SECTION 26.11. Restrictions Relating to Premium Rates

(a) A small employer carrier must develop a separate rate manual for each class of business. Base premium rates and new business premium rates charged to small employers by the small employer carrier must be computed solely from the applicable rate manual developed under this subsection. To the extent that a portion of the premium rates charged by a small employer carrier are based on objective criteria established by the small employer carrier consistent with the criteria set out in Insurance Code Chapter 1501 (concerning Health Insurance Portability and Availability Act), the manual must specify the criteria and factors considered by the health carrier in exercising this discretion.

(b) A small employer carrier must file with TDI, at least 60 days before the proposed date of the change, any proposed change to the rating method used in the rate manual for a class of business. The small employer carrier must ensure that the rating method used is actuarially sound and appropriate to ensure compliance with Insurance Code Chapter 1501 and this chapter, and that differences in rates charged for each small employer health benefit plan are reasonable and reflect objective differences in plan design. The commissioner may disapprove a change to the rating method that does not meet the requirements of this chapter. At the expiration of 60 days from the filing of the form with TDI, the proposed change will be deemed compliant unless the commissioner has disapproved it by written order.

(1) The filing must contain at least the following information:

(A) the reasons the change in rating method is being requested;

(B) a complete description of each of the proposed modifications to the rating method;

(C) a description of how the change in rating method would affect the premium rates currently charged to small employers in the class of business, including an estimate from a qualified actuary of the number of groups or individuals and a description of the types of groups or individuals whose premium rates may change by more than 10 percent due to the proposed change in rating method (not including general increases in premium rates applicable to all small employers in a health benefit plan);

(D) a certification from a qualified actuary that the new rating method would be based on objective and credible data and would be actuarially sound and appropriate; and

(E) a certification from a qualified actuary that the proposed change in rating method would not produce premium rates for small employers that would be in violation of Insurance Code Chapter 1501.

(2) For the purpose of this section, a change in rating method means:

(A) a change in the number of case characteristics used by a small employer carrier to determine premium rates for health benefit plans in a class of business;

(B) a change in the manner or procedures by which insureds are assigned into categories for the purpose of applying a case characteristic to determine premium rates for health benefit plans in a class of business;

(C) a change in the method of allocating expenses among health benefit plans in a class of business; or

(D) a change in a rating factor with respect to any case characteristic if the change would produce a change in premium for any small employer that exceeds 10 percent. For the purpose of this paragraph, a change in a rating factor means the cumulative change with respect to the factor considered over a 12-month period. If a small employer carrier changes rating factors with respect to more than one case characteristic in a 12-month period, the health carrier must consider the cumulative effect of all the changes in applying the 10 percent test under this paragraph.

(c) Each rate manual developed under subsection (a) of this section must specify the case characteristics and rate factors to be applied by the small employer carrier in establishing premium rates for the class of business.

(1) A small employer may not use case characteristics other than those specified in Insurance Code §1501.210 (concerning Premium Rates: Nondiscrimination), without the prior approval of the commissioner. A small employer carrier seeking approval must file for a change in rating method under subsection (b) of this section with the commissioner.

(2) A small employer carrier must use the same case characteristics in establishing premium rates for each health benefit plan in a class of business and must apply them in the same manner in establishing premium rates for each health benefit plan. Case characteristics may include the employer's industry classification consistent with Insurance Code §1501.208 (concerning Premium Rates: Industry Classification). Case characteristics must be applied without regard to the risk characteristics of a small employer.

(3) The rate manual developed under subsection (a) of this section must clearly illustrate the relationship among the base premium rates charged for each health benefit plan in the class of business. If the new business premium rate is different from the base premium rate for a health benefit plan, the rate manual must illustrate the difference.

(4) Differences among base premium rates for health benefit plans must be based solely on the reasonable and objective differences in the design and benefits of the health benefit plans and may not be based in any way on the actual or expected health-status-related factors of the small employer groups that choose or are expected to choose a particular health benefit plan. A small employer carrier must apply case characteristics and rate factors within a class of business in a manner that ensures that premium differences among health benefit plans for identical small employer groups vary only due to reasonable and objective differences in the design and benefits of the health benefit plans and are not due to the actual or expected health-status-related factors of the small employer groups that choose or are expected to choose a particular health benefit plan.

(5) Each rate manual developed under subsection (a) of this section must provide for premium rates to be developed in a two-step process. In the first step, the small employer carrier must develop a base premium rate for the small employer group without regard to any risk characteristics of the group. In the second step, the small employer carrier may adjust the resulting base premium rate by the risk load of the group, subject to the provisions of Insurance Code Chapter 1501, to reflect the risk characteristics of the group.

(6) Except as provided in this subsection, a premium charged to a small employer for a health benefit plan may not include a separate application fee, underwriting fee, or any other separate fee or charge. A small employer carrier may charge a separate fee with respect to a health benefit plan (but only one fee with respect to each plan) provided the fee is no more than $5 per month per covered employee and that the fee is applied in a uniform manner to each health benefit plan in a class of business.

(7) A small employer carrier must allocate administrative expenses to the small employer health benefit plans on no less favorable a basis than expenses are allocated to other health benefit plans in the class of business. The rate manual developed under subsection (a) of this section must describe the method of allocating administrative expenses to the health benefit plans in the class of business for which the manual was developed.

