Group Chap 27: Group Insurance Rate Filings and Certifications Flashcards
Introduction
- In early 1990s, NAIC and most states introduced reforms related to underwriting, marketing, and rating of small group insurance
- ACA significantly restructures rating and underwriting of small group products beginning 2014
- ACA requires that states and fed. govt. actively review justification of small group rate increases
- Few changes to the large group rating rules and underwriting allowances
NAIC Model Laws and Regulations
Small Employer Health Insurance Availability Model Act – 1991 – governs small group rating laws
- Now applicable for grandfathered plans, as the non-grandfathered plans are governed under ACA
This chapter focuses on small group filing and certification considerations for grandfathered plans
1. Continued Applicability of Small Group Laws
a. Grandfathered (GF) status – plan in place prior to March 2010. Must also:
- Notify policyholders that plan is considered grandfathered
- Take appropriate legal action to assert grandfathered status - Cannot make material changes to plan
b. GF plans are closed to new entrants
- Only new family members of enrolled members can enter
c. Some states don’t have GF plans
d. Most states, GF plans give benefits to group of 2-50 employees (old HIPAA definition of small group)
e. Several states have laws that define small groups as 2-25 employees
f. CMS introduced transitional policy for non-GF coverage where insurers continue pre-ACA coverage
2. Classes of Business
a. Allows insurers to classify small employer group business in up to nine classes
b. Criteria for different classes
- Business sold through different distribution systems
- Business acquired from another insurer
- Business provided to members of associations
c. Under NAIC, use of classes allow up to 20% rating differential between blocks of small employer business
d. Under ACA, all non GF small group business will be treated as one class or pool for rating purposes
- GF plans could use one or more additional classes
3. Allowable Case Characteristics
a. Certain allowable case characteristics/rating factors are not subject to premium range limit tests
- Demographic and other characteristics considered in determining premium rates
- Claim experience, health status and duration of coverage are not allowable factors
b. Allowable Case Characteristics (GF plans)
- Age
- Gender (some states disallow)
- Geographic Area
- Family Composition
- Group Size (some states disallow) o Tobacco (some states disallow)
- Benefit parameters
- Some states also allow industry factors (max spread of 15%)
c. Large variation in what states allow
d. Non-GF plans are much more strict
- Must use modified community rating
- Prohibits rating on health characteristics
- Rating Characteristics
i. Age
ii. Family Composition
iii. Geographic Area
iv. Tobacco Use
4. Index Rate
a. Average of the lowest and highest premium that could be charged
- ACA index rate is defined differently
b. Calculated after all adjustments for case characteristics/benefit design
c. Within-Class Rate Test
- Highest possible rate can be 67% higher than lowest possible rate
* (Comes from comparison of highest and lowest rates under +/- 25% rule or 1.25/0.75 – mathematically equivalent)
- Non-GF plans under ACA meet this due to modified community rating requirements
5. Rate Increase Limitations
a. Rate increase applied to each group is limited to the sum of
- % change in the new business rate
- 15% annually
* This number can vary by state
- Adjustment due to change in coverage or case characteristics
6. Rating Consistency
a. All allowable characteristics and factors must be objectively and consistently applied
b. Composite rating for large groups (average per employee)
c. Person-by-person rating for smaller groups
d. Industry factors are an area of concern
- May not be coded correctly or underwriters may choose to inconsistently apply factors if group doesn’t follow trends of the industry
7. Annual Rate Certification
a. Each small-employer group insurer must file an annual actuarial certification
- Certifies that insurer is in compliance with NAIC Model Law
b. Must be signed by an MAAA
- Must follow ASOP 26
c. Any exceptions to compliance must be stated
d. Certification may expand beyond the rates
- Some states include underwriting, fair marketing provisions and actuarial soundness be certified
e. Actuary must be familiar with statements being certified and qualify the opinion if necessary
f. As mentioned above, ACA also requires annual filing of rate increases being implemented
g. Key Points to be Certified Under NAIC Model Law for Fair Marketing
- Any plan offered to a small employer must be offered to all small employers in the same class
- Sales and marketing materials must reasonably disclose:
