Rate Review Process Table of Contents

Transcription

1 Rate Review Process Table of Contents Summary of Findings...2 Background...2 Federal Health Insurance Reform Requirements in Puerto Rico...2 ACA Applicability to U.S. Territories...2 Rate Review Requirements...3 Current Puerto Rico Rating Requirements... 3 Carrier Rate Filing Requirements... 3 Rating Rules...3 Current Carrier Underwriting Policies...4 From the On-site Interviews... 4 From the Materials Provided... 4 Medical Card Systems... 4 First Medical... 5 Triple-S Salud... 6 Recommendations...7 Rate Filing Process... 7 Rate Review Process...7 Is the filing complete?...8 Are the rates actuarially supported?...8 Rates are considered discriminatory if they charge different amount for policies having essentially the same risks and expense elements. An actuarial value model can be used to determine the relative risks. If the premiums between policies with the same actuarial value differ by more than the difference in actuarial value +/- 10%, an actuarial determination must be made if the policies are discriminatory. It is possible that other factors are driving the discrepancy such as the relative health of the policy holders, but many of these factors will not be allowed starting in In Puerto Rico the information in the benefits map can also be used to determine the actuarial value. The actuarial value will be the paid claims divided by the allowed cost. Analysis of Claims Costs...10 A.Reasonableness of Base Period Experience...10 Base Period Selected...10 Unpaid Claim Liability Estimates...10 Large Claim Impact

2 B. Reasonableness of Projected Claims Trends...11 Documentation of Claims Trend Development Historic Trend Analysis...11 Provider Contract Detail...12 C.Additional Adjustments...12 Rate Factor Relativity Studies Enrollment Related Changes...12 Details of All Benefit and Formulary Changes, including Projected Cost of Changes...12 Analysis of Non-Claims Costs...12 A.Administrative Expense Trends Administration and Marketing Cost Trend Tests...14 Detailed Actual Historic Expenses...14 Detailed Budget Projections Budget Allocations...14 B. Solvency Level Tests and Gain/Loss Margin...14 Requirements for Margins Solvency levels Risk-based capital Contract and Policy Reserve Estimates Including Deficiency Reserves...15 Does the filing meet regulatory requirements?...15 Appendix A ACA Requirements...16 Benefit Requirements...16 Coverage Requirements...16 Rating Restrictions...17 Rate Review - Applicability...17 Rate Review Standards for Review Rate Review Preliminary Justification...18 Rate Review Required Reporting by States...18 Rate Review Procedures when an Increase is Determined to be Unreasonable...18 Appendix B Excel Instructions for Trend Analysis How to Create a Graph and Trendline in Excel Create a chart Worksheet data Chart created from worksheet data

3 4. Modifying a basic chart to meet your needs...23 How to Add a Trendline and R-squared in Excel Add a Trendline Display the R-squared value for a trendline

4 Summary of Findings We examined the process currently used by the Puerto Rico Office of the Commissioner of Insurance (OCI) to review premium rate filings for health coverage submitted by carriers. We have identified some opportunities for improvement. The most significant of these are in the areas of: Standardizing the form and content of the data submitted by carriers to support premium rate filings to allow more consistent analysis and standardized decision rules concerning rate adequacy, excessiveness and discrimination that would make the process less subjective1; Standardizing the time period for the rate filing to be 60 days prior to effective date excluding any days needed to reply to an objection letter.; Providing clearer filing instructions to improve the quality and consistency of filings; Increasing communications during the rate review process; Documenting the review process and decisions made by the OCI concerning the rate filing2; and Providing automated support for rate reviews to make the analysis process more efficient. Our work contracts include: Standard Excel data forms as a required element in rate filings; Requiring carriers to complete and submit a standardized checklist with each filing; Improved filing instructions for carriers; Standard methodology for calculating the rate increase percentage3 A rate review manual for use by the OCI; and A rate filing database designed to support the review process. Background In order to understand our recommendations it is important to first understand the federal health care reform law, Patient Protection and Affordable Care Act (ACA), and how it applies to Puerto Rico as well as the requirements of the Puerto Rican health insurance law. We will provide a brief summary of both here with more detailed information on ACA in the Appendix. 1 We believe that standardizing the information provided in rate filings would also allow for more consistent information to be made available to the public, and thus make it easier for the public to understand and comment on rate filings. 2 The paragraph submitted to HIOS is sufficient for documentation. 3 See Puerto Rico Rate Filing Instruction Manual for a description of the rate filing forms]. 4

