Rate Increase Disclosure and Review: Definitions of “Individual Market” and “Small Group Market”, 54969-54977 [2011-22663]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 76, Number 172 (Tuesday, September 6, 2011)]
[Rules and Regulations]
[Pages 54969-54977]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-22663]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 154

[CMS-9999-F]
RIN 0938-AR26


Rate Increase Disclosure and Review: Definitions of ``Individual 
Market'' and ``Small Group Market''

AGENCY: Center for Consumer Information and Insurance Oversight, 
Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends a May 23, 2011, final rule entitled 
``Rate Increase Disclosure and Review''. The final rule provided that, 
for purposes of rate review only, definitions of ``individual market'' 
and ``small group market'' under State rate filing laws would govern 
even if those definitions departed from the definitions that otherwise 
apply under title XXVII of the Public Health Service Act (PHS Act). The 
preamble to the final rule requested comments on whether this policy 
should apply in cases in which State rate filing law definitions of 
``individual market'' and ``small group market'' exclude association 
insurance policies that would be included in these definitions for 
other purposes under the PHS Act. In response to comments, this final 
rule amends the definitions of ``individual market'' and ``small group 
market'' that apply for rate review purposes to include coverage sold 
to individuals and small groups through associations even if the State 
does not include such coverage in its definitions of individual and 
small group market. This final rule also updates standards for health 
insurance issuers regarding disclosure and review of unreasonable 
premium increases under section 2794 of the Public Health Service Act.

DATES: Effective date. This rule is effective on November 1, 2011.

FOR FURTHER INFORMATION CONTACT: Sally McCarty, (301) 492-4489 (or by 
e-mail: ratereview@hhs.gov).

SUPPLEMENTARY INFORMATION:

I. 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 preamble, 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 of the PHS 
Act does not apply to grandfathered health insurance coverage, nor does 
it apply to self-funded plans.
    On December 23, 2010, we published a Notice of Proposed Rulemaking 
to implement section 2794. Among other things, because of unique 
characteristics of State rate review and for purposes of administrative 
efficiency, we proposed to adopt definitions of the individual and 
small group markets that would defer to definitions set forth in State 
rate filing laws. We did not discuss in the proposed rule, or 
anticipate, how association policies would be treated under the 
proposal. Regardless, we received a number of comments objecting to the 
definitions as they would apply to association plans. On May 23, 2011, 
we published a final rule with comment period (76 FR 29964), in which 
we specifically solicited further comments on amending the definitions 
of ``individual market'' and ``small group market'' in Sec.  154.102 to 
include coverage sold to individuals and small groups through 
associations in all cases.
    We received 30 comments in the comment period. Commenters included 
the National Association of Insurance Commissioners (NAIC); a State 
insurance regulator; many consumer and public interest organizations; 
associations sponsoring insurance plans for their individual and 
employer members; health care providers; health insurance issuers and 
related trade associations (collectively, ``industry''); and others. 
After consideration of the comments, we are amending the May 23, 2011 
final rule to provide that individual and small employer policies sold 
through associations will be included in the rate review process, even 
if a State otherwise excludes such coverage from its definitions of 
individual and small group market coverage.

II. Provisions of the May 23, 2011 Final Rule With Comment and 
Responses to Comments

    In the May 23, 2011 final rule, we solicited comments regarding 
whether to amend the definitions of ``individual market'' and ``small 
group market'' in Sec.  154.102 to include coverage sold to individuals 
and small groups through associations in the rate review process, even 
if the State excludes such coverage from its definitions of individual 
and small group market coverage. Additionally, we solicited comments to 
address the following questions:
    1. Do States currently review rate increases for association and 
out-of-State trust coverage sold to individuals and small groups, 
regardless of whether the policies are sitused in or outside of their 
States?
    2. How many rate filings do States receive for association and out-
of-State trust coverage?
    3. How prevalent are association and out-of-State trust coverage 
arrangements? What percentage of individual market and small group 
market business is sold through associations and out-of-State trusts?
    4. In which States is association and out-of-State trust coverage 
commonly purchased by individuals and small groups? Where are out-of-
State trusts typically situated?
    5. Why do some individuals and small employers purchase coverage 
through associations and out-of-State trusts rather than through the 
traditional markets? Are there particular groups of individuals or 
types of small employers that typically purchase coverage through 
associations and out-of-State

