Federal Filings Allow Peek Behind The Reasons For Increasing Health Insurance Rates

The average rate increase that nongrandfathered plans in the individual and small-group markets submitted for review for renewals taking effect from mid-2013 through mid-2014 was 13%, according to an analysis by The Commonwealth Fund of insurers’ filings with the federal government. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) requires these health insurers in the individual and small group markets to justify rate increases of 10% or more for their plans that were introduced or substantially changed after March 23, 2010. The Commonwealth Fund found that at least 75% of the larger rate increases were attributable to routine factors, such as trends in medical costs, which included increased use of medical services and higher unit prices.

In its analysis, The Commonwealth Fund studied rate increases from July 2013 to June 2014, of 10% or more for health insurance products coverage at least 150 people, and noted that rising administrative overhead and profits were smaller factors in these increases. Among requested rate increases of more than 10%, for individual-market insurers, the average annual increase submitted for review was $395, and for small-group insurers, it was $616. In the individual market, insurers reported an average increase of $330 attributable to medical expenses and $76 to administrative expenses. For the small-group market, $482 was, on the average, attributable to medical expenses and $153 to administrative expenses. The groups reported losses of $11 on average, for the individual market and $18 for the small-group market.

Narrative explanations. The Commonwealth Fund also looked at the detailed narrative explanations included by insurers in the filings, and discovered that 69% attributed at least some portion of their rate increase to taxes or fees assessed by the federal government starting in 2014, including the insurance premium tax and transitional reinsurance assessment, which totaled $8 billion and $12 billion, respectively. The fees apply to policies in effect any time in 2014, and can include rate increases that took effect in 2013.

Of the insurance filings studied, 63 quantified the impact of the ACA’s taxes and fees. The average full-year rate impact among the 63 such filings was estimated at 4.5%, or around a third of their overall average rate increase. The Commonwealth Fund pointed out that the 63 filings attributed around half of the impact of the ACA’s taxes and fees to the new insurance tax and half to the transitional reinsurance fee. Both of these sunset after three years. The Commonwealth Fund thus estimates that the initial impact of the ACA’s permanent insurance tax to be less than 2.5%, although the permanent tax is scheduled to increase over the next four years, to between 2.8% and 3.7% of premiums.

MLR impact. The Commonwealth Fund also reports that, of the 58 filings that mentioned medical loss ratios (MLRs), (which require individual and small-group insurers to spend at least 80% of their premiums on medical claims or quality improvement), around a third of the 58 were ambiguous about the impact of MLRs. Of the 36 filings that mentioned a specific expected MLR, 13 targeted the 80% limit, and the rest expected MLRs of 82% or more. This might suggest, says The Commonwealth Fund, that MLRs are having at least some restraining effect on larger rate increases, although some insurers appeared to be setting their rates as high as possible within the limits of the rule.

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