(8) The health carrier must retain each rate manual developed under subsection (a) of this section for a period of six years, including all updates and changes.

(9) Each rate manual and the rating practices of a small employer carrier must comply with any applicable rules.

(d) If a small employer carrier uses the number of employees and dependents of a small employer as a case characteristic, the highest rate factor associated with a classification based on the number of employees and dependents of a small employer may not exceed the lowest rate factor associated with the classification by more than 20 percent.

(e) The restrictions related to changes in premium rates in Insurance Code Chapter 1501 must be applied as follows.

(1) A small employer carrier must revise its rate manuals each rating period to reflect changes in base premium rates and changes in new business premium rates.

(2) If, for any health benefit plan with respect to any rating period, the percentage change in the new business premium rate is less than or the same as the percentage change in the base premium rate, the change in the new business premium rate will be deemed to be the change in the base premium rate for the purposes of Insurance Code Chapter 1501.

(3) If, for any health benefit plan with respect to any rating period, the percentage change in the new business premium rate exceeds the percentage change in the base premium rate, the health benefit plan will be considered a health benefit plan into which the small employer carrier is no longer enrolling new small employers for the purposes of Insurance Code Chapter 1501.

(4) If, for any rating period, the change in the new business premium rate for a health benefit plan differs from the change in the new business premium rate for any other health benefit plan in the same class of business by more than 20 percent, the health carrier must make a filing with the commissioner containing a complete explanation of how the respective changes in new business premium rates were established and the reason for the difference. The filing must be made at least 60 days before the beginning of the rating period during which the change is applicable. The filing allows the commissioner to determine whether the methodology is actuarially sound and appropriate to ensure compliance with Insurance Code Chapter 1501.

(5) A small employer carrier must keep the calculations used to determine the change in base premium rates and new business premium rates for each health benefit plan for each rating period for six years.

(f) Changes in premium rates and revised premium rates must comply with the following.

(1) Except as provided in subsection (e) of this section, a change in premium rate for a small employer must produce a revised premium rate that is no more than the base premium rate for the small employer (as shown in the rate manual as revised for the rating period), multiplied by one plus the sum of:

(A) the risk load applicable to the small employer during the previous rating period; and

(B) 15 percent (prorated for periods of less than one year).

(2) In the case of a health benefit plan into which a small employer carrier is no longer enrolling new small employers, a change in premium rate for a small employer must produce a revised premium rate that is no more than the base premium rate for the small employer (given its present composition and as shown in the rate manual in effect for the small employer at the beginning of the previous rating period), multiplied by one plus the lesser of:

(A) the change in the base rate; or

(B) the percentage change in the new business premium for the most similar health benefit plan into which the small employer carrier is enrolling new small employers, multiplied by one plus the sum of:

(i) the risk load applicable to the small employer during the previous rating period; and

(ii) 15 percent (prorated for periods of less than one year).

(3) In the case of a health benefit plan described in Insurance Code §1501.208, if the current premium rate for the health benefit plan exceeds the ranges set forth in Insurance Code §1501.204 (concerning Index Rates), the formulae set forth in paragraphs (1) and (2) of this subsection will be applied as if the 15 percent adjustment provided in paragraphs (1)(B) and (2)(B)(ii) of this subsection were a 0 percent adjustment.

(4) Notwithstanding the provisions of paragraphs (1) and (2) of this subsection, a change in premium rate for a small employer may not produce a revised premium rate that would exceed the limitations on rates provided in Insurance Code §1501.204.

(g) An HMO offering any state-approved, federally qualified plan described in Insurance Code §1501.255 (concerning Health Maintenance Organization Plans) and §26.14 of this title (relating to Coverage) must establish premium rates for those plans in accordance with formulae or schedules of charges filed with TDI under the procedures set forth in Insurance Code Chapter 1271 (concerning Benefits Provided by Health Maintenance Organizations; Evidence of Coverage; Charges) and Chapter 11, Subchapter H of this title (relating to Schedule of Charges). An HMO must follow the rating requirements set out in this section for any plan it offers that is not federally qualified.

(h) An HMO participating in a purchasing cooperative that provides employees of small employers a choice of benefit plans, which has established a separate class of business as provided by Insurance Code §1501.202 (concerning Establishment of Classes of Business) and §1501.203 (concerning Establishment of Classes of Business on Certain Bases Prohibited), and a separate line of business as provided under Insurance Code §1501.255 and 42 U.S.C. §§300e et seq. (concerning Health Maintenance Organizations), may use rating methods in accordance with this subchapter that are used by other small employer carriers participating in the same purchasing cooperative, including rating by age and gender.

(i) When seeking to obtain information relating to a small employer group, including the risk characteristics of the small employer group, a small employer carrier must comply with §26.13(l) of this title (relating to Fair Marketing).

Source Note: The provisions of this §26.11 adopted to be effective December 30, 1993, 18 TexReg 9375; amended to be effective April 9, 1996, 21 TexReg 2648; amended to be effective March 5, 1998, 23 TexReg 2297; amended to be effective April 6, 2005, 30 TexReg 1931; amended to be effective May 17, 2017, 42 TexReg 2539