[[Page 54970]]

trusts? What organizations (other than issuers) typically sponsor, 
endorse, or market association and out-of-State trust arrangements?
    6. How do rate increases for association and out-of-State trust 
coverage sold to individuals and small groups compare to rate increases 
in the traditional market? What explains the differences (if any) 
between rate increases for association and out-of-State trust coverage 
and traditional market coverage?
    Comment: Most commenters, including State regulators, consumer 
advocates, the insurance industry representatives, and three affected 
associations, supported including individual and small group 
association coverage in the definitions of ``individual market'' and 
``small group market'' in Sec.  154.102, even where such coverage was 
not included in those definitions under State rate filing laws, so that 
more individuals and small employers would benefit from rate review. 
According to comments from consumer advocates and some of the affected 
associations, if association coverage was not included in the rate 
review rule, the association coverage market would be treated 
differently from traditional markets in some States, and consumers in 
these plans would not benefit from the Affordable Care Act's rate 
review process. State regulators and consumer advocates noted that, in 
the past, State law exceptions for association health plans had allowed 
them to avoid market reforms such as guaranteed issue and community 
rating and permitted them to ``cherry pick'' individuals and groups 
with favorable risk profiles. A State regulator also noted that 
exempting coverage sold through the associations from the regulatory 
process leads to a concentration of poorer risk in non-association 
coverage in community rating States. Based on past State experience 
with association coverage exceptions, the NAIC advised against allowing 
exceptions for association coverage under the market definitions of 
Sec.  154.102. Moreover, consumer advocates and one issuer emphasized 
the importance of having consistent standards across association health 
plans and the rest of the market to ensure that issuers competed on a 
level playing field.
    Many comments also discussed the importance of encouraging States 
to regulate association plans in the same way as the traditional 
market. Several consumer advocates and State insurance officials cited 
a study \1\ concluding that two-thirds of the States regulate 
associations differently from other plans in the same market and about 
one-half of the States entirely or partially exempt national 
associations from State regulation. In States where associations are 
not regulated, this differential treatment gives residents little 
recourse if their association health plan changes its terms of 
coverage, denies claims, or completely ceases operation. One consumer 
advocate further highlighted that individuals and small businesses 
often buy health plans through associations with little knowledge of 
the protections that they do or do not have in these plans. In 
addition, the consumer noted that many States cede the regulatory and 
oversight roles to other States when an association is headquartered 
elsewhere, allowing association health plans to operate without as much 
oversight as plans in the traditional market. This can result in 
different consumers in the same State being subject to different levels 
of protections depending on whether the coverage is sold through an 
association and also on where the association is sitused.
---------------------------------------------------------------------------

    \1\ Mila Kofman, Kevin Lucia, Eliza Banget, Karen Politz, 
``Association Health Plans: What's All the Fuss About?'' Health 
Affairs, Vol. 25, No. 6, 2006.
---------------------------------------------------------------------------

    While most comments were in favor of including association coverage 
in the rate review process even where State rate filing laws did not 
include such coverage in definitions of individual market and small 
group market, CMS received five comments that opposed changing the 
current policy under Sec.  154.102. Four of these comments came from 
associations, and one comment came from an association professional 
membership organization. Three associations discussed the history of 
associations in their State and indicated that their State treats 
association health plans as large group plans not subject to individual 
or small group requirements for all purposes, not just rate review. 
These associations expressed concern about potential logistical and 
administrative burdens for association plans were they to be regulated 
as small group market coverage at the State and Federal levels. (We 
note that even if we were not making this amendment to the final rate 
review rule, this State practice would differ from longstanding 
guidance on the treatment of association coverage for all other 
purposes under title XXVII of the PHS Act.) In addition, all five 
commenters asserted that, because association health plans have a 
larger insurance pool, they should not be regulated the same as plans 
and policies in individual and small group markets. However, a 
regulator from the same State as three of the associations opined that 
successful implementation of the Affordable Care Act depended on having 
a stable health insurance market, which could be jeopardized if issuers 
could avoid the various individual and small group market requirements 
by offering coverage through associations.
    Response: In light of these comments, we are amending the 
definitions of ``individual market'' and ``small group market'' in this 
final rule to include individual and small group coverage sold through 
associations in the rate review process. This amendment applies to 
rates for association coverage that are filed, or are effective in 
States without filing requirements, on or after November 1, 2011. The 
majority of commenters supported extending the rate review rule to 
include such association coverage; no commenter offered a persuasive 
reason why associations should be treated differently in connection 
with the review of rate increases than they are treated generally under 
the PHS Act. To the extent that issuers set premiums for members within 
an association differently based on their own health status or other 
factors, these association members are essentially purchasing 
individual or small group coverage and should not be treated 
differently than other individuals or small groups not buying coverage 
through an association. Further, excluding individual and small group 
coverage sold through associations from the rate review process creates 
an unlevel playing field between issuers that sell coverage through 
associations and those that do not. Lastly, excluding association 
coverage from the rate review process raises the risk of creating 
incentives that could lead to adverse selection. We note that nothing 
in this amended rule prevents individuals and employers from enjoying 
the benefits of belonging to an association and obtaining health 
insurance coverage as a benefit of their association membership.
    All other requirements in title XXVII of the PHS Act (for example, 
section 2718's medical loss ratio requirements) are governed by the 
individual and small group market definitions in section 2791 of the 
PHS Act. Under section 2791's definitions, individuals and employers 
who purchase health insurance coverage through associations generally 
have been and continue to be entitled to the same rights and 
protections as those who purchase coverage in the individual and group 
markets. CMS Insurance Standards Bulletin 02-02 (August 2002) stated 
that

