What Can an Insurer Use to Rate Your Group in Illinois

An issuer rating your Illinois small group may vary the rate on four things, and only four: whether the coverage covers an individual or a family, the rating area, age, and tobacco use. That is not a summary of common practice. It is the text of a federal regulation that names those four and then, in the next paragraph, forbids everything else.

Most of what employers expect to be priced in is not on the list. Your claims last year are not. Anyone’s health is not. Gender, industry and how long the group has been covered are not. Understanding why requires reading two short paragraphs together rather than one.

The list, and the sentence that closes it

45 CFR 147.102, “Fair health insurance premiums,” opens by naming what a rate may vary on for coverage offered in the individual or small group market:

“(1) The rate may vary with respect to the particular plan or coverage involved only by determining the following: (i) Whether the plan or coverage covers an individual or family. (ii) Rating area, as established in accordance with paragraph (b) of this section. … (iii) Age … (iv) Subject to section 2705 of the Public Health Service Act and its implementing regulations …, tobacco use …”

Then comes the paragraph that does the real work:

“(2) The rate must not vary with respect to the particular plan or coverage involved by any other factor not described in paragraph (a)(1) of this section.”

Paragraph (a)(1) is permissive and paragraph (a)(2) is exhaustive. Read alone, (a)(1) sounds like a list of things that are allowed among others. Read with (a)(2), it is a closed set, and everything outside it is prohibited by the same rule that permits what is inside it.

Individual or family

The first factor is the least controversial and the easiest to misdescribe. The regulation permits the rate to vary on “whether the plan or coverage covers an individual or family.” That is a fact about the tier of coverage a given enrollee elects, not a judgment about the enrollee, and it is why a census with the same headcount can produce different totals depending on how enrollment falls across tiers.

Rating area — your address, not your employees’ addresses

The second factor is the one that most often surprises an Illinois employer with a dispersed workforce, and the regulation is unusually specific about it:

“In the small group market, using the group policyholder’s principal business address. For purposes of this paragraph (a)(1)(ii)(B), principal business address means the principal business address registered with the State or, if a principal business address is not registered with the State, or is registered solely for purposes of service of process and is not a substantial worksite for the policyholder’s business, the business address within the State where the greatest number of employees of such policyholder works.”

The group policyholder is the employer. So the rating geography follows the employer’s own principal business address. Where employees live does not set it, and where any individual employee works does not set it either, except through the cascade the regulation itself spells out — and through one narrow further fallback, for a network plan whose service area does not contain the policyholder’s principal business address, where the rule looks to the business address inside the service area with the greatest number of employees, and failing that to where the greatest number of employees within the service area live or reside.

In Illinois that address resolves to a county. CMS publishes 13 geographic rating areas for the Illinois individual and small-group market, and the published table carries 102 county rows for Illinois’s 102 counties, each assigned to exactly one area. 45 CFR 147.102(b)(3) permits a state to draw rating areas on “counties, three-digit zip codes, or metropolitan statistical areas and non-metropolitan statistical areas, as defined by the Office of Management and Budget.” Illinois chose counties — which is why the three-digit zip code column on the CMS table is empty on all 102 rows. A zip code does not determine an Illinois rating area.

Age and tobacco use, named without their bands

The third and fourth factors are the two that attach to individuals rather than to the group.

Age is permitted under 45 CFR 147.102(a)(1)(iii), within a maximum ratio the regulation states, and with the variation for individuals under age 21 required to be actuarially justified and consistent with the uniform age rating curve the rule provides. The regulation also allows each state to establish a uniform age rating curve in the individual or small group market, or both.

Tobacco use is permitted, subject to section 2705 of the Public Health Service Act and its implementing regulations, within a maximum ratio the regulation also states, and only as to individuals who may legally use tobacco under federal and state law.

The ratios themselves are deliberately not printed here. They are filing-level figures, they are not something an employer can act on, and a number on a page like this one has a way of being read as a quote. What an employer can act on is the fact that both are on the closed list, and that neither can be used to reach past the list.

What the closing clause takes off the table

The value of (a)(2) is everything it removes without naming it. A rate may not vary by any factor not described in (a)(1), which means:

• not the group’s claim experience, whatever last year looked like;
• not the health status of any employee or dependent;
• not gender;
• not industry or occupation;
• not how long the group has been covered.

This is the answer to the most common worry in a first renewal conversation. An employer who has had an expensive year often arrives expecting to be punished for it in the rate. Under the rule that governs small-group rating, the expensive year is not one of the four things the rate may vary on.

The single risk pool underneath the four factors

One more federal provision sits beneath the list and explains its logic. 42 U.S.C. 18032(c)(2) provides:

“(2) Small group market. A health insurance issuer shall consider all enrollees in all health plans (other than grandfathered health plans) offered by such issuer in the small group market, including those enrollees who do not enroll in such plans through the Exchange, to be members of a single risk pool.”

Every non-grandfathered small-group enrollee an issuer covers is in one pool, on or off the exchange. A closed list of rating factors and a single risk pool are two halves of the same design: if the pool is single, a rate that moved on a group’s own experience would be pulling against the pooling itself.

The Illinois Act that used to answer this question

Illinois has an Act whose title is exactly on point — the Small Employer Health Insurance Rating Act, 215 ILCS 93 — and it contains a full rating scheme: classes of business at section 20, index rates and bounded renewal increases at section 25, records at section 30, a suspension power at section 35. It has not been repealed. Its text is published and readable, and its section 25 was amended as recently as P.A. 103-154, eff. 6-30-23.

And it does not apply to plans issued today. Its own applicability section says so:

“(b) This Act shall not apply to any health benefit plan for a small employer that is delivered, issued, renewed, or continued in this State on or after January 1, 2022. However, if 42 U.S.C. 18032(c)(2) or any successor law is repealed, then this Act shall apply to each health benefit plan for a small employer that is delivered, issued, renewed, or continued in this State on or after the date that law ceases to apply to such plans.” — 215 ILCS 93/15(b), Source: P.A. 103-426, eff. 8-4-23

The revival condition is the repeal of the single risk pool provision quoted above. That provision is in force. So the condition is not triggered, and the Act’s rating machinery is dormant rather than governing.

This is worth dwelling on, because it is a live hazard for anyone researching Illinois rating law. A reader can find section 25, quote it accurately, cite it perfectly, and publish a description of Illinois small-group rating that does not govern a single ACA-compliant small-group plan issued in the state since the start of 2022. The Act’s own section 15(b) is what settles it, and it settles it without anyone having to argue about which instrument overrides which.

What this means at a renewal

Practically, the closed list narrows the renewal conversation to things you can actually examine. If a renewal is up, the movement has to be explicable through the four permitted factors and through what changed in the plan and the census — a birthday moving an enrollee up the age curve, an enrollment tier changing, a move that changes the principal business address county, a change in the plan itself.

What cannot explain it is a claim about your group’s own experience or anyone’s health, because those may not vary the rate at all. If a renewal is presented to you in those terms, that is a question to ask, and 45 CFR 147.102(a)(2) is the sentence to ask it with.