5 Federal Health Insurance Reform Requirements in Puerto Rico ACA Applicability to U.S. Territories The applicability of the various provisions of the ACA to U.S. territories is not always clear. However, based on the law and interpretations made by the Secretary of Health and Human Services: Based on HHS s interpretation, all sections of the ACA that amend the Public Health Services Act apply to the territories. This includes benefit requirements, rate review, MLR, guaranteed issue (beginning in 2014), and modified community rating.4 Provisions relating to exchanges apply to the territories. The individual mandate (beginning in 2014) does NOT apply to the territories. Low-income premium subsidies (beginning in 2014) do NOT apply to the territories. It is not clear whether reduced cost-sharing for low-income members (beginning in 2014) applies to the territories. Rate Review Requirements These requirements apply to states and territories, but for simplicity, the term state is used. The ACA requires the Secretary of Health and Human Services, in conjunction with States, to establish a process for reviewing unreasonable rate increases. That process requires issuers to justify unreasonable rate increases prior to implementation. The Secretary adopted a rule to establish the process. Because it is impossible to determine whether a rate increase is unreasonable without reviewing the basis for the increase, it was necessary to determine which filings would be subject to review. The rule establishes a threshold, above which increases are considered potentially unreasonable and therefore subject to review. For the 12 months beginning September 1, 2011, the rule established the threshold as 10%. Therefore if the weighted average5 rate increase for a contract, combined with any other increases that were implemented within the previous 12 months exceeds 10%, then it is subject to review. For future 12-month periods, state-specific thresholds are to be used. Guidance was recently issued regarding state-specific thresholds for the 12 months beginning September 1, For that period, a State may propose an increase or decrease in its threshold. Proposals must be submitted by May 1, CMS will review the proposals and provide States with its determinations by June 1, If no change is proposed or if a proposal is not accepted, the threshold remains at 10%. For states determined to have an effective rate review mechanism, the rule provides that a rate increase in excess of the threshold is unreasonable if the State determines it is excessive, unjustified, unfairly discriminatory, or otherwise unreasonable as provided under applicable State 4 See Section of the Health Insurance Code of Puerto Rico effective February The rate increases are weighted by the amount of premium for each category that has a rate increase. This is done my multiplying the rate increase by the total premium for each category and divide the sum of these products by the total premiums for all categories. 6 CMS will post a list of all pending State-specific threshold proposals on the Center for Consumer Information and Insurance Oversight website at 5

6 law. CMS will adopt the State s determinations if, within five days following a State s final determination, the State submits its final determination and a brief explanation of the analysis that led to that determination to HHS via HIOS. A more detailed summary of these provisions as well as ACA provisions relating to benefits, coverage requirements, and rating restrictions can be found in Appendix A. Current Puerto Rico Rating Requirements Carrier Rate Filing Requirements A health insurance issuer must submit every rate manual,, as well as any other information concerning the application and computation of rates made and used by it, and every modification of any of the foregoing which it contemplates using 60 days prior to implementation for approval by the Office of the Commissioner. The Commissioner can then extend the period for an additional 60 days if needed. If at the end of this period the Commissioner has not disapproved the rate increase, it is marked as approved and can be used. The Commissioner has a right to withdraw a previous approval after a hearing. An issuer cannot use any rate increase that has not been approved by the Office of the Commissioner. Rate filings must include the maximum portions for commissions that the carrier must pay, as well as the portions that shall be designated to profits and other expenses incurred in the underwriting of the insurance. If the Commissioner considers these portions excessive, the filing may be disapproved. Every filing must have its proposed effective date and clearly indicate the type of coverage being provided. When a filing does not have sufficient information for the Commissioner to make a determination, he shall require the carrier to provide the information. The filing and any supporting information will be made public after the filing is made effective. No carrier shall charge any rate which deviates from the rates filed and subsequently approved. The Commissioner may audit carriers to ensure their compliance. Rating Rules Rates shall be made with the following provisions: 1. Basic classification, manual, minimum, class rates, rating schedules or rating plans shall be made and adopted 2. Rates shall not be excessive, inadequate, or unfairly discriminatory 3. No rate shall discriminate unfairly between risk involving essentially the same hazards and expense elements or between risks in the application of like charges and credits Current Carrier Underwriting Policies From the On-site Interviews Currently some carriers consider the medical experience and health of even small groups when quoting initial and renewal rates. Rates can vary significantly based on the anticipated relative health of a group. In Puerto Rico, rating based on the health of the insured is not allowed. MAPFRE currently has two plans (Excel 6000 and Choice 6000) each with various riders. To rate the plans they use the credibility of each group and the claims experience of the group. To 6