[[Page 54971]]

``the test for determining whether health insurance coverage offered 
through an association is group market coverage or individual market 
coverage, for purposes of [PHS Act] title XXVII, is the same test as 
that applied to health insurance offered directly to employers or 
individuals.''
    The decision to propose somewhat different definitions of 
individual and small group market for the purposes of rate review was 
based on the discretion under section 2794 of the PHS Act to specify 
which markets are subject to this rate review rule, and our desire to 
minimize disruption for the States and enable as many of them as 
possible to have Effective Rate Review Programs. In proposing to follow 
State filing law definitions, we did not take into account the 
substantial difference this could make with respect to association 
coverage in States with filing law definitions of individual market and 
small group market that exclude association coverage.\2\ However, we 
are amending the regulation to make clear that for purposes of rate 
review, the treatment of association coverage is identical to how it is 
treated for other title XXVII requirements, so that individuals and 
small employers who purchase coverage through an association have the 
same set of protections they would receive if they had purchased 
coverage outside of an association. We note that in amending these 
definitions, we do not change the role offered to States to conduct 
Effective Rate Review Programs under the final rule which aims to 
minimize disruption of State rate review processes.
---------------------------------------------------------------------------

    \2\ As noted above, there is a long, consistent history of how 
associations have been treated with respect to the requirements 
added by the Health Insurance Portability and Accountability Act of 
1996 (HIPAA). However, prior to enactment of the Affordable Care 
Act, none of those requirements related to rate review, and for 
HIPAA purposes it was irrelevant how a State defined its markets for 
rate review purposes. Therefore we were not familiar with the 
possible ramifications for associations.
---------------------------------------------------------------------------

