New York's individual-market carriers filed for an average 13% rate increase for 2026; the Department of Financial Services approved an average of 7.1%, a 47.4% cut to the requested increase (DFS, August 2025). Small-group requests fell 45.8%. DFS credits the two decisions with $959 million in combined savings, and the mechanism behind that number is prior-approval rate review: a regulator's actuarial staff overriding a carrier's filed trend and margin assumptions before a policy is ever sold.

DFS pegged individual-market savings at $148.2 million and small-group savings at $810.8 million, covering roughly 930,000 New Yorkers in the two markets (DFS, August 2025). Individual carriers had asked for increases ranging from 1% (Emblem Health) to 38% (Independent Health), and DFS held insurers' profit provisions to 1.0% across the board. The department's own language frames the decision as consumer protection: "the rising cost of medical care, including in-patient hospital stays as well as rapid increases in drug prices, continues to be the main driver of health insurance premium increases," DFS said, while asserting the filed rates went beyond what that cost trend justified (DFS, August 2025). What the release does not address is what happens to the actuarial risk carriers absorb when a state regulator, not the filing actuary, sets the final trend and margin embedded in a rate.

How Prior Approval Lets a Regulator Rewrite the Actuarial Memorandum

New York has operated under a prior-approval statute since 2010, which authorizes DFS to "disapprove or modify an insurer's request for a premium rate increase if it is unreasonable, excessive, inadequate or unfairly discriminatory" (DFS Rate Review FAQ). That is a broader grant of authority than a market-conduct examination or a rebate clawback after the fact. It lets the department's actuaries reach into the filing before a single premium is collected and change the inputs a carrier's own actuary selected: the medical trend assumption, the utilization projection, the administrative expense load, and the underwriting margin. In practice DFS reviews the insurer's medical loss ratio performance in the prior year, historical claims and utilization patterns, the carrier's rate-change history, its financial condition, and the trend rate the filing assumes going forward, then compares those inputs against external benchmarks before deciding what trend and margin the approved rate will actually reflect (DFS Rate Review FAQ). The insurer's actuarial memorandum, built under Actuarial Standard of Practice methodology and signed by a credentialed actuary, is the starting point for negotiation, not the final word. When DFS lands on 7.1% against a filed 13%, it is not shaving a few basis points off an expense load; it is asserting that the filing actuary's central trend estimate was materially too high, market-wide, across every carrier's book.

The Filed-to-Approved Spread by Carrier

The width of the cut is not uniform, which is itself informative. Individual-market requests spanned from Emblem Health's 1% to Independent Health's 38% (DFS, August 2025), a 37-point range in what carriers believed their own morbidity and trend data supported before regulatory review. A spread that wide across carriers competing in the same risk pool implies either genuinely divergent underlying experience or genuinely divergent actuarial philosophy about how much margin a filing should carry into an uncertain year. DFS's near-uniform application of a roughly 45-to-47-percent haircut across both markets, rather than a carrier-specific adjustment matched to each filing's stated justification, is the detail an actuary reviewing the release should sit with longest.

Metric Individual Market Small-Group Market
Average requested increase 13% Not separately disclosed by DFS
Reduction applied to requests 47.4% 45.8%
Approved average increase 7.1% Not separately disclosed by DFS
Claimed consumer savings $148.2 million $810.8 million
Enrollees affected (combined) ~930,000

A near-halving of the requested increase, applied across markets with genuinely different risk pools and morbidity profiles, is not the outcome an independent actuarial review of each carrier's specific data would typically produce unless every filing shared a common, correctable error. DFS's public materials do not disclose whether the reduction was driven primarily by a trend adjustment, a margin cut, or an administrative expense disallowance, and that opacity is itself an actuarial problem: a carrier cannot recalibrate next year's filing methodology against a decision it cannot decompose.

What a Rate Cut Does to Reserve and Solvency Risk

An approved rate that undercuts a carrier's filed indication does not eliminate the underlying claims cost the filing was built to cover; it shifts who absorbs the gap. If DFS's 7.1% approval is closer to the true cost trend than the carrier's filed 13%, the carrier over-reserved and over-priced, and the cut is a legitimate correction. If the carrier's 13% was closer to true trend, and the aggregate NAIC and industry data on 2026-2027 medical cost trend, running at a 10% median for the coming plan year (KFF/Peterson-KFF Health System Tracker, 2026), do not obviously support a trend assumption 45% lower than what carriers filed, then the approved rate is running below the cost curve. That gap does not vanish. It shows up as adverse loss-ratio development against the priced-for margin, erosion of statutory surplus built up in prior years, or a wider filed-versus-approved gap the following year as carriers attempt to recoup the shortfall through an even larger request. New York's small-group and individual carriers are not permitted to walk away from a market where DFS has set the rate below the carrier's own indication; ACA guaranteed-issue and guaranteed-renewability rules keep them writing the business. That combination, a regulator with statutory authority to cut the price and a market structure that prevents the carrier from exiting in response, is precisely the setup actuaries in file-and-use states do not face, and it is why prior-approval jurisdictions carry a distinct rate-adequacy risk that a simple savings headline does not capture.

The MLR Rebate Trap: A Cut Rate Can Still Force a Refund

The interaction between a regulator-cut rate and the medical loss ratio rebate floor is where the rate-adequacy question becomes concrete. Federal law sets an 80% MLR floor for individual and small-group plans and 85% for large group (CMS MLR Final Rule), and New York's own standard runs two points higher, requiring individual and small-group carriers to direct at least 82% of premium to claims and quality improvement (DFS Rate Review FAQ). Insurers nationally expect to issue just over $759 million in MLR rebates in 2026, calculated on the rolling three-year average of 2023 through 2025 experience (KFF, 2026). A carrier whose filed rate assumed a given trend and administrative load, cut nearly in half by DFS, faces a mechanical squeeze on that MLR calculation from both directions. If claims trend runs closer to the carrier's original filing than to DFS's approved assumption, actual claims costs consume a larger share of the (now smaller) approved premium than the carrier planned, pushing the realized MLR up and administrative margin down, which can itself trigger examination scrutiny even without a rebate. But if the cut rate proves adequate and claims come in as DFS projected, the carrier's administrative and profit retention is capped at roughly 18% of premium under the 82% floor, meaning DFS has already spent the negotiating room a carrier might otherwise use to absorb a bad trend year. Either outcome leaves less margin for error than the carrier's own filing built in, and the MLR floor means a state that cuts the rate has also compressed the cushion that would normally buffer year-to-year trend volatility.

Prior Approval, File-and-Use, and Why the Same Memorandum Lands Differently

State rate-review authority splits into three structural models tracked by the NAIC's Product Filing Review framework. Under prior approval, a carrier's rates must be affirmatively approved by the regulator before they can take effect, sometimes subject to a deemer provision if the department misses a statutory review window. Under file-and-use, rates take effect on filing, with the regulator retaining authority to disapprove them after the fact. Under use-and-file, the carrier can price and sell first, then file the justification within a set period afterward. The same actuarial memorandum, built on the same claims experience and the same trend methodology, produces materially different outcomes depending on which model applies. A carrier operating in a file-and-use state prices to its own actuary's judgment and carries the risk of a post-hoc regulatory challenge; a carrier operating under New York's prior-approval statute prices to whatever the regulator's actuaries will accept before the policy year begins, with no revenue collected under the filed number in the interim. Illinois moved toward New York's model for 2026: under P.A. 103-0106, the state's insurance department gained authority, for the first time, to approve, disapprove, or modify individual and small-group health rates effective for plan years beginning January 1, 2026 (Illinois Administrative Code Title 50, Part 2026). actuary.info's coverage of that transition found Illinois regulators exercising the new authority in their first cycle much as New York does, modifying carrier-filed indications rather than simply accepting or rejecting them outright, a pattern consistent with what a newly empowered prior-approval regulator does with its first year of discretion. For a carrier writing across both prior-approval and file-and-use states, the actuarial memorandum cannot be a single national document with state-specific cover pages. The trend, margin, and contingency assumptions that will simply be accepted in a file-and-use jurisdiction need a defensible, granular justification in a prior-approval one, because the regulator's staff actuaries are going to test each assumption individually rather than evaluate the bottom-line rate change in isolation.

What a Filing Actuary Can and Cannot Do Once the Regulator Sets the Number

An actuary defending a rate filing under prior approval retains real leverage over the inputs, even when the department holds final authority over the output. Documentation depth is the primary lever: a filing that shows carrier-specific claims experience, credible utilization trend by service category, and a clear reconciliation to the prior year's actual-versus-expected results gives DFS's reviewing actuaries less room to substitute a market-average trend assumption for the carrier's own. A filing that leans on generic trend benchmarks without carrier-specific support invites exactly the kind of across-the-board haircut the 2026 decisions show. What a filing actuary cannot do is appeal past the point the statute allows, or treat the approved rate as advisory. Once DFS issues its decision, the carrier prices, sells, and reserves against the approved number, not the filed one, for the full policy year regardless of how the actuarial memorandum's original trend assumption plays out against actual experience. The professional obligation shifts at that point from rate justification to honest reserve-setting: an appointed actuary certifying year-end reserves for a New York individual or small-group book needs to reflect the approved rate's adequacy, or lack of it, against emerging claims experience, not the filing's original indication. Continuing to reserve as though the filed 13% trend were still operative, after DFS approved 7.1%, would misstate the liability the carrier actually holds. The gap between what a carrier believed it needed and what the regulator allowed it to charge becomes, from the moment of approval, a fact the reserving actuary must work around rather than argue against.

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