7 be considered fully credible a group most have over 250 members and have twelve months of experience. All of their small groups are non-grandfathered. Medical Card System s (MCS) main small group contract is MCS Global, which accounts for 99% of their book of business. They have two older small group contracts, which are cost sharing contracts. MCS also has an HMO contract, which they are currently not selling. MCS adjusts the rates for the entire block of business at one time, and does not adjust for each small group. They do not know how the 10% rate increase should be calculated. MCS increases their small group rates on a frequently throughout the year. MCS also offers five individual contracts. The individual rates are changed on a quarterly basis Humana has three series of plans for small group. They also, have three old contracts that they are currently not selling. When they increase rates they take the small group experience into consideration as a whole not on a particular group. Currently, Humana adjusts the rates on a monthly basis and the trends on a quarterly basis. To determine if the rate increase is over 10%, they review the pooled block in its entirety and not looking at the plans on an individual basis. Humana is currently not selling any new individual contracts, but does have 700 members covered in a contract that they are no longer selling. Triple-S currently has two small group contracts, each that has variations on co-pay and coinsurance. They also have a new contract in the development stages as of February 22, The majority of Triple-S plans are grandfathered. They also sell three individual contracts, one of which is intended for younger individuals. First Medical offers three small group contracts that are offered mostly to the government of Puerto Rico, government unions and municipalities. They also offer individual contracts and have not had a rate increase for their individual contracts for four years. Currently, First Medical reviews contracts as a group to determine if the increase is over the 10% threshold. From the Materials Provided Medical Card Systems As of April 2012, MCS continues to employ an Excel-based rating tool developed in-house to produce rate quotes for all new (and renewal) business for its small group block, defined as groups from 2-50 employees. Following is a brief description of the mechanisms employed in the tool to produce rates. Base Rates Base rates are updated on a semi-annual basis in order to keep pace with claims trend, targeting a medical loss ratio (MLR) of approximately 82%. Rating Factors Base rates are adjusted via rating factors for contract tier type (i.e. Individual, Couple and Family) and for contract design (e.g. copay and coverage variations) in medical, prescription drug, dental and vision care coverages. Rating Bands All groups are classified into one of nine (9) risk bands (from lowest to highest): Low 1 (L1), Low 2 (L2), Low 3 (L3), Medium 1 (M1), Medium 2 (M2), Medium 3 (M3), High 1 (H1), High 2 (H2), and High 3 (H3). Classification is based exclusively on the average demographic profile of participating employees, regardless of contract tier type and regardless of gender. Rate Quote Development 1. Employee census data is entered into the Pool Rating Tool. 2. Each employee is assigned an Employee Age Factor according to the applicable age interval. 7