    Comment: A trade association noted that section 3(5) of the 
Employee Retirement Income Security Act (ERISA) defines the term 
``employer'' so that an association of employers could be deemed an 
``employer'' sponsoring a group health plan under some circumstances. 
In such a case, the commenter recommended that the association coverage 
should be treated as one group health plan for purposes of the rate 
review process.
    Response: As indicated by the commenter, the market definitions in 
section 2791 of the PHS Act are derived from definitions of employer 
and employee welfare benefit plan in ERISA section 3. While the 
proposed rule and current final rule adopt a different policy for rate 
review purposes with respect to association coverage than would apply 
under the PHS Act for other purposes, we are amending the final rule to 
apply the general PHS Act policy on association coverage under the rate 
review regulation, as an exception to the general rule that State 
definitions govern. Accordingly, if an association is, in fact, 
sponsoring a group health plan subject to ERISA, the association 
coverage should be considered to be one group health plan and the 
number of employees covered by the association would determine the 
group size for purposes of determining whether the group health plan is 
sponsored by a small employer and subject to the rate review process.
    In most situations involving association coverage, the group health 
plan will exist at the individual employer level and not at the 
association level, in which case the size of the individual employers 
in the association will determine whether the association coverage is 
subject to the rate review process. The Department of Labor (DOL) has 
jurisdiction over ERISA group health plans and, for private sector 
entities, the determination of whether the group health plan exists at 
the association level or the employer level is made under ERISA. DOL 
has prepared a booklet in an effort to address questions that have been 
raised under ERISA concerning ``multiple employer welfare 
arrangements.'' This booklet may assist stakeholders in identifying 
situations where an ERISA group health plan may exist at the 
association level. See DOL MEWA Guide (https://www.dol.gov/ebsa/Publications/mewas.html). Several DOL Advisory Opinions may also be 
helpful. See DOL Advisory Opinions 2001-04A (https://www.dol.gov/ebsa/regs/aos/ao2001-04a.html); 2008-07A (https://www.dol.gov/ebsa/regs/aos/ao2008-07a.html) and 2003-13A (https://www.dol.gov/ebsa/regs/aos/ao2003-13a.html). For example, in DOL Advisory Opinion 2008-07A, DOL stated:
    ``A determination whether there is a bona fide employer group or 
association for this ERISA purpose must be made on the basis of all the 
facts and circumstances involved. Among the factors considered are the 
following: how members are solicited; who is entitled to participate 
and who actually participates in the association; the process by which 
the association was formed, the purposes for which it was formed, and 
what, if any, were the preexisting relationships of its members; the 
powers, rights, and privileges of employer members that exist by reason 
of their status as employers; and who actually controls and directs the 
activities and operations of the benefit program. The employers that 
participate in a benefit program must, directly or indirectly, exercise 
control over the program, both in form and in substance, in order to 
act as a bona fide employer group or association with respect to the 
program.
    The definition of `employee welfare benefit plan' in ERISA is 
grounded on the premise that the person or group that maintains the 
plan is tied to the employers and employees that participate in the 
plan by some common economic or representation interest or genuine 
organizational relationship unrelated to the provision of benefits.''
    For more information, State regulators and other stakeholders can 
contact the Department of Labor's Employee Benefits Security 
Administration.
    Comment: An association advised that a group policy for an 
association is issued to a trust in the State where the trust is 
domiciled and certificates are issued to insured parties who may reside 
in other States. In such a case, the association indicated that if the 
State where the trust is domiciled has a rate review process, that 
State should be responsible for the rate review of the entire program 
and should apply the same rating principles to the entire association, 
thus making it easier for compliance. Consumer advocates and a health 
insurance issuer, on the other hand, advised that rate increases of all 
individual and small group coverage sold in a State should be reviewed 
by that State, regardless of where the association is domiciled, to 
ensure that the individuals and employers in the State are protected by 
their local insurance department.
    Response: A State's ability to review rate increases of coverage 
sold through associations domiciled in another State is dependent 
solely upon State law. Accordingly, it will be up to each individual 
State to determine whether its laws provide the authority to review 
proposed rate increases of individual and small group health insurance 
coverage sold through associations domiciled in another State. It 
should be noted that the rate review process set forth in the May 23, 
2011 final rule sets standards so that the reporting and review process 
is similar in all States which should decrease the burden of having to 
file a rate increase in multiple States.
    Comment: One insurance issuer commented that CMS should keep bona

[[Page 54972]]

fide associations out of the rate review process because the bona fide 
association marketplace operates much like the large group market, in 
that trustees of associations are sophisticated purchasers who exercise 
their fiduciary responsibility to their members. This commenter 
therefore felt that, to prevent an undue burden on the rate review 
process, bona fide associations should be regulated differently from 
non-bona fide associations. An association indicated that, if bona fide 
association individual and small group coverage were included in the 
rate review process, it would subject the affected insurance premiums 
to review by as many as 40 different States.
    Response: Although the PHS Act recognizes bona fide associations as 
defined by section 2791(d)(3) \3\ of the PHS Act and currently exempts 
them from guaranteed renewability of coverage and guaranteed 
availability of coverage, individual and small group coverage provided 
through bona fide associations are subject to every other provision and 
protection of title XXVII of the PHS Act without exception. Therefore, 
the rate review process applies to individual and small group coverage 
provided through bona fide associations and non-bona fide associations. 
It should be noted that the rate review process set forth in the May 
23, 2011 rule sets standards so that the reporting and review process 
is similar in all States which should decrease the burden of having to 
file a rate increase in multiple States.
---------------------------------------------------------------------------

    \3\ Bona fide association means, with respect to health 
insurance coverage offered in a State, an association that meets the 
following conditions: (1) Has been actively in existence for at 
least 5 years. (2) Has been formed and maintained in good faith for 
purposes other than obtaining insurance. (3) Does not condition 
membership in the association on any health status-related factor 
relating to an individual (including an employee of an employer or a 
dependent of any employee). (4) Makes health insurance coverage 
offered through the association available to all members regardless 
of any health status-related factor relating to the members (or 
individuals eligible for coverage through a member). (5) Does not 
make health insurance coverage offered through the association 
available other than in connection with a member of the association. 
(6) Meets any additional requirements that may be imposed under 
State law.
---------------------------------------------------------------------------

