Health Insurance Rate Review Process

The health insurance rate review process is the mechanism through which state and federal regulators evaluate proposed premium increases before those increases take effect. It applies to individual and small group health insurance markets, creating a structured checkpoint between insurer pricing decisions and consumer impact. Understanding this process reveals how regulatory authority intersects with actuarial practice, and why proposed rate changes are not automatically approved simply because an insurer submits them.

Definition and scope

Rate review is a regulatory function that requires health insurers to justify proposed premium changes to a designated authority — either a state insurance commissioner, the federal Department of Health and Human Services (HHS), or both — depending on a state's regulatory capacity.

The Affordable Care Act (ACA) established the federal rate review program under 45 CFR Part 154, which requires that proposed rate increases of 10% or more in the individual or small group market undergo review before implementation. States with an "effective rate review" program certified by HHS conduct that review themselves; in states without such a program, HHS performs the review directly. As of the program's operation, more than 40 states have received certification as effective rate review states (Centers for Medicare & Medicaid Services, Rate Review Program).

Scope of review covers fully insured individual and small group plans sold both on and off the Health Insurance Marketplace. Self-funded employer plans are not subject to rate review under this framework because they are regulated under ERISA rather than state insurance law — a distinction examined in detail at the resource on self-funded vs. fully-insured employer plans.

How it works

The rate review process follows a defined sequence with specific documentation requirements.

Submission: The insurer submits a rate filing that includes the proposed rate change, actuarial memoranda, and supporting data. Filings above the threshold are submitted through the Rate Review System maintained by CMS.
Preliminary review: The reviewing authority — state or federal — determines whether the filing is complete and whether the proposed increase meets the threshold for full review.
Actuarial analysis: Reviewers assess whether the proposed rate is actuarially justified. Key inputs include claims experience, projected medical trend, administrative costs, and the minimum medical loss ratio (MLR) requirement. Under the ACA, individual and small group insurers must spend at least 80% of premium revenue on clinical services and quality improvement (45 CFR §158.210).
Public comment: Federal regulations require a public comment period for rate filings subject to review. Consumers and advocates can submit comments through the CMS Rate Review system.
Determination: Reviewers issue a determination of whether the rate is "unreasonable." In states with binding authority, the commissioner can block or modify the rate. In states with only file-and-use authority, the insurer can implement the rate even if it is found unreasonable, though the finding is disclosed publicly.
Transparency posting: Final determinations and insurer justifications are posted publicly on HealthCare.gov, regardless of whether the state or HHS conducted the review.

The distinction between prior approval and file-and-use authority is the central regulatory variable. Prior approval states require the commissioner to approve a rate before it takes effect; file-and-use states allow implementation upon filing, with post-hoc review possible. The National Association of Insurance Commissioners (NAIC) tracks this variation across state jurisdictions.

Common scenarios

Scenario 1: A large urban insurer requests a 15% increase in the individual market. Because 15% exceeds the 10% threshold, the filing triggers mandatory review. The insurer must document medical cost trends, prescription drug expenditure increases, and any changes in the risk pool composition. If the state has prior approval authority, the commissioner may reduce the proposed increase — for example, approving 11% rather than 15% — based on actuarial deficiencies in the projection.

Scenario 2: A small regional carrier requests a 9% increase. Below the federal threshold, this filing does not trigger mandatory federal rate review. However, some states apply lower thresholds. California, for instance, requires review of all rate changes regardless of percentage, under the authority of the California Department of Managed Health Care and the California Department of Insurance.

Scenario 3: An HMO operating in a multi-state market files different rates in each state. Because rate review is state-administered, each state evaluates the filing independently. The HMO Authority reference resource covers the structural features of health maintenance organizations — including their network architecture and capitation-based payment models — that directly influence how HMO actuaries construct rate filings and justify utilization assumptions.

Plan type significantly shapes the actuarial basis for a rate filing. Exclusive Provider Organization structures, which restrict enrollees to in-network providers without out-of-network benefits, produce different claims cost profiles than broader network plans. The EPO Authority reference resource provides detailed coverage of EPO plan mechanics and network design, which bears directly on how EPO-specific rate filings are constructed and evaluated.

High-deductible health plans present a distinct actuarial scenario because the consumer cost-sharing structure suppresses near-term claims while concentrating exposure in catastrophic events. The HDHP Authority reference resource examines HDHP plan structures, HSA pairing rules, and the cost-sharing dynamics that reviewers must account for when evaluating HDHP rate proposals. These plan-specific variables mean that a flat comparison of premium increases across plan types can be misleading without reference to the underlying benefit design.

Decision boundaries

Rate review authority has defined limits that determine when regulators can act and when they cannot.

Federal review is advisory in non-binding states: HHS can find a rate unreasonable but cannot legally block it in states without prior approval authority. The finding is published, but the insurer may proceed.
ERISA preemption excludes self-funded plans: State rate review laws do not reach self-funded employer plans, which cover a substantial share of the commercially insured population.
Grandfathered plans have reduced obligations: Plans that maintained grandfathered status under the ACA may not be subject to the same rate review requirements as non-grandfathered plans (45 CFR §147.140).
Rate review does not address network adequacy or benefit design: A rate can be actuarially justified and still reflect a narrow network or reduced benefits. The broader framework on how health insurance networks work addresses network adequacy as a separate regulatory domain.
The MLR rebate mechanism functions as a secondary correction: If an insurer collects rates that result in an MLR below the statutory floor, it must issue rebates to policyholders — but this correction happens after the coverage year, not before. The health insurance rate calculation resource covers the actuarial components that underlie both rate filings and MLR calculations.

A comprehensive overview of applicable federal statutes and insurer obligations appears in the federal regulation of health insurance reference, which situates rate review within the broader architecture of ACA and pre-ACA insurance law. The National Health Insurance Authority index provides orientation across the full subject matter covered within this reference network.

References

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)