Preliminary Report:
the Health Insurance Market in Maine

 

 

Prepared by Bureau of Insurance Staff
February 2010

John Elias Baldacci Governor		Anne L. Head Commissioner
	Mila Kofman Superintendent

 

 

Table of Contents

I.  Introduction
II.  Overview of the Individual and Small Group Markets
A.  Sources of Coverage
B.  Insurers and Market Share
C.  Type of Coverage
D.  Premiums
E.  Medical Loss Ratios, Profit Information, and Dividends
III.  Regulatory Framework
A.  Maine’s Regulatory Framework
1.  Guaranteed issue and rating reforms
2.  Premium rate approval and medical loss ratio requirements
B.  Federal Initiatives
1.  Guaranteed issue and rating reforms
2.  Minimum coverage levels (actuarial value)
3.  Subsidized coverage
4.  Individual and employer responsibility
5.  Loss ratio requirements
6.  Immediate help for individuals and businesses
7.  Health insurance exchange
8.  Risk adjustment
IV.  Conclusion

 

APPENDIX A:  Federal Health Reform Bills summary prepared by Kaiser Family Foundation (reprinted with permission from KFF)
APPENDIX B:  Market Snapshot – individual medical
APPENDIX C: Market Snapshot – small group health

I.  Introduction

This report is submitted pursuant to P.L. 2009, ch. 439 § D-4, which directs the Superintendent of Insurance to:

review possible ways to improve the availability and affordability of the State’s individual health insurance market, including, but not limited to, increases in the minimum loss-ratio standards applicable to that market and consideration of an insurer’s loss experience in all lines of insurance marketed by a carrier in this State when reviewing health insurance rate filings [and to] report the results of the review, including any recommendations for legislation, to the Joint Standing Committee on Insurance and Financial Services.

This is a preliminary report.  Options for future state reforms will vary depending on what (if any) federal reforms are enacted.  The U.S. House of Representatives passed H.R. 3962, the Affordable Health Care for America Act, on November 7, 2009.  The U.S. Senate passed H.R. 3590, the Patient Protection and Affordable Care Act, on December 24, 2009.  The Bureau will supplement this report after the nature and extent of any federal health reform legislation is known.

This preliminary report provides background on both Maine’s individual and small group markets, including information about types of policies available, prices, number of insurers, market share, and medical loss ratios, as well as standards and consumer protections under current law.  Unless otherwise indicated, the data on the Maine insurance market are from annual reports filed by health insurers pursuant to Bureau of Insurance Rule 945 and from insurers’ rate filings.    The report summarizes some of the insurance reforms in the two pending federal bills, and how they relate to the Maine market. 

II.  Overview of the Individual and Small Group Markets

This section of the report provides information on the individual and small group health insurance markets in Maine.

A.  Sources of Coverage

According to the most recent data available, approximately 40,000 Mainers have major medical coverage in Maine’s individual market, and approximately 106,000 have coverage as employees or dependents in the small group market.  Maine’s uninsured rate of 9.6% is the sixth lowest in the nation, well below the national average of 15.4%.

The following chart shows the sources of coverage by percentage of the Maine population.  Slightly more than a quarter of the population has individual or group health insurance coverage that is regulated by the Bureau of Insurance.  The others are covered by Medicare, MaineCare (Medicaid), military, self-insured employer plans exempt from state insurance regulation, or are uninsured.

B.  Insurers and Market Share

The following charts show the market shares of insurers in the individual and small group markets – providing a comparison between the markets before and after State health care financing reforms.

 

 

 

 

 

Total market share of the major health insurers is shown below.  This reflects the insurers’ individual, small group and large group business in Maine.

 

 

 

The following table shows total Maine health insurance premium in 2008, by company and by market sector, along with the change from the previous year.  These figures include Dirigo Health Plan premium, so the changes for Anthem and Harvard Pilgrim reflect the transfer of DirigoChoice coverage from Anthem to HPHC as of January 1, 2008.

