Q1. What are Affordability Standards?
Affordability standards are requirements that health plans regulated by the state Department of Insurance must meet. These standards may cap the amount premiums may increase and/or limit how much insurers can increase payment rates to providers. States that have implemented affordability standards have also used them to further other policy goals like increasing the percentage of spending on primary care and requiring the use of more alternative payment models, including capitation models and models that include quality incentive payments.
Q2. How do most states currently review health insurance plans?
Currently, the authority of state DOIs to review health insurance plans falls into two broad categories:
- “prior approval” authority that requires insurers to file proposed rates and supporting documentation with the DOI and obtain approval before selling plans in the market, and
- “file and use” authority that requires insurers to file proposed rates but allows insurers to sell those plans without further review.
States that want to implement affordability standards must grant their insurance commissioner prior approval authority and then include a public interest or affordability standard as part of the review criteria.
Q3. What are typical affordability standards?
Under provider rate review, affordability standards typically limit the increase in allowed provider rates. Specifically, in Rhode Island, a contract between a hospital and an insurer must be approved by the Office of the Health Insurance Commissioner if the average rate increase exceeds the Consumer Price Index for Urban Consumers (less Food and Energy), “Core CPI-U”, minus 1% OR if less than 50% of the average rate increase is for quality incentive payments. In Delaware, no health insurer can submit a rate filing where the aggregate unit price increase for non-professional services exceeds a rate pegged to the Core CPI-U (see table); for 2022, that rate increase is the greater of 3% or Core CPI +1%.
Rhode Island recognized that restricting allowed increases to a percentage of existing rates disadvantaged hospitals with historically lower rates. In 2020, OHIC modified the hospital affordability standards and gave hospitals with below-median prices the opportunity to increase their base rates if they meet specific quality requirements.
In addition to these rate restrictions, the affordability standards in both Delaware and Rhode Island set minimum payments by the insurers on primary care and required increased use of alternative payment models.
Q4. Do affordability standards apply to all insurance plans?
No – the affordability standards only apply to insurance plans that the DOI has the authority to review. Federal ERISA law deems self-funded employer plans exempt from regulation by state officials, so state affordability standards likely will not apply to self-funded plans. Furthermore, state DOIs typically do not review state Medicaid plans, so Medicaid Managed Care plans would likely be exempt from affordability standards.Consequently, affordability standards only apply to commercial, fully-insured health plans. Nationwide, only a third of plans offered by employers are fully-insured and in some states, a report from AHIP found that more than 70% of employer plans were self-funded in Delaware, Indiana, Nebraska, North Carolina, and Ohio. Nevertheless, if self-funded employers use third-party administrators (TPAs) to administer their plans and if insurance companies negotiate their TPA and fully-funded products together, the effects of the affordability standards may spillover into self-funded plans. Additionally, state Medicaid agencies could partner with the DOI to apply similar affordability standards for Medicaid managed care products.
 In most states, all insurance is regulated by the Department of Insurance (DOI). In 2004, Rhode Island separated the regulation of the state’s health insurance industry from other insurance products and created the Office of the Health Insurance Commissioner (OHIC). Other insurance products in Rhode Island, including life and car insurance, are regulated by the Department of Business Regulation. On this page, when we say DOI, we also include OHIC in Rhode Island, unless otherwise noted.
- Johanna Butler, Insurance Rate Review as a Hospital Cost Containment Tool: Rhode Island’s Experience (NASHP Feb. 2021). NASHP also wrote model legislation and regulations for states to implement rate-review authority with affordability standards.
- Ann Hwang Amy M. Lischko, Tom Betlach, and Michael H. Bailit, State Strategies for Slowing Health Care Cost Growth in the Commercial Market: Strategy 6. Strengthen Health Insurance Rate Review, (The Commonwealth Fund, Feb. 2022)
- Rachel Block, Rhode Island’s Updated Affordability Standards Support Behavioral Health and Alternative Payment Models (Milbank Memorial Fund June 2020)
- Aaron Baum, Zirui Song, Bruce E. Landon, Russell S. Phillips, Asaf Bitton, and Sanjay Basu, Health Care Spending Slowed After Rhode Island Applied Affordability Standards to Commercial Insurers (Health Affairs, Feb. 2019)
- Office of Value-based Health Care Delivery, An Integrated Approach To Improve Access, Quality And Value (Delaware DOI, Feb. 2021)
- Office of Value-based Health Care Delivery, Annual Review Of Carrier Progress Towards Meeting Affordability Standards (Delaware DOI, Dec. 2021)