    Comments: Consumer advocates commented that States should be 
required to review an issuer's premium-rate increases on individuals 
and small groups purchasing insurance through an association or out-of-
State trust as a condition of having an Effective Rate Review Program. 
These commenters also suggested that, to the extent possible, adequate 
regulation of associations should be a factor in awarding Cycle II 
grants of the Health Insurance Rate Review Program.
    Response: A State that meets the criteria for an Effective Rate 
Review Program, as outlined in Sec.  154.301 will be determined to have 
Effective Rate Review Programs; with this amendment, this review will 
apply to rate increases of association coverage sold directly to 
individuals and small groups in that State. A State's status as an 
Effective Rate Review Program State in other market segments will not 
be affected by its status as it relates to the effective review of 
association coverage rate increases. For purposes of this 
determination, we will not take into account whether the State where an 
association plan has its situs reviews the rates. In order to be an 
Effective Rate Review Program State for association coverage, a State 
will have to meet the criteria specified in Sec.  154.301(a) and (b) 
for review of rate filings in its State for association coverage. If a 
State fails to meet the criteria for association coverage, CMS will 
review the rate filings above the threshold for the association 
coverage in that State.
    The Cycle II funding opportunity announcement (FOA) was posted in 
February of this year and applications were due August 15, 2011. In 
order to be eligible for an award under Cycle II, for either Phase I or 
II awards, a State must be able to demonstrate at the time of 
application that it already meets the criteria for an Effective Rate 
Review Program, or that with the funding resources from the grant it 
can achieve an Effective Rate Review Program.
    To the extent that association coverage is one product type in 
which a State can be effective or not, it is a consideration, but 
effective review of association coverage is not a requirement for a 
Cycle II grant.

III. Provisions of This Final Rule

    This final rule amends the definition of ``individual market'' and 
``small group market'' in Sec.  154.102 as follows:
    We amended the definition of ``individual market'' to include 
coverage that would be regulated as individual market coverage (as 
defined in section 2791(e)(1)(A)) if it were not sold through an 
association. We also amended the definition of ``small group market'' 
to include coverage that would be regulated as small group market 
coverage (as defined in section 2791(e)(5)) if it were not sold through 
an association. This approach follows the definition that applies for 
other PHS Act purposes (under which an association itself will only be 
considered to be a group health plan if it complies with and is 
regulated under ERISA).

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    The Collection of Information Requirements associated with the May 
23, 2011 final rule were approved under OMB control number 0938-1141, 
with an expiration date of August 31, 2014. In the May 23, 2011 final 
rule, we solicited comments on whether individual and small group 
coverage sold through associations should be included in the rate 
review process. At that time, we did not include an estimate of the 
number of rate review filings of association coverage for the burden 
estimates in the PRA section of the final rule. We are now amending the 
burden estimates in the PRA section to reflect the additional number of 
filings resulting from amending this final rule.
    As indicated in RIA section below, we estimate that 229 additional 
rate filings will be subject to the rate review process as a result of 
including individual and small group coverage sold through associations 
in the process. This increases the total number of filings subject to 
review from 974 to 1,203. All other estimates, including number of 
respondents and burden per response, have not changed from the final 
rule. Accordingly, the language from the PRA section of the May 2011 
final rule is incorporated in this final rule and the changes in the 
estimates are reflected in the Revised Table A, with revised numbers 
highlighted in bold.

[[Page 54973]]

[GRAPHIC] [TIFF OMITTED] TR06SE.024

V. Response to Comments

    Because of the large number of public comments we receive on 
Federal Register documents, we are not able to acknowledge or respond 
to them individually. A discussion of the comments we received is 
included in the preamble of this document.