2008 Maine Premiums
	Totals		Large Group		Small Group		Individual
Insurers	12/31/08	% Change	12/31/08	% Change	12/31/08	% Change	12/31/08	% Change
Aetna Health Inc & Aetna Life Ins. Co	$278,628,101	17%	$154,913,707	14%	$123,583,562	22%	130,832	25%
Anthem Health Plans of ME Inc.	$928,388,393	-8%	$635,899,126	3%	$225,316,648	-20%	$67,172,619	-38%
Cigna Healthcare of Me Inc & Connecticut General Life Ins. Co.	$143,006,708	13%	$142,942,246	13%	$0	0%	$64,462	-17%
Harvard Pilgrim Health Care Inc. and HPHC	$151,925,919	74%	$46,007,999	-8%	$50,838,450	38%	$55,079,470	(new to market)
MEGA Life & Health Ins. Co.	$27,025,064	14%	$0	0%	$5,475,463	-25%	$21,549,601	31%
United Healthcare Ins. Co.	$11,152,427	39%	$9,428,899	37%	$1,723,528	48%	$0	0%
All Other Companies	$9,248,451	-23%	$3,858,380	-34%	$1,572,883	-8%	$3,817,188	-14%
Totals:	$1,549,375,063	3%	$993,050,356	6%	$408,510,534	-5%	$147,814,172	14%

C.  Type of Coverage

There has been significant movement in the market away from coverage with relatively low deductibles.  This is especially pronounced in the individual market.  Although statistics on the type of plan purchased are not reported on a market-wide basis, rate filing information from Anthem, the largest health insurer, shows that approximately 88% of Anthem’s individual enrollees have deductibles of $5000 per year or higher, with almost 37% covered under policies that have a $15,000 annual individual deductible and a $30,000 family deductible.

HMO coverage in the individual market represents only one-tenth of one percent (0.1%) of the covered lives.  HMO coverage in the small group market accounts for one-third of the covered lives:

D.  Premiums

The average premium per covered life in 2008 was $299 per month (approximately $3600 per year) for individual coverage, $324 per month (approximately $3900 per year) for small group coverage, and $380 for large group coverage.  However, these prices are not comparable because the products purchased differ in each sector of the market.  More comprehensive benefits and lower deductibles are more common in the large group market, where the employer is more likely to pay a substantial share of the premium.   The following table shows the 2008 average monthly premium per person.  It is important to note that these “per covered life” estimates are averages and do not reflect what businesses and individuals are actually charged.  The actual price depends on the benefits package purchased and adjustments for permissible rating factors such as age.

 

2008 Average Monthly Premium per Person in Maine
	Large Group		Small Group		Individual
	2008	% Change	2008	% Change	2008	% Change
Aetna (Aetna Health Inc & Aetna Life Ins. Co.)	$387	9%	$282	-4%	$221	65%
Anthem Health Plans of ME Inc.	$379	5%	$347	9%	$254
CIGNA (Cigna Healthcare of ME Inc. & Connecticut General Life Ins. Co)	$421	26%	$0	0%	$366
Harvard Pilgrim Health Care Inc.	$258	-19%	$370	12%	$519
Mega Life & Health Ins. Co.	$0	0%	$202	-8%	$174
United Healthcare Ins. Co.	$452	31%	$279	-16%	$0
Total:	$380	8%	$324	5%	$299

Note:  The average premium is calculated by dividing the premium from the 2008 Premium table by the number of member months.

A recent Commonwealth Fund report lists Maine as the state with the ninth-highest premiums for employer-sponsored coverage in 2008.  Massachusetts was highest, followed by Minnesota, New Hampshire, Indiana, Connecticut, Delaware, Alaska, Rhode Island and Maine, in that order.  

Premiums for health insurance have been increasing across the country.  Average family premiums for employer-sponsored coverage increased from $9249 in 2003 to $12,298 in 2008.   This year, Oregon’s largest individual health insurer has requested a 25.3% rate increase in

addition to the 24.4% increase last year according to news reports.   In California, rate increases of up to 39% have been announced; the insurer indicated that rates may be adjusted more frequently than its typical yearly increases.   According to news reports, rate increases in Indiana are up to 38%.   In Rhode Island, insurers had deferred rate increases last year at the request of the Health Insurance Commissioner, but recently requested small group increases ranging from 4% to 14.6%.   A few of the states reporting increases last year are Michigan (56% requested, 22% approved) , Pennsylvania (46.5% requested , 15% approved ), and Connecticut (22% to 30% requested, 13% to 20% approved).