8 3. A Group Risk Factor is calculated using the average Age Factor of all enrolled employees. 4. The Group Risk Factor determines which Rating Band applies for the Group (L1 to H3). 5. Contract selection in the Rating Tool determines the applicable factors for adjusting rates for the selected benefit design, producing final rates for Individual, Couple and Family contracts. First Medical First Medical indicates that its rates offered to all new and renewal groups, including groups of small and medium businesses (SMBs), use rating methods and practices based on actuarial assumptions that are widely accepted and in accordance with reasonable actuarial principles. The rates include a deviation of up to 15%. All premiums are payable on a monthly basis, guaranteed for 12 months unless the following changes: Membership of the employer of SMEs; Family composition of the eligible employee, or Health Plan benefits requested by the employer of SMEs. The selection process is to assess risk and classify the level of risk, assessing the factors or characteristics of the group including: Distribution by age and sex, family composition and % share; Location of business or industry and inflation; and Plan design and deductible levels. The renewal of each group focuses on the claims experience of the group as a whole and within the framework of the other groups assigned under the same conditions. Within this process of reevaluating the pricing of the group, First Medical will renew all eligible employees and their dependents, except in the following cases: (1) (2) (3) (4) (5) (6) (7) For nonpayment of premium, considering the period of grace; When the subscriber performs an act that constitutes fraud; When the subscriber has made an intentional misrepresentation of a material fact and material under the terms of the health plan; For failure to meet the minimum participation requirements set by the plan; For failure to comply with the requirements of employer contribution; When prescribed by the Commissioner of Insurance of Puerto Rico; and In cases where so provided in the Insurance Code of Puerto Rico. Triple-S Salud Rate Quote Development Triple-S Salud uses a StepWise rating tool to compute premiums. The process is as follows: All new groups require the following: 1. Census 2. Medical Questionnaire 3. Current Rates 4. Experience Report 5. Description of Current Benefits Evaluators validate all above documents are complete. They use a software package (StepWise) to determine premiums. StepWise uses group demographic information, and claims experience 8

9 data where applicable. The system generates the proposal which is reviewed by evaluator before sent to sales and marketing to begin the process of sale. 90 days before the renewal date of a group, assessors use StepWise to calculate new premiums. Experience data tables for StepWise are updated automatically based on files in the Data Warehouse. Renewal adjustment is based on demographics or group, experience, inflation, pharmacy coverage, medical and dental care. 60 days before StepWise renewal adjustments are reported to sales and marketing who prepare documents for renewal negotiations. Risk Assessment 1. Companies with 600 or more employees (Groups of Experience) a. Census if required for new groups and experience with previous carrier for a quote based on the group experience, and renewal based on experience. 2. Companies with 51 to 599 employees (Groups of Merit) a. Census is required for new groups and experience with previous carrier based on group experience b. Renewal fees are determined based on an average, credibility adjusted, among the group s experience and segment worthwhile overall experience. 3. Companies with 2-50 employees (Small Groups) a. All eligible groups are negotiated with effective community rates and adjusted for age, sex7, geographic area, size group plus any necessary adjustment for evaluation of individual health questionnaires Adjustments to Premium The premium charged per year cannot be adjusted more than once per-year-per-contract unless: 1. Changes in family composition 2. Changes in benefits requested by employer 3. Changes in membership of employer Recommendations Rate Filing Process Proposed rates should be filed at least 60 days prior to the proposed effective date. Rates should be filed with sufficient detail and with sufficient time to allow the Office of the Commissioner of Insurance to review the rates prior to the proposed effective date. A suspension will be effective when an objection letter is sent until the reply is received by the OCI. The rate filing should be prepared using assumptions and methodologies that conform to Actuarial Standards of Practice (ASOPs) published by the Actuarial Standards Board and actuarial practice notes published by the Academy of Actuaries. Rate Review Process Currently the OCI is only receiving information on rate increases in excess of 10%, except for HMOs, which file all rate changes. Since the OCI is not receiving information on rate increases under 10% for non-hmos, there is less information on the current medical trends in Puerto Rico. 7 The OCI may want to check that the use of gender has been stopped. 9