VI. Regulatory Impact Analysis

    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

A. Summary

    In the regulatory impact analysis (RIA) for the May 23, 2011 final 
rule, we discussed the proposal to amend the definitions of individual 
and small group markets in order for individual and small group 
coverage sold through associations to be subject to rate review. 
Although we did not include the burden of including coverage sold 
through associations in the final numbers for the PRA package or the 
RIA, an estimate was provided in the RIA for the purpose of soliciting 
comments on the potential burden of including individual and small 
group coverage sold through associations in the rate review process.
    We reviewed data submitted by health insurance issuers to the NAIC 
and estimated that there would be 986 filings annually that would have 
to be submitted for individual or small group coverage sold through 
associations. We in turn applied the factors for non-grandfathered 
coverage (0.42) and filings above the 10 percent threshold (0.45), 
which resulted in a total of 186 additional filings that would be 
subject to rate review. We further estimated that 34 percent of these 
filings would occur in States that require prior approval before a rate 
increase can be implemented, in which case the rate filings are already 
subject to review by a State. This resulted in a final estimate of 123 
additional filings above the 10 percent threshold occurring if coverage 
sold through associations were subject to the rate review process.
    In response to our solicitation of comments on the association 
issue, we received from the NAIC a survey of State regulators in which 
the following question was asked: ``How many such rate filings does 
your State receive for association and out-of-State trust coverage?'' 
Thirty-two States responded to the survey and 14 States provided 
estimates that totaled 440 rate filings for association coverage on an 
annual basis. Most of these estimates did not distinguish between the 
individual and small group markets. One State indicated that no rate 
filings were received from associations, and the other 17 indicated 
that they did not track association rate filings. This data was 
provided by State regulators who review rate filings, as opposed to the 
prior data that was provided by health insurance issuers. Since State 
regulators are positioned to review the rate filings of all the issuers 
in their States, we chose to use the State data for the purpose of 
updating the burden estimates in this RIA. Extrapolating the 440 number 
from 14 States to 50 States provides an estimate of 1,570 rate filings 
annually for association coverage in the individual and small group 
markets. Using the percentages from the final rule numbers (76% small 
group market, 24 percent individual market), this breaks out to 377 
additional filings in the individual market and 1,193 filings

[[Page 54974]]

in the small group market. Applying the factors for non-grandfathered 
coverage and filings above the 10 percent threshold results in a mid 
range estimate of 229 additional filings being subject to rate review.
    Since this final rule directs that individual and small group 
coverage sold through associations be included in the rate review 
process, we are amending the burden estimates in the RIA to reflect the 
additional number of filings. The estimated number of affected 
entities, the burden estimates for the start-up costs and the amount of 
time to review each rate filing do not change from what was estimated 
in the RIA for the May 23, 2011 final rule. Accordingly, the RIA from 
the May 23, 2011 final rule is incorporated into this final rule with 
the only the changes being the additional number of filings discussed 
here and in the Federalism Statement in section D. All ranges of filing 
estimates were increased by 1,570, the estimated number of rate filings 
for association coverage, as explained above. This results in the 
number of 2011 filings in Table 3 for the low range estimate being 
increased from 6,121 to 7,691; the mid range was increased from 6,733 
to 8,303; and the high range from 7,343 to 8,913. In the tables, the 
amended numbers are highlighted in bold.

B. Estimated Number of Rate Filings

    This section of the regulatory impact assessment provides estimates 
of the number of filings that would be subject to review under this 
final rule. Below we are revising Table 3, Table 4, and Table 5 of the 
May 23, 2011 final rule (see 76 FR 29980 through 29982) to read as 
follows:
[GRAPHIC] [TIFF OMITTED] TR06SE.025

C. Estimated Administrative Costs Related to Rate Review Provisions

[[Page 54975]]

[GRAPHIC] [TIFF OMITTED] TR06SE.026

[GRAPHIC] [TIFF OMITTED] TR06SE.027


[[Page 54976]]


1. Estimated Costs to States
    CMS recognizes that States have significant experience reviewing 
rate increases. As discussed earlier in this preamble, most States have 
existing Effective Rate Review Programs that will meet the requirements 
of this regulation. Rate review grants provided by CMS are expected to 
increase the effectiveness of State rate review processes, but they are 
not a direct measure of the cost of this regulation.
    CMS estimates that the cost impact on States will be small because 
most States currently conduct rate review. For these States, the 
incremental costs and requirements of this regulation will be minimal. 
Some States do not already have a rate review process or have a process 
that applies to only a portion of the individual and small group 
markets that this regulation addresses. In these States, the 
implementation costs to develop Effective Rate Review Processes at the 
State level can be offset by the rate review grants provided by CMS. 
For States not currently conducting effective rate review, HHS will 
conduct the review.
    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 reporting information from the State to CMS will require 
approximately 20 minutes per filing. Based on an actuary's fee of $200 
per hour, CMS estimates an average cost per filing of $66. Including 
association coverage, the estimated cost of reporting the two-thirds of 
filings meeting or exceeding the 10 percent threshold (801), which are 
reviewed by States, is $52,866.

D. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. In CMS' view, while the requirements proposed in this 
final rule would not impose substantial direct costs on State and local 
governments, this final rule has federalism implications due to direct 
effects on the distribution of power and responsibilities among the 
State and Federal governments relating to determining the 
reasonableness of rate increases for coverage that State-licensed 
health insurance issuers offer in the individual and small group 
markets.
    CMS recognizes that there are federalism implications with regard 
to CMS' evaluation of Effective Rate Review Programs and its subsequent 
review of rate increases. Under Subpart C of this final rule, CMS 
outlines those criteria that States would have to meet in order to be 
deemed to have an Effective Rate Review Program. If CMS determines that 
a State does not meet those criteria, then CMS would review a rate 
increase subject to review to determine whether it is unreasonable. If 
a State does meet the criteria, then CMS would adopt that State's 
determination of whether a rate increase is unreasonable.
    As indicated earlier in this preamble, we received comments from 
consumer advocates and State insurance officials citing a study 
concluding that two-thirds of the States regulate associations 
differently from other plans in the individual and small group market 
and about one-half of the States entirely or partially exempt coverage 
sold through national associations from State regulation. In States 
where individual and small group coverage sold through associations is 
not subject to the rate review process, we indicate in this preamble 
that CMS will review the rate filings for such coverage that meet the 
threshold. We also state that the fact that a State may not review rate 
filings of association coverage will not be considered in determining 
whether that State has an effective rate review program.
    States would continue to apply State law requirements regarding 
rate and policy filings. State rate review processes that are similar 
to the Federal requirements likely would be deemed effective and 
satisfy the requirements under this final rule. Accordingly, States 
have latitude to impose requirements with respect to health insurance 
issuers that are more restrictive than the Federal law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, CMS 
has engaged in efforts to consult with and work cooperatively with 
affected States, including participating in conference calls with and 
attending conferences of the National Association of Insurance 
Commissioners (NAIC), participating in a NAIC workgroup on rate reviews 
and consulting with State insurance officials on an individual basis.
    Throughout the process of developing this final rule, CMS has 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform protections 
to consumers in every State. By doing so, it is CMS' view that it has 
complied with the requirements of Executive Order 13132. Under the 
requirements set forth in section 8(a) of Executive Order 13132, and by 
the signatures affixed to this regulation, CMS certifies that the 
Center for Consumer Information and Insurance Oversight has complied 
with the requirements of Executive Order 13132 for the attached final 
rule in a meaningful and timely manner.

List of Subjects in 45 CFR Part 154

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Health plans, Penalties, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR Subtitle A, Subchapter B, by amending 
part 154 as follows:

PART 154--HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND 
REVIEW REQUIREMENTS

0
1. The authority citation for part 154 continues to read as follows:

    Authority: Section 2794 of the Public Health Service Act (42 
U.S.C. 300gg-94).

Subpart A--General Provisions

0
2. In Sec.  154.102, revise the definitions of ``individual market'' 
and ``small group market'' to read as follows:


Sec.  154.102  Definitions.

* * * * *
    Individual market has the meaning given the term under the 
applicable State's rate filing laws, except that:
    (1) Where State law does not define the term, it has the meaning 
given in section 2791(e)(1)(A) of the PHS Act; and
    (2) Coverage that would be regulated as individual market coverage 
(as defined in section 2791(e)(1)(A)) if it were not sold through an 
association is subject to rate review as individual market coverage.
* * * * *
    Small group market has the meaning given under the applicable 
State's rate filing laws, except that:
    (1) Where State law does not define the term, it has the meaning 
given in section 2791(e)(5) of the PHS Act; provided, however, that for 
the purpose of this definition, ``50'' employees applies in place of 
``100'' employees in

[[Page 54977]]

the definition of ``small employer'' under section 2791(e)(4); and
    (2) Coverage that would be regulated as small group market coverage 
(as defined in section 2791(e)(5)) if it were not sold through an 
association is subject to rate review as small group market coverage.
* * * * *

    Dated: August 16, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 29, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-22663 Filed 9-1-11; 11:15 am]
BILLING CODE 4120-01-P