Welcome to
Rate Review Training for Advocates
Sponsored by Consumers Union and Robert Wood Johnson Foundation
If you haven’t done so already,
to hear audio please dial:
(805) 399-1200 Code:275255#
Agenda
Welcome
Lynn Quincy Consumers
Union
Why 2015 Health Insurance Rates Need Scrutiny
Jay Angoff Mehri &
Skalet
What is a Rate? What is a Rate filing?
Jay Angoff
Key Parts of the Filing:
Medical Claims and Trend
Administrative Expenses
Profit and Surplus
How Consumer Groups Can Participate
Real Stories from State Advocates
Various
Why CMS Need to Hear From Us
Jay Angoff
Q&A
Jay Angoff and others
Wrap Up & Next Steps
Betsy Imholz
Consumers Union
Housekeeping Rules
• During Q&A, phones will be unmuted but please
personally mute your phone unless you are speaking.
• Please queue up your questions in the chat featurewe will try to get to as many as possible
• Please do NOT put us on hold – everyone will hear
your hold music.
Rate Review for Non-Actuaries
Taking the Mystery out of Actuarial Analysis and
the Insurance Rate-setting Process
4
Jay Angoff
Mehri & Skalet, PLLC
April 9 and 10, 2014
Taking the Mystery out of the Rate Making
Process: Structure of the Webinar
I. What a rate filing is and what’s in it
• Elements of the rate filing and the issues they raise
II. Consumer Participation in the rate review process
• Making rate-filings public
• Seeking hearings
• Participating in process to the maximum extent state
allows
5
What is a rate filing?
A rate filing is a series of documents
containing
the information justifying, or purporting to
justify, the rates the insurer seeks to charge.
6
• Pre-ACA Rate Filings:
No mandated format
but
Key document: Actuarial Memorandum
• ACA Rate Filings:
3 Parts,
but still
Key document: Actuarial Memorandum
7
What is the Actuarial Memorandum?
• Narrative explaining the different steps that go into
calculating the rate
• Lots of Exhibits showing the data, assumptions, and
calculations at each step
• A summary sheet showing how the steps fit together
8
9
Rate vs. Premium
Rating factors
(if allowed by State):
Age
Base Rate
(justification
applies to this)
X
Geography
=
Final
Premium
Tobacco
# of covered
family members
10
What Goes Into a Rate?
11
Key elements of the rate filing--Trend
• What is it? Rate of increase in medical costs
• What is it applied to? Amount paid out in past years
• How is it determined? Hard data, assumptions, estimates,
predictions, “actuarial judgment”
• What are its different elements?
•
•
•
•
Unit cost trend
Change in utilization
Deductible leveraging
New benefits
12
Deductible Leveraging Example:
Provider Payment Increases from $2,500 to $3,000
$3,500
$3,000
$2,500
Total
increase
is 16.7%
$2,000
$1,500
$1,000
…but
insurer’s
share is
higher –
20%
$500
$0
2013
2015
Insurer Pays
Deductible 13
How to challenge trend--traditional methods
•Make sure starting point is reasonable
•Make sure data is not cherry-picked. E.g., what is most
reasonable trend for 2014 based on the following:
Table: Average Annual Change In Personal Health Expenditures
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
6.6
8.4
9.7
8.6
7.2
6.8
6.5
6.3
4.7
3.8
3.8
3.6
3.7
Source: National Health Expenditure Data
• Make sure no double counting
14
How to challenge trend--based on ACA
• Has actuary considered provisions that could reduce
rates in 2015? E.g.,
• Delivery system reforms, e.g., ACOs, VBP,
EHR, PFP
• Lower payment to providers
• Healthier 2015 pool
• Weak enforcement
15
Key elements of the rate filing-Administrative expenses
What are they?
• General administrative expenses
• Commissions
• Taxes, licenses and fees
16
How to challenge administrative expenses
• Challenge their accuracy--compare to previous years’ and
Annual Statement data
• Has actuary considered ACA expense-reducing provisions?
• Nature of selling through the Exchange, and individual mandate
• Elimination of underwriting
• Taxpayer-funded marketing
• Likely decline in commissions
• Prevent pass-through of certain types of expenses
17
Key elements of the rate filing--Underwriting
profit
• Underwriting profit may not be necessary, because of
investment income
• “Contingencies” or similar provision not necessary
• Effect of “3 Rs”--Risk-adjustment, reinsurance, riskcorridors
18
Special consideration re non-profit--mainly
Blue Cross--plans
• Surplus : The amount insurers hold over and above
what they project they need to pay claims
• Surplus is good
• But there can be too much of a good thing
• For-profit v. non-profit plans: different standards
may apply
19
“Surplus” versus “Reserves”
• Reserves: a category of funds set aside for projected
claims.
• Surplus: the amount insurers hold over and above
what they project they need to pay claims.