* Extent to which premium rates are related to health status of employees and dependents
* Insurer’s right to change premium rates and factors that affect this
* Pre-existing condition provisions
* Renewability provisions
- Commissions can’t vary by health status, claim experience and other factors
- Producer’s contract can’t be subject to health status, claim experience and other factors
- Can’t encourage employer to exclude an employee from coverage
h. Verification of marketing compliance is not responsibility of actuary to certify
- Insurer should keep proper documentation
i. Small-employer-group insurer must keep complete and detailed description of rating and renewal underwriting practices
8. Rate Filing Requirements
a. Many states require filing of policy forms, certificates, applications, disclosure statements, and premium rates for GF small group plans
b. Amount and type of info varies by state
c. Non-GF plans must file rates with each state where insurer has business
- If rate increase >15% (GF or non-GF), insurer must file additional information
9. Actuarial Soundness of Rates
a. Model Act requires actuary to certify that rating methods are “actuarially sound”
b. “Actuarial soundness” is highly controversial
- Work involved in certification process can be immense
- Actuaries may feel that plans or benefits cannot be priced on actuarially sound basis due to restrictions by state laws
Non-Grandfathered Small Group Plans
i.e. ACA small group plans
1. Rate Filing Requirements
a. Core Components of Small Group Rate Filing Under ACA (as required by CMS)
Part I – Unified Rate Review Template (URRT)
- Spreadsheet showing summary of values pertaining to rate increase request
i. Worksheet 1 – overall historical claims, risk adjustment, premium and member month experience for calendar year and manual essential health benefit (EHB) claims expectations, credibility information, utilization, morbidity, trend, expenses, etc
ii. Worksheet 2 – same information, given by product and benefit plan and each member
Part II – Written Explanation of Rate Increase
If average increase greater than or equal to 15%, must provide a plain language description of the major reasons for the increase
* Available on healthcare.gov and insurers’ websites
Part III – Actuarial Memorandum
- Descriptive detail of URRT components, need for requested rate change and
support for assumptions
- Must be signed and certified by qualified actuary
Unique Plan Design Supporting Documentation and Justification
- Cases where special adjustments to actuarial value calculation are needed due to
unique plan design
b. Practice Notes by Academy of Actuaries and CMS website – good resources for guidance on the
filings
**2. Applicability **
a. Applies to non-GF plans for small employer groups
b. PACE Act – October 2015
- Significantly altered ACA requirement that small groups be up to 100 employees
- Retains former threshold of 50 employees, but allows states flexibility to go up to 100 employees
3. Classes of Business/ Single Risk Pool
a. All non-GF small groups are treated as a single class/risk pool for rating purposes and for setting premiums
b. Some states have merged individual and small group markets into one single risk pool
4. Allowable Rating Characteristics
a. Plan Design
- Must fall into metal categories: Platinum (90% actuarial value), Gold (80%), Silver (70%), or Bronze (60%)
- Plans must be within a corridor around the target actuarial value to fall into those categories
- Must use Actuarial Value Calculator to determine this (produced by CMS)
* May require special adjustment for unique features of plan that the tool cannot address
- Actuaries aren’t required to price based on Actuarial Value Calculator
* May use their own actuarial tools for this
- Insurers may purchase tools from consulting firms or insurers to develop plan design factors, if they feel their own data isn’t credible
* May adjust for effect of family coverage or induced demand (those with richer plans seek more services)
b. Provider Network
- Network relativity factors apply
* Can create area-specific plans to reflect differences
c. Age
- All insurers must use same age curve
* States can modify the mandated ACA curve
d. Family Composition
- Many small employers prefer composite rates (average rate per employee) and tiered family approach
* Single/Family (2 tier) or Single/Couple/Family (3 tier)
- Limited to maximum of 3 children under 21 for rating purposes
e. Geographic Area
- State sets boundaries/areas for rating purposes
- Insurer premiums must be consistent through each distinct region
- Insurer determines its own area relativities (disclosed in Part III Actuarial Memorandum)
- Insurer does not need to sell in every area of the state and does not need to sell everywhere within a given region
* Network and service area template must be filed with the regulator for consumers to understand