The following charts show the rate increase history over the last five years for the three major carriers in the individual and small group markets in Maine:

 

 

Maine Small Group Market Rate Increases
	2005	2006	2007	2008	2009	2010
Anthem	13%	7%	15%	10%	16%	20%
Aetna	10%	10%	12%	9%	15%	25%
Harvard Pilgrim	(entered market 2006)	9%	15%	13%	10%	15%

The table below shows the average increases for individual market products with most enrollment -- requested rate and approved rate. 

 

Maine:  HealthChoice Individual Rate Increases

Effective Date	Requested	Approved
January 2001	23.5%	23.5%
February 2002	13.6%	12.7%
January 2003	7.1%	3.4%
March 2005	14.7%	14.5%
March 2006	19.8%	16.3%
January 2007	20.5%	16.7%
January 2008	18.6%	12.5%
July 2009	18.5%	10.9%
Pending request for effective date July 2010	23.6%	Pending rate hearing

 

The following table includes average annual small group rate increases between 2001 and 2009.  This table does not show requests.  Most small group coverage has been exempt from the prior review rate approval process, because it was issued on a guaranteed loss ratio basis, meaning that it is subject to premium refunds if benefit payments do not equal or exceed 78% of premium.

Maine: average annual small group increases
Year	Average
2001	33%
2002	29%
2003	16%
2004	6%
2005	13%
2006	8%
2007	14%
2008	10%
2009	15%
2010	21%

E.  Medical Loss Ratios, Profit Information, and Dividends

The following tables show medical loss ratios and underwriting gain (a way to measure the profitability of a line of business, before taxes and investment income), expressed as a percentage of premium, for each of the major insurers in the individual and small group markets, and combined figures for each market.

Maine’s Small Group and Individual Market:  MLR and Underwriting Gain/Loss

 

In Maine, three nationwide insurance groups conduct some or all of their health insurance business through Maine subsidiaries.  These insurers have paid the following dividends to their parent companies in the last five years, shown in dollars and as a percentage of premium:

Note:  percentage information in table represents proportion of each Maine premium dollar that went to parent company out of state.

III.  Regulatory Framework

A.  Maine’s Regulatory Framework

1.  Guaranteed issue and rating reforms

Maine has been a pioneer in the areas of guaranteed issue and rating reforms.  The Maine Continuity of Coverage Act was first enacted in 1990, and guaranteed issue and community rating were extended to the individual market in 1993.   All Maine residents who are not eligible for Medicare have the right to buy health insurance from any insurer selling coverage in the individual market, and all small businesses have the same guaranteed issue right in the small group market. 

The following rate standards apply:

• Individual market:  gender, health status/claims experience, and policy duration prohibited; age and geography allowed but limited to a maximum variation of 1.5 to 1 (for both factors combined).   Nonsmoker discounts allowed but must be actuarially justified.
• Small group market (2-50): gender, health status/claims experience, and policy duration prohibited; age, geography, and industry allowed but limited to a maximum variation of 1.5 to 1 (for all three factors combined).  Smoking status, participation in wellness programs, and group size variations allowed but must be actuarially justified.
• Self-employed (groups of 1): Must be offered small group coverage; small group rate restrictions apply.  If the insurer offers individual market coverage, then it does not have to offer small group coverage to groups of one; individual market rate restrictions apply. 

Insurers also vary rates based on how many family members are covered, e.g., single, two adults, children.

2.  Premium rate approval and medical loss ratio requirements 

The Bureau of Insurance reviews individual health insurance rates prior to their use by insurers.   Since 1993, Maine law has required a 65% medical loss ratio for individual health insurance.   This means that at least 65 cents of every premium dollar must be spent by the insurer on medical care and services.  After an investigation by the Bureau, pursuant to a consent agreement, MEGA paid a $1 million fine and refunded $4.6 million plus interest to individual policyholders for charging excessive rates that were based on improper loss ratio calculations.

Small group rates are subject to review by the Bureau in certain circumstances.  Medical loss ratio requirements and rate review were extended to small group coverage as part of the Dirigo health reform act in 2003.   If an insurer guarantees a three year medical loss ratio averaging at least 78%, Maine law does not require rates to be approved by the Superintendent.  Refunds are required if the insurer fails to achieve the 78% medical loss ratio.  Aetna refunded $6.6 million in 2008 to small businesses under this provision.  Maine law requires all other small group rates to be filed and approved prior to their use, and to meet a 75% loss ratio standard.