20
How surplus is measured: the RBC ratio
• What is it? Ratio of an insurer’s actual surplus
to the legal minimum it must hold to do
business
• 200% is practical minimum
• 375% is Blue Cross Association minimum
• 500% is informal Blue Cross standard for
“strong” Blue plan
21
2010 RBC Ratios of Selected Non-profit Blue Cross plans
Carrier
Surplus
RBC Ratio
CareFirst (MD, DC)
$2.1 billion
977%
Regence (OR, ID, UT)
$2.0 billion
978%
TN
$1.2 billion
1,023%
$7.9 billion
1,083%
$1.8 billion
1,098%
LA
$1.1 billion
1,099%
FL
$3.1 billion
1,335%
AZ
$.8 billion
1,493%
CA Blue Shield
$3.3 billion
1,512%
MS
$.5 billion
1,683%
HCSC
(IL, TX, OK, NM)
NC
22
The 3 Rs--Risk-Adjustment, Risk Corridors and
Reinsurance
• Concept underlying all three: If an insurer has bad experience,
it gets paid
• Risk-Adjustment: If an insurer’s experience is worse than its
competitors it gets paid by its competitors
• Risk Corridors: If an insurer’s experience is worse than it
predicted it gets paid by the government
• Reinsurance: If an insurer has high cost claims it gets paid from
a pool funded by small and large group insurers, administrators
of self-insured plans, and other individual insurers
23
How Consumer Groups
Can Participate in the
Rate Review Process
24
Effective Rate Review Programs
• States with Effective Rate Review Programs, as
found by HHS, review proposed rate increases ≥
10%; in states without Effective Rate Review
Programs HHS reviews rates proposed rate increases
≥ 10%.
• Most states review their own rates
25
What Does it Mean to Have an “Effective”
Rate Review Program?
• Under the ACA, having an “effective” rate review
process only means the state satisfies HHS’s requisite
process for receiving and evaluating rate filings.
• “Effective” rate review does not mean that the state
or the Federal government will probe deeply on rates
or has the capacity to block an unreasonable rate
increase.
26
ACA authorizes rate review, not rate
disapproval
The federal rules do not authorize HHS to
disapprove unreasonable rates, nor do they
authorize any state to do so that does not already
have such authority.
27
How consumer groups can participate in the rate
review process
•
Try to make rate filings public
• That are filed with HHS
• That are filed with state DOI’s
•
How?
•
•
•
•
•
Letters
FOIA request
In-person meetings
Press
Direct action
• See Trade Secret Memo
28
HHS has the power to make rate
filings in all states public
29
How consumer groups can participate in the
rate review process
• Try to get the DOI or HHS to hold a hearing
• In many states person aggrieved has right to a
hearing
• In essentially all states Commissioner has discretion
to hold a hearing
30
What Type of State Are You In?
Type
Rate Justification
Public ?
1
No
Holds
Hearings?
No
2
Yes
No
3
No
Yes
4
Yes
Yes
31
How consumer groups can participate in the
rate review process
Even in least consumer-friendly states (Type 1 states):
• File comments
• If justified, challenge whatever in the rate filing is
public based on publicly-available data. E.g.,
• To challenge trend--use public data on
trend
• To challenge expenses--use Annual
Statement data on expenses
• To challenge underwriting profit--calculate total
rate of return based on Annual Statement data
32
How consumer groups can participate in the rate
review process
Even in least consumer-friendly states (Type 1 states):
• Ask for description/explanation of non-public
information
• Ask AG or ICA to intervene
• Press
33
Lemons into Lemonade
• Even in the most recalcitrant states, advocates should
urge:
• 3Rs be considered as mitigating
• Accurate trend for 2015 (with no double counting).
• No underwriting profit for non-profit plans with excess
surplus
34
How consumer groups can participate in the
rate review process
Where the state has made the rate filing public, but declines
to hold a hearing (Type 2 states):
• Consumer groups can take same steps as in least consumer
friendly states
and
• Do their own analysis of the filing and submit it to the
Department
35
How consumer groups can participate in the
rate review process
Where the state has declined to make the rate filing public,
but holds a hearing (Type 3 states):
•Petition to participate in the hearing, and in particular
• To send out information requests
• To submit evidence and argument
• To question witnesses
•Participate to maximum extent permitted by the Department
36
How consumer groups can participate in the
rate review process
Where the state both makes the rate filing public, and holds a
hearing (Type 4 states):
• Consumer groups can do everything they can do in the three
less consumer-friendly types of states
plus
• Question the actuary based on data disclosed in the Actuarial
Memorandum
• Recommend that the rate be reduced based on data disclosed in
the Actuarial Memorandum
37
Additional Materials to Help:
On: consumersunion.org/ratereview
• Exhibit A: 50 State Overview: Statutes, Type of Rate Review
•
•
•
and Public Participation
Exhibit B: 50 State Overview: Conditions under which Rate
Review Hearings Held
Exhibit C: 50 State Overview: Public Access to Rate Filing
Exhibit D: 50 State Overview: Opportunity to Comment per
DOI
Exhibit E: State Decisions Renewing Non-Compliant Plans
Exhibit F: Trade Secret Legal Memo
•
•
And more to come…
Acknowledgements
• Extensive review by Consumers Union
• Sponsored by Consumers Union and the Robert
Wood Johnson Foundation
39
State Advocates
Share Their Stories
Q&A
Wrap Up & Next Steps