* Regulators examine area cover and may require insurer to reduce its service area if network is not deemed accessible enough
f. Tobacco Use
- ACA allows surcharge up to 50%
- Many small groups don’t use this due to:
* System constraints, administrative burden, competitive considerations and complications in enrollment for the employers
- For plans that have the surcharge, they must offer wellness benefits with tobacco cessation programs
- Typical tobacco factors in the 10-30% range (based on studies from Actuarial Memorandums)
g. Index Rate
- ACA (non-GF) plans – index rate has completely different definition than before
- Index rate – expected average allowed claims for essential health benefits (EHBs) for entire single risk pool
* Shown in Part I URRT Worksheet 1
* Allowed claims include enrollee cost sharing (copay, deductible, etc) and amounts paid by health plan
h. Rating Consistency
- Few allowable rating adjustments and rates sold off exchange must be the same as rates sold on the exchange (with few exceptions)
* Results in consistency of rates for non-GF plans
- Small group exchanges no longer exist in most states
i. Rate Justification
- Rates must be filed on annual basis, even if there is no rate change
- Rate increases >15% are subject to additional review
- Federal government doesn’t have rate approval authority, but can influence insurer and governing states
- Major Elements of Actuarial Memorandum Part III Regarding Rate Justification
(1) Health Status and Non-Allowed Case Characteristic Changes
i. Description of financial effect of health status changes insurer’s projected enrollees and of statewide pool’s projected enrollees
ii. Estimates risk adjustment
iii. Common reasons for change in health status - Uncompensated age changes (i.e. age changes not completely compensated through age curve)
- Changes in characteristics of group entering the pool
- Changes in small groups leaving the pool
(2) Plan Design and Coverages
i. Justification for adjustments due to overall differences in benefit design and different covered benefits
ii. Includes anticipated changes in cost, given provider network arrangements for given plans
iii. Also accounts for effect of induced demand
(3) Trend
i. Justification for annual trend
ii. Broken down between unit cost per service trend and utilization trend (and sometimes case mix)
iii. Also broken down by inpatient, outpatient, physician services and pharmacy
iv. Leveraged trend is often documented
* Trend after accounting for cost sharing difference
* Weighted average leveraged trend must be incorporated into plan design pricing factor
(4) Administrative Costs, Taxes and Fees
i. Usually projected based on recent experience
(5) Profit and Risk Margins
i. ACA’s minimum Medical Loss Ratio requirements effectively limit profits in arrears
j. Annual Rate Certification
- Some states still have annual small group rate certification requirements (in addition to ACA requirements)
* Apply to both GF and non-GF plans
- Entire small group business portfolio still needs to meet between-class tests
* Each class index rate (HIPAA definition of index rate) must be within 20% of index rate for every other class of business
k. Other Small Group Rate Certifications
- Some states require separate version of Actuarial Memorandum for submission of small group rate changes
* May overlap somewhat
Large Group and Other Group Insurance Plan
- Many states require filing of policy forms, certificates, applications, disclosure statements, and premium rates
- Some states require prior approval of rates
- Amount and type of information required varies by state
- ACA requirement – if large group rate increase >15% (GF or non-GF), insurer must file additional information with federal and state government and must prominently display this on insurer’s website
- Increase is viewed on large group pool level, not employer/specific group level - Large group insurers are also subject to the ACA’s minimum medical loss ratio (MLR) requirements
Pricing Considerations and Strategies Related to Compliance Requirements
- Medical Loss Ratio (MLR) requirements starting in 2011
a. MLR requirements for small group and individual – 80%
b. Minimum MLR of 85% for large groups
c. MLR includes adjustments for certain health care expenses, certain reserves, taxes, fees, assessments and credibility
d. Excess where the adjusted MLR for an insurer’s combined block of business is less than the minimum MLR over a three-year-rolling and weighted period, must be rebated to customers - Establishes one-sided risk situation
a. Good underwriting years can no longer offset poor underwriting years
b. Pushes up expected long-term experience - MLR requirements are retrospective, but many states also require insurers to demonstrate prospective compliance as well
