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A Consumer Advocate’s Guide to The Rate Review ProcessJump to 2011 Public Comment Session information A Publication of the Maine Bureau of Insurance
Maine’s families and businesses continue to face higher health coverage costs. This is a problem around the nation. The higher cost, an aging population (seen in use of medical care and services), new technology, drugs, and procedures are reflected in the prices people and businesses pay for their health insurance. The cost of coverage is increasing for everyone, including large employers, mid and small size companies, and people who purchase their own insurance in the individual health insurance market. Although insurance regulators cannot address the underlying cost, it is the responsibility of the Maine Bureau of Insurance to review rates to make sure that premiums are not excessive, inadequate, or unfairly discriminatory. Under Maine law, insurance companies must receive approval from the Bureau of Insurance for rate increases and new rates for individual market policies. Regulators must ensure that consumers are being treated fairly and that a health insurance company is financially solid to pay claims. While the review process is highly technical and is based on actuarial assumptions about future cost and projected use of medical care, the impact on consumers is an important consideration. Based on questions the Bureau receives and the public rate hearings held around the state, it is apparent that insurance consumers need useful and practical information about how rates are set, the process for reviewing rates, rate hearings (including the role of the Attorney General), and opportunities to participate in rate reviews and hearings. The Maine Bureau of Insurance encourages consumer groups to participate actively in the rate review process and has made available resources through its grant from the U.S. Department of Health and Human Services. This guide is designed to assist consumer advocates in their participation in the state’s rate review process. Rate Review Maine policymakers have authorized insurance regulators to review proposed premiums to make sure that rates are not excessive, inadequate or unfairly discriminatory. In the individual market, when insurance companies want to increase their rates, they are required to file their rate request with the Bureau of Insurance. The Insurance Superintendent is responsible for determining if and why the increase is needed. The process of reviewing rates and determining if they meet the requirements of the law can be conducted with or without a rate hearing. The Superintendent gathers evidence and reaches a decision that is as fair as possible for both Maine residents and the health insurer. Rate decisions and rate filings from 2009 and 2010 are available on the Bureau’s webpage. How does the rate review hearing get started? The process starts when an insurer files a request for a rate increase for one or more of its products. In recent years, individual health insurance increases have been filed at the end of the calendar year or the very start of the New Year. Although not an actual court case, when a hearing is held, the procedure to reach a decision on rates is very much like a court case. The burden of proof is on the health insurer to prove that a higher rate is justified. Once a docket number is assigned and there is an official file for the rate request, the Superintendent sends out a notice summarizing the proposed rate increase and offering details about the proceeding, upcoming public comment sessions and the hearing. The notice also sets a deadline for intervention. Intervention is the process of becoming an official participant in the case. Anyone can apply to the Superintendent to be an intervenor, including groups representing consumer interests. In addition to the public notice sent by the Superintendent, the health insurance company requesting the rate increase is required to send a notice to its affected policyholders advising them of the proposed increase and giving them information such as scheduled public comment sessions and the hearing date. Are hearings always held for rate filings? No. Hearings are generally held on proposed increases that are large and affect a large number of Mainers. In the past, the Superintendent has held hearings for proposed Anthem and Mega Life rate requests. Who is involved in the hearing?
The Superintendent’s role is that of hearing officer and fact finder – similar to a judge in a court case. In the fact finding process, she will convene a hearing panel that consists of attorneys, actuaries, or other experts. The Attorney General’s Office is the lawyer advising the Superintendent. The Superintendent can create an advocacy panel, which can include staff from the Bureau and expert consultants to advocate for affected policyholders in the case.
The insurance company that filed the rate request is a party in a hearing. Typically, the insurer’s actuary will be an expert testifying at the hearing.
The Attorney General of Maine has a legal right to be an intervenor. The Attorney General’s (AG) role as an intervenor is to advocate on behalf of Maine residents. The AG is not required to participate in rate hearings but has done so for many years. The AG’s expert witness usually is an actuary. The role of AG as advocate for Maine people is separate from the role as lawyer advising the Superintendent, and the two roles are handled by different attorneys in the Attorney General’s office. The Superintendent may grant intervenor status to a person or group. The Maine Administrative Procedure Act gives people the right to intervene if they show that they are or may be “substantially and directly affected” by the rate hearing, individually or as a class. In the past, consumer advocate groups have requested and were granted intervenor status.
