual Burden Hours: 155 determinations x .33 hours = 51.15 hours
Total Annual Costs: 51.15 hours x $225/hour = $11,508.75
13. Capital Costs
The industry and the states are not required to incur capital costs to fulfill these requirements.
14. Cost to Federal Government
If a state does not have an Effective Rate Review Program in place for all or some markets, CMS
will review rate increases that meet or exceed the review threshold in those markets. This activity
could be conducted with in-house resources and/or with the use of contracted services. Based on
current experience, CMS estimates that it will review 8 rate increases annually. The following
table provides the cost and burden for completion of these reviews.
Table 14.1 Estimated Cost to Federal Government per Review
Contractor Actuarial Rates and Time
Associated with Conducting Rate Review
Estimated Actuarial Rates
Principal Actuaries
$350.00
Support Actuaries
$234.00
Actuarial Analyst
$150.00
Administrative Support
$100.00
Estimated Time to
Average Time
Complete Average
Required
Review
Principal Actuaries
5.50
Support Actuaries
9.50
Actuarial Analyst
14.00
Administrative Support
9.50
Actuarial Staff Hours
29.00
38.5
Total Staff Hours
$7,198
Estimated Contractor
Cost per Review

6

Total Annual Burden Hours: 8 reviews x 38.5 hours = 308 hours
Total Annual Costs: 8 reviews x $7,198 (cost per review) = $57,584
Additionally, CMS will determine whether a state’s rate review program meets the requirements
of an Effective Rate Review Program set forth in the rule based on information received from the
state through the grant process, a thorough review of applicable state law, and through any other
information available to CMS. The information collection for the “Grants to States for Health
Insurance Premium Review” is approved under OMB Control number 0938–1121. Since CMS
does not believe additional data from states are necessary to make these determinations, we
assume the additional burden from this provision is zero. In addition to the costs to the Federal
government of conducting rate reviews in states that do not conduct effective reviews, there will
be a nominal, largely one-time cost to the Federal government to determine whether states are
conducting effective reviews.
15. Changes to Burden
The overall reduction in burden is due to the fact that this requirement will apply to a limited
number of issuers – only issuers that choose to continue coverage that would otherwise be
terminated or cancelled – thereby reducing the number of submissions and reviews. For issuer
submission of Preliminary Justification, total burden is estimated to decrease by approximately
11,424 hours. For state unreasonable rate increase determinations the burden is estimated to
decrease by approximately 167 hours. The number of issuer submissions of final justification for
unreasonable rate increases will be lower and the related burden is estimated to decrease by
1,160 hours. The cost to federal government is estimated to decrease by approximately 20,482
hours or approximately $3,829,336 due to a decrease in the estimated number of reviews
performed.
16. Publication and Tabulation Dates
As part of consumer transparency and disclosure, a consumer friendly disclosure form
(populated from the information provided in the Preliminary Justification) will be posted by
CMS for all rates that meet or exceed the threshold. A final disposition of the rate review will
also be posted and, if the rate is identified as unreasonable and implemented by the carrier, the
carrier must also post a final justification as defined in previous regulation within 10 business
days.
17. Expiration Date
CMS has no objections to displaying the expiration date.
18. Certification Statement
There are no exceptions to the certification statement.
C. Collections of Information Employing Statistical Methods
Not Applicable. No statistical methods will be used in this collection effort. The data collection
tool has built in formulas that require carriers to input data.
7