HHS Releases Final Rule on Single Risk Pool
June 24, 2013
On Feb. 22, the Department of Health and Human Services (HHS) issued a final rule to implement the Affordable Care Act’s (ACA) single risk pool provisions.
The final rule amends the Nov. 26, 2012, proposed rule. The provisions of the final rule apply to plan years beginning on or after Jan. 1, 2014.
Single Risk Pool
The single risk pool provision prevents insurers from segmenting enrollees into separate rating pools in order to increase premiums at a faster rate for higher-risk individuals more than lower-risk individuals. Issuers will maintain a single statewide risk pool for each of their individual and small group markets, unless a state chooses to merge the individual and small group pools into one pool. Premiums and annual rate changes will be based on the health risk of the entire pool.
The single risk pool provision requires that issuers must consider all enrollees in all health plans issued in a particular state to be members of a single risk pool when developing rates and premiums effective on or after Jan. 1, 2014. Each issuer must have one individual market pool and one small group market pool and states can choose to merge these risk pools.
Index Rate
As discussed in the December 2012 Reform Alert: CMS Issues Proposed Rule: Single Risk Pool, the "index rate" is the starting point in each market to develop rates for non-grandfathered products. Each issuer in a state will have an index rate for each of the individual and small group pools for each plan year (policy year, in the individual market). The index rate is based on the total combined claims costs for providing essential health benefits within the single risk pool. There may be market-wide adjustments for risk adjustment and reinsurance programs as well as Marketplace user fees.
Family rating
The final rule clarifies that the cap on rating no more than the three oldest individuals under the age of 21 only applies to "covered children."
Employees and spouses who are under the age of 21 will be separately rated.
Small group rating
Issuers will use the per-member rating methodology in the small group market. States may require issuers to base small group premiums on an average amount for each employee in the group, provided that the total group premium equals the premium that would be obtained through the per-member rating approach.
Geographic rating
The final rule clarifies that states may establish different rating areas for the individual or small group markets, but rating areas must apply uniformly within each market and may not vary by product.
Age rating
The maximum 3:1 ratio for age rating applies to adults age 21 and older. The final rule retains the single band for children age 0-20 and a single age band for individuals 64 and older. No state exceptions to the uniform age bands are allowed under the final rule. States can still set their own age curve within these bands. States may also establish separate age curves for individual vs. small group markets.
Where can I find more information?
More information can be found in the Federal Register.
The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law’s applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. As required by US Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.