Although not official parties, many consumers attend hearings either to observe or to testify. Hearings are public and open. Are there due process standards that apply in a hearing? Yes. The parties in a rate hearing have rights similar to parties in a court case. Bureau of Insurance Rule 350, the Maine Administrative Procedure Act, and Chapter 3 of the Maine Insurance Code are the laws that govern the procedures for Bureau of Insurance hearings. What are discovery requests and who can make them? Discovery requests are questions that parties to the hearing are required to answer. Parties to the case have the right to make discovery requests. The Superintendent also has a right to make discovery requests. Information produced through the discovery process helps parties to prepare for the hearing and helps the Superintendent make an informed decision. A party that believes a discovery request is duplicative, unreasonable, or irrelevant to the case may file an objection with the Superintendent, who will then decide whether the request must be answered. Is all information produced in a hearing public? Maine law requires most information to be made public so that the process is transparent. Transparency means that anyone can examine the data and information and reach their own conclusions. The Bureau makes every effort to post all documents related to hearings on the website. Certain information is not public, however. If the health insurer believes that certain information is confidential, the insurer can request that the information not be publicly disclosed. The Superintendent does make sure that certain information such as personal health information and Social Security numbers remain confidential and is not disclosed to the public. Is all information exchanged at the hearing? No. In preparation for the hearing, pre-filed testimony is submitted. This allows all parties to analyze the other parties’ positions as well as ample time to review technical accounting, actuarial and financial material, and it reduces the time spent presenting information out loud that could be provided more efficiently in writing. Also, during the hearing, the Superintendent or members of her panel may request additional information from the insurer or witnesses. The additional information is usually provided following the hearing. In complex rate cases, additional written requests are made after the hearing. What information is considered during the hearing? All parties present what they have learned from the discovery process and from preparing pre-hearing documents. The Superintendent will also hear about the analysis of actuarial data. There are many factors for the Superintendent to consider when making a final decision in a rate review case. The goal is to estimate the likely cost of providing insurance coverage in the coming year, so that the premiums consumers pay will fairly reflect that cost. In addition, the Superintendent must consider other information, such as impact of the proposed rate increase on policyholders and on the financial condition of the insurer, in order to determine whether the profit and risk margin requested by the insurer is consistent with Maine law or whether it will result in excessive rates. Who provides the information during the hearing? Written information may be provided through exhibits. Each party may also provide information through witness testimony to support its perspective on the rate filing. Are communications with the Superintendent allowed outside of the hearing? In order to be fair, all parties to the case must know what is being said to the other parties. The Superintendent and the hearing panel members cannot speak with one party without giving the other parties a chance to be part of the conversation. Such contacts are called ex parte communications. If there is a Bureau Advocacy Panel, Bureau staff serving on the panel are subject to the same restrictions on communication with the Superintendent and hearing panel as others participating in the rate case. How can consumer advocates be involved in the rate review process? Consumer advocates have an important role in the hearing process:
Testimony from advocate groups Advocacy groups have provided testimony at past public hearings using their technical expertise, as well as general information about consumer experiences shared by their clients. Encouraging consumers to testify When a hearing is called, consumers can be involved in the rate review process by providing testimony about their own experience at public comment sessions or at the public hearing. Public comment sessions are an important part of the hearing process because they provide a forum for consumers to speak after work and in different locations around the state. The Superintendent as the factfinder, and members of the hearing panel, are there to listen to consumers’ comments and ask follow-up questions as necessary. When Maine residents offer their comments, it has a direct impact on the outcome of approving rates for the next year. There are several ways that consumers can participate. If a speaker at a public hearing chooses to be sworn in, the testimony can be directly applied to the Superintendent’s final decision. Legally, what is said is available for use in deciding whether to approve the proposed rate. The speaker is considered a witness, and any party has the right to ask questions. Some consumers may prefer to offer their comments without being sworn in. They can speak at the hearing, or they can submit written comments by mail or e-mail. Unsworn comments are also very valuable. They can help provide information on what Mainers are experiencing. But the specifics of unsworn comments cannot legally be taken into account when a rate decision is made. One reason is that the act of swearing in a citizen gives parties to the hearing a right to question the person. When providing comments or sworn testimony, a consumer should be prepared to state his/her name for the record. The consumer should also be prepared to share what type of coverage he/she has (individual or job-based), what the deductible level is, single or family, among other questions. There is a court reporter at every hearing and public comment session transcribing comments. The public participation sessions are one piece of the rate review process that together with other steps leads up to a final rate decision for the upcoming year. Participating in a hearing as an intervenor Consumer groups can apply for intervenor status and provide projections and testimony from experts they hire. In 2010, Maine received a federal grant to enhance its rate review process. Under this grant, funding has been made available to Maine consumer advocacy groups, including funding to hire experts like actuaries, in order for the groups to participate more effectively as intervenors. What kind of information is provided by the actuaries? Before submitting their rate increase requests to the Bureau, insurance companies work with their own actuaries to determine what rates are appropriate. During the hearing process, the companies and actuaries are asked to provide the assumptions and methodologies they used to calculate premiums and rates for the new rating period. At the public hearing, the actuaries are questioned by the other parