(1) Premium rates for health benefit plans subject to this chapter shall be subject to the following provisions:

(a) The index rate for a rating period for any class of business shall not exceed the index rate for any other class of business by more than twenty percent (20%).

(b) For a class of business, the premium rates charged during a rating period to small employers with similar case characteristics for the same or similar coverage, or the rates that could be charged to such employers under the rating system for that class of business, shall not vary from the index rate by more than twenty-five percent (25%) of the index rate.

(c) The percentage increase in the premium rate charged to a small employer for a new rating period may not exceed the sum of the following:

(i) The percentage change in the new business premium rate measured from the first day of the prior rating period to the first day of the new rating period. In the case of a class of business into which the small employer carrier is no longer enrolling new small employers, the small employer carrier shall use the percentage change in the base premium rate;

(ii) Any adjustment, not to exceed fifteen percent (15%) annually and adjusted pro rata for rating periods of less than one (1) year, due to the claim experience, health status or duration of coverage of the employees or dependents of the small employer as determined from the small employer carrier’s rate manual for the class of business; and

(iii) Any adjustment due to change in coverage or change in the case characteristics of the small employer, as determined from the small employer carrier’s rate manual for the class of business.

(d) Adjustments in rates for claim experience, health status and duration of coverage shall not be charged to individual employees or dependents. Any such adjustment shall be applied uniformly to the rates charged for all employees and dependents of the small employer.

(e) In the case of health benefit plans issued prior to January 1, 1995, a premium rate for a rating period may exceed the ranges set forth in paragraphs (a) and (b) of this subsection until January 1, 1996. In such case, the percentage increase in the premium rate charged to a small employer in such a class of business for a new rating period shall not exceed the sum of the following:

(i) The percentage change in the new business premium rate measured from the first day of the prior rating period to the first day of the new rating period. In the case of a class of business into which the small employer carrier is no longer enrolling new small employers, the small employer carrier shall use the percentage change in the base premium rate;

(ii) Any adjustment due to change in coverage or change in the case characteristics of the small employer, as determined from the carrier’s rate manual for the class of business; and

(iii) Any adjustment needed to bring the premium rate of a small employer to the base premium rate for that class of business.

(f) If an employer not meeting the definition of “small employer” on the date of issue or last renewal of its plan falls within such definition on a subsequent renewal date, and its premium rate is less than the base premium rate for the small employer class of business into which it is assigned, the employer’s rate shall be the base premium rate for that class of business.

(g) Nothing in this section is intended to affect the use by a small employer carrier of legitimate rating factors other than claim experience, health status or duration of coverage in the determination of premium rates. Small employer carriers shall apply rating factors, including case characteristics, consistently with respect to all small employers in a class of business.

(h) The commissioner may establish regulations to implement the provisions of this section and to assure that rating practices used by small employer carriers are consistent with the purposes of this chapter, including:

(i) Assuring that differences in rates charged for health benefit plans by small employer carriers are reasonable and reflect objective differences in plan design, not including differences due to the nature of the groups assumed to select particular health benefit plans; and

(ii) Prescribing the manner in which case characteristics may be used by small employer carriers.

(2) A small employer carrier shall not transfer a small employer involuntarily into or out of a class of business. A small employer carrier shall not offer to transfer a small employer into or out of a class of business unless such offer is made to transfer all small employers in the class of business without regard to case characteristics, claim experience, health status or duration of coverage.

(3) The commissioner may suspend for a specified period the application of subsection (1)(a) as to the premium rates applicable to one or more small employers included within a class of business of a small employer carrier for one or more rating periods upon a filing by the small employer carrier and a finding by the commissioner either that the suspension is reasonable in light of the financial condition of the small employer carrier or that the suspension would enhance the efficiency and fairness of the marketplace for small employer health insurance.