The Department of Health and Human Services has published final Affordable Care Act rules for commercial health insurance, covering guaranteed issue, premiums, rate review and more.
HHS first proposed the rules in November and, after receiving about 500 comment letters, revamped several of the final regulations, while still keeping some of the more controversial ones.
The 3:1 age ratio that many insurers think will lead to excessively high premiums for young people was among the rules previously proposed that HHS left intact. Several industry stakeholders had asked that states and insurers be allowed to phase in the 3:1 age band, but the agency said in the final rules it has no legal authority to do so.
Among ACA rules for the three other allowed premium variation criteria -- tobacco use, family size and geography -- geographic rating promises to be an evolving regulatory space.
HHS proposed earlier that states create their own geographic rating areas, on the condition that there be one rating area for the entire state, or no more than seven rating areas within a state -- based on counties, three-digit zip codes, metropolitan statistical areas (MSA) or non-metropolitan statistical regions -- or, if there are more than seven "actuarially justified geographic divisions," a geographic area subject to HHS approval.
Insurers tend to use more than seven rating areas in a state, and some commenters told HHS that the threshold of seven rating areas might not be enough to reflect healthcare cost and utilization patterns within large and diverse markets.
Now, HHS has modified the final rule, extending the number of rating areas permitted to within the number of metropolitan statistical areas in the state plus one. The areas can be noncontiguous, and states can also ask HHS to approve more geographic rating areas. If states do not create their own rating areas or HHS rejects the state's proposal, the default -- instead of the previously proposed single state rating area -- will be one rating area for each MSA in the state and one rating area for all other non-MSA portions of the state.
The modification, HHS said, is "intended to provide sufficient flexibility to states to establish rating areas that are responsive to local market conditions, while protecting consumers from potentially discriminatory rating practices."
The final rules also address family premium pricing, requiring that the calculation be based on at most three of the oldest family members under 21, with no cap on the number of family members age 21 and older whose per-member rates would be added to the family premium. "This will mitigate premium increases for larger families accustomed to family tier rating structures and allow for more accurate rating of families with spouses under the age of 21," HHS said.
The agency also noted that states have the ability to "include specific types of individuals on a family policy and nothing in these final rules precludes this ability."
Another issue that's been subject to debate has been rating methodologies in the small group market, which the final rule requires on a per-member basis.
Many commenters supported per-member ratings in the small group market, especially in health insurance exchange SHOP markets, while some recommended allowing composite ratings in the small group market outside the SHOP and others raised concerns that per-member ratings may increase premiums for older workers.
In justifying its decision to keep per-member rating in the small group market, HHS said that "per-member rating assures compliance with the requirement that age and tobacco rating only be apportioned to an individual family member's premium, enhances employee choice inside the SHOP, and promotes the accuracy of the risk adjustment methodology."
Nothing in the rules, HHS added, prohibits states from requiring insurers or small employers to offer "premiums based on average employee amounts where every employee in the group is charged the same premium."
HHS largely left intact its proposed rule for rate filings, requiring insurers report all rate increases in the small and individual group markets, while reducing the number of data elements companies have to file.
In states that have rate review programs, the new rule adds to the criteria regulators should consider, including "the reasonableness of assumptions used by an issuer to estimate the rate impact of the reinsurance and risk adjustment programs" and "issuer data related to implementation and ongoing utilization of a market-wide single risk pool, essential health benefits, actuarial values, and other market reform provisions."
States with rate review programs are also being required to publish online the rate justification same information CMS publishes, or at least provide a link to the CMS site.