The Bureau holds public hearings on most major health insurance rate filings that are subject to prior approval.  The insurer must prove by a preponderance of the evidence that the rates it has filed will meet the minimum loss ratio standards and are neither excessive, inadequate nor

unfairly discriminatory.   The Maine Attorney General usually participates as a party in rate hearings on behalf of consumers.

B.  Federal Initiatives

The discussion below summarizes a few provisions in the House (H.R. 3590) and Senate (H.R 3962) bills, and does not include all the proposed changes that would impact cost, delivery or financing of medical care.

The insurance-related changes generally would not preempt existing Maine laws.  The approach in the legislation is a federal “floor,” which means the federal standards would be minimums and states could have stronger consumer protections.

1.  Guaranteed issue and rating reforms

The federal government has enacted certain reforms applicable to private health insurance.  Enacted in 1996, HIPAA required insurers to offer coverage on a guaranteed-issue basis to all small businesses, but had only limited protections for people relying on the individual market.  HIPAA did not establish standards for premiums.  In other words, unless states had standards, insurers could use a variety of factors to vary rates, for example charging higher rates to small businesses with older and sicker workers.  In the 1980s, continuation rights (known as COBRA) were enacted.   COBRA requires employers with 20 or more workers to allow people who no longer qualify for coverage, e.g., no longer employed, divorced, etc. to continue that coverage for a period of time.

Under current proposals, both the U. S. House and Senate bills would extend guaranteed issue rights to the individual market in every state, and establish “exchanges” to facilitate access to health insurance coverage.  These bills would also establish rating standards.  Insurers would be prohibited from setting premiums based on health status or claims experience – in individual and small group markets.  Rates based on gender would not be allowed.  Variation based on the size of a small business would also be prohibited.  Under the House bill, premiums for any given health insurance policy may vary only based on one’s age, geographic area and family composition.  The House bill would limit variation based on age to 2:1, while the Senate bill would limit variation based on age to 3:1.  The Senate bill would also allow variation based on tobacco use, limited to 1.5:1.

2.  Minimum coverage levels (actuarial value)

Both bills would require a qualified plan to cover an essential package of health care services, based on a typical employer health plan, and to have a minimum actuarial value.  In the House bill, the plan must be actuarially equivalent to at least 70% of the full actuarial value of the covered benefit package.  In the Senate bill, the minimum is 60%, except for individuals who are under 30 or are unable to afford a qualified plan.  A plan with an actuarial value of 60% means that a covered person pays approximately 40% of the total cost of covered medical care and services, and the insurer pays 60%.  By comparison, the $15,000 deductible plan currently purchased in Maine by approximately 37% of Anthem’s individual enrollees – this is 16.8% of the total individual market – has an estimated actuarial value of approximately 27%, according to estimates from Anthem.

3.  Subsidized coverage

Both the House and Senate bills would pay for a portion of the premium for low- and moderate-income families and individuals.  The premium credit (also called “subsidies”) would be based on one’s income level and the cost of coverage.  This would be available to all individuals and families with income up to four times the federal poverty level (FPL) who are not eligible for Medicaid.  As of October 2009 federal poverty level for a family of four is $22,050.  A family of four with income up to $88,200 would be eligible for some assistance.

In addition to the reduction in premium, both bills would lower out-of-pocket expenses like deductibles, copayments, and coinsurance.  The House bill would lower out of pocket expenses for everyone who is eligible for the premium credits.  The Senate bill would lower out of pocket expenses for people with incomes of up to two times FPL, currently $44,000 for a family of four.

For example, a family of four with income of $46,419 (median income in Maine in 2008) would pay a monthly premium of $233 under the House bill.  Additional subsidies would cut in half the average out of pocket cost (including deductible, coinsurance, and copays); and out of pocket costs could not be greater than $2000 per person per year.   Under the Senate bill, the premium would be $258 per month with an out-of-pocket limit of $5000 (this is a 70% actuarial value plan, meaning that the average out of pocket cost would be 30%).

4.  Individual and employer responsibility

Under both bills, with limited exceptions such as financial hardship, all people would be required to have either individual or job-based health insurance.

Both bills would require employers to help pay for coverage.  However, both bills exempt small businesses from these requirements.  Large and mid-sized employers would be required to offer

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