Bureau of Insurance Review of Anthem 2012 Individual Rate Filing
On April 11, 2012, Anthem filed rates for its individual health insurance plans, to be effective July 1, 2012. In addition to filing new rates for its existing products, Anthem also filed rates for a new product called “HealthChoice Plus,” which will be available on July 1. If you currently have an Anthem individual plan, you will have a choice between renewing your current plan or switching to one of the new HealthChoice Plus plans. For the existing products, the rate change varies significantly by age. It varies from a 17.5% decrease to an 18.2% increase, with the average change being a 1.7% increase.
The average rate increase is much smaller than in recent years, primarily due to the effect of a new reinsurance program created by P.L. 90, described below. For further information on the filing, click here. Or to view or comment on the filing, click here, then click on Search Public Filings and enter the tracking number: AWLP-128240760.
The Bureau’s Review
While the substance of the Bureau’s review of the filing was in many ways similar to previous years, the review process differed significantly from past years due to new state and federal laws. Formerly, under Maine law, an insurer could not implement new rates for individual health plans until those rates had been approved by the Superintendent of Insurance, and there were no federal requirements in this area. Now, under new federal rate review regulations adopted under the Affordable Care Act (ACA), all rate increases averaging 10% or more must be reviewed by regulators. A new Maine law known as P.L. 90 provides that if the insurer agrees to guarantee that it will maintain a medical loss ratio (MLR) of at least 80% - that is, to pay back in claims and quality improvement expenses at least 80% of the premiums it has collected (net of taxes and fees) – then prior approval is only required if the rate increase triggers the federal review requirements.
The relevant features of these new laws are discussed in more detail below. This is the first Anthem individual rate filing that is subject to these laws, and it meets the requirements to be exempt from prior approval. Although no approval by the Bureau is required for this filing, the Bureau reviewed the filing carefully to ensure that the rates comply with all Maine insurance laws, including the requirement that rates not be excessive, inadequate, or unfairly discriminatory. If the Bureau determines that the filed rates do not comply with Maine law, the Bureau will request revised rates that do comply.
The terms used in the rating law mean:
- Rates are excessive if they are unreasonably high in relation to the benefits provided under the coverage. For this filing, the anticipated “pure” loss ratio (claims divided by premiums) is 87.1%. After the required ACA adjustments, the anticipated MLR is 92.1%, which significantly exceeds the required minimum of 80%. The rates are expected to result in a profit of 3% of premiums.
- Rates are inadequate if they are insufficient to sustain projected claims and expenses and will tend to create a monopoly in the market or cause serious financial harm to the insurer.
- Rates are unfairly discriminatory if the premium differences between insureds do not reasonably correspond to differences in expected costs or are based on factors that are prohibited by law. For example, Maine law prohibits charging higher rates for people who have health problems or who have had larger claims.
Some of the specific steps in the review included:
- We reviewed a draft notice to policyholders and provided suggestions to Anthem about making it more informative.
- We posted answers to Frequently Asked Questions on our website.
- We requested more information about how the rates were developed, including medical trend assumptions, commission schedules, past and projected future financial results, and the number of members enrolled in each plan. Anthem requested that this information be held confidential, but the Bureau determined that it is public information under Maine law.
- We verified that the age variations were within the legally allowed range, which is 2 to 1 for the existing plans and 3 to 1 for the new plan that will be available July 1, 2012.
- We verified that the difference in rates for different deductibles did not exceed legal limits established by the Bureau’s Rule 940.
- We reviewed all assumptions for reasonableness and consistency with historical trends. The medical trend assumption is consistent with past experience and with trend assumptions used by other insurers. The administrative expense assumption was also consistent with past assumptions and with Anthem’s actual administrative expenses. One key assumption was the impact of the new reinsurance program discussed below. We found that Anthem’s methodology was appropriate and the resulting estimate was reasonable.
- We reviewed the methodology used to develop the new age factors used in this filing and verified that the changes were revenue neutral.
- We requested the average rate increase for each product, consistent with the requirements of the federal regulation, to determine whether each increase was below the 10% threshold.
Based on our review, we concluded that the proposed rates are not excessive, inadequate, or unfairly discriminatory.
Public Law Chapter 90
P.L. 90 affects this filing and the review process in several ways:
- Under the old law, as discussed above, all rates for individual health policies had to be approved in advance by the Bureau of Insurance before they could be implemented. P.L. 90 eliminates the prior approval requirement if (1) the average rate increase is less than the federal rate review threshold; and (2) the insurer agrees to pay rebates to policyholders if the MLR is below 80%. Anthem met these conditions and therefore the filed rates will be implemented with no approval required. However, as described above, the Bureau has reviewed the filing for compliance with all Maine insurance laws.
- P.L. 90 created a new subsidized reinsurance program that begins July 1, 2012. This reduces the cost of insurance in the individual market by reimbursing insurers for a portion of the claims paid for high-risk individuals. Anthem estimated that its participation in the program will reduce total claims for its individual products by about $11 million, resulting in a much smaller rate increase than would otherwise have been needed. The filing projected that without the reinsurance subsidy the indicated premium increase would have been 21.6%.
- P.L. 90 made the limits on age rating factors less restrictive, consistent with federal standards. This allows Anthem to charge less for younger members and more for older members than under the old law. As a result, younger members receive decreases in their rates, while older members receive larger increases.
- P.L. 90 allows insurers to “close their block” of policies issued prior to July 1, 2012. This means that those policies can be rated separately from newer policies.
For further information about P.L. 90, click here.
Affordable Care Act (ACA)
Federal regulations adopted under the ACA require review of all “potentially unreasonable” rate increases to determine whether the increase is unreasonable. This review is conducted either by the state, if the federal government finds the state to have an effective rate review mechanism, or by the federal government otherwise. Maine was found to have an effective rate review mechanism. The federal regulations currently define a rate increase as potentially unreasonable if the average increase is above 10%. Under P.L. 90, prior rate approval is still required for these increases. However, Anthem’s increase is below the threshold.
The ACA also requires coverage to be sold on a “guaranteed loss ratio” basis. This means that if an insurer fails to meet a required minimum MLR, it must provide rebates to its customers to make up the difference. For these purposes, an insurer’s MLR is calculated by dividing the claims paid, plus amounts paid for activities that improve health care quality, by the premium collected, net of taxes and fees. For the individual market in Maine, the minimum MLR is currently 65%. However, as noted earlier, Anthem has agreed to guarantee an 80% MLR.