10 Because of this, it may be awhile until Puerto Rico specific trend statistics can be developed by the OCI. Therefore other sources of trend data will be needed to use in the review of rate filings. The rate review process is designed to efficiently determine if health insurance premiums are not actuarially supported or if premium rate increases that are unjustified or inadequate. The process should be as objective as possible avoiding subjective decision making. According to current Puerto Rican regulations rates shall not be excessive, inadequate, or unfairly discriminatory. The rate review process is intended to determine if the filed rates meet these requirements. Premium rates will be considered unreasonable if: The filing is incomplete; The assumptions and methods used are not actuarially supported (in the context of current Puerto Rico regulations premium rates are determined to be actuarially supported if the filing demonstrates, using reasonable and appropriate assumptions and methods, that they meet the minimum loss ratio requirements); The projected premium does not satisfy the federal rebate loss ratio threshold (MLR); The projected premium is unfairly discriminatory; or The projected premium is inadequate or undermines the future solvency of the health plan. The proposed rate review process consists of three distinct steps: 1. Review the rate filing for completeness, including supporting documentation that supports key elements of the filing; 2. Determine if the proposed rates are actuarially supported: 3. When the review is complete, finalize findings and prepare documentation of the review. A letter is written to inform the carrier of the results of the review and web information for public review is prepared and uploaded. For all rate increases 10% or more, the OCI will inform the Department of Health and Human Services (HHS) of the final determination along with the rationale for the final determination in the next five (5) days. Is the filing complete? The first step in the rate review process is to verify that the filing is complete. Any filing that is incomplete should be returned with a letter identifying the deficiencies in the filing and the SERFF status should indicate that it was rejected. The rate filing will be reviewed against the standardized filing checklist to verify that all of the required elements are included in the rate filing and that they have been completed in full. Attachments, including standardized and non-standardized spreadsheets, as well as descriptive information, should be reviewed for completeness. The standardized filing checklist to be filed by carriers will indicate 1) whether the specific elements are included, and 2) the attachment and location where the filing element can be found. Since standardized spreadsheet templates are required for the submission of some data and 10

11 assumptions, only the name of the spreadsheet template will be indicated on the standardized filing checklist. Supplemental information such as the description of the rating methodology and the reason for the rate increase request will be included in descriptive information and a reference should be provided. One of the completeness checks should be to determine if the rate increase percentage was calculated according to the instructions. The rate increase percentage should be calculated according to the standardized methodology. The rate increase percentage should not include changes in rating categories due to changes in ages of participants. However, it will include the effects of changes in benefits and changes in the relative health of the population, and the impact of these elements will be clearly identified by the attribution analysis discussed later. Another completeness check should be to verify the completeness and consistency of the federal filing on CMS s Health Insurance Oversight System (HIOS) website8. The consistency of the HIOS data and the rate filing received by the state should be verified. If inaccuracies are found in the HIOS data, the carriers and CMS should be notified. If the rate filing is found to be missing required elements, the carrier should be notified of the missing items and the rate filing should be deemed incomplete. Are the rates actuarially supported? Before rates can be tested for compliance with the regulations, they must be deemed actuarially supported. If they are actuarially supported they can be considered adequate, not excessive and not discriminatory. Insurance premium rates can be considered actuarially supported if they are developed using assumptions and methodologies that conform to ASOPs published by the Actuarial Standards Board and actuarial practice notes published by the Academy of Actuaries. For example, if a premium rate was developed using a claims trend factor that is not actuarially supported, it may be determined to be excessive when a more appropriate trend factor is used. The OCI rate review process will be able to use historic information to determine the most appropriate trend factors once there is sufficient data collected in the rate filing data base (IRIS). Before that, each carrier s historic trends can be used to determine the appropriateness of the trends in the filing (see Historic Trend Analysis). To determine if the rates are actuarially supported the documentation supplied with the rate filing will be reviewed. All assumptions will be reviewed to determine if they are reasonable based on recent local experience that is reported in other rate filings and collected by the OCI. Specific attention should be given to the assumptions that have the greatest impact on the rate increase. The review will begin with the identification of the main drivers for the increase in health care costs projected in the filing and used for the development of rates. To facilitate this, carriers will be required to provide an attribution analysis using a standardized exhibit that breaks down the proposed rate increase by source. This exhibit will be included in the standardized rate filing template. 8 The rate filing instructions indicate that carriers should send this information directly to the OCI, but if they do not, the information can be found on HIOS. 11

12 The percentage change for each source of increase will be compared to historical and current normative data for similar contracts9. The sources of increase included in the standard attribution analysis are: Difference between actual and expected benefit costs in the current rate year; Change in utilization of services; Change in unit cost of services; Legally required changes in benefits; Other changes in benefits; Changes in administrative costs; Changes in sales & marketing expenses; Changes in taxes, fees and assessments; Other changes in non-benefit expenses (margin or underwriting gain/loss). As rate filings are received they will be processed into a database. Eventually that database can be used to calculate statistical information on the data elements listed above as well as other data and information. Data will be reported on these drivers for other comparable company rate filings and contracts in Puerto Rico and for this set of contracts historically. Until the database has sufficient data, other potential benchmark information may include carrier surveys performed by the OCI. In addition to the standardized filing metrics, the OCI will review the actuarial memorandum, which describes the actuarial methodology used in developing the premium rates. The methodology used in the rate filing will be reviewed to determine if it was appropriate considering the contract design. The methodology includes, among other issues, the base period data used for claims projections, the method used to project the ultimate claim experience in the base period, the treatment of large claims, and any appropriate adjustments for deductible leveraging due to high levels of fixed cost sharing. In addition to reviewing claims projections, it is important to review non-benefit expenses including administrative costs and profit margins. If a loss ratio approach is used to determine non-benefit expenses, the resulting rates may be inadequate due to Puerto Rico s low health care costs. Therefore, it will be important to review information on current and projected administrative costs. If the information provided is not sufficient to determine if the rates are actuarially supported the OCI should request additional information. This additional information will typically be in the form of more detail support of assumptions that are driving the rate increase and that do not appear to be appropriate from the information provided in the initial filing. Additional reviews may result in multiple data requests and various levels of review depending on the particular area of concern. Potential areas for further review include: Base period experience; Reasonableness of medical trends and Rx trends that are used for projections (see B. Reasonableness of Projected Claims Trends); Enrollment related changes; Details of all benefit and formulary changes found in the contracts, including projected cost of changes; 9 National data can be found in reports by S&P Healthcare Economic Indices, which may not apply to PR 12

13 Development of projected non-benefit expenses; Support for the gain/loss margin requirements provided in the rate filing (if the review extends beyond MLR compliance10). For each source of increase that cannot be verified as reasonable based on the information included in the filing and appropriate historical and current benchmarks, the reviewer should request additional supporting information. The additional information needed falls into two major categories: (1) Analysis of Claims Costs and (2) Analysis of Non-Benefit Expenses. If rates are not actuarially supported they may be excessive, inadequate or discriminatory. Rates are considered excessive if they are higher than the amount needed to pay for claims, administrative costs and a profit margin. Currently many regulators consider this level to equate to the ACA rebate loss ratio of 80% for individual and small group and 85% for large group. Rates are considered inadequate if they cannot pay for claims, administrative costs and a profit margin. A projected loss ratio of over 100%, is clearly an indication of rates being inadequate. If the projected claims plus projected administrative costs are more than the premium the premium is also considered inadequate. Rates are considered discriminatory if they charge different amount for policies having essentially the same risks and expense elements. An actuarial value model can be used to determine the relative risks. If the premiums between policies with the same actuarial value differ by more than the difference in actuarial value +/- 10%, an actuarial determination must be made if the policies are discriminatory. It is possible that other factors are driving the discrepancy such as the relative health of the policy holders, but many of these factors will not be allowed starting in In Puerto Rico the information in the benefits map can also be used to determine the actuarial value. The actuarial value will be the paid claims divided by the allowed cost. Analysis of Claims Costs Benefit costs start with credible base period experience. This base period experience is then trended to the projection period. Once the projection period claims expense is determined adjustments may be made for a number of conditions including: Changes in rating factors; Changes in enrollment; and Changes in benefits. A. Reasonableness of Base Period Experience The reasonableness of the base period includes the selection of the actual period to use and the adjustments to the base period. Depending on the specific situation issues may include: Base period selected; Unpaid claim liability estimates; and Large claim impact. 10 If carriers depend on the MLR rebate loss ratio, they will not provide information on non-benefit expenses or margins. In that case the OCI will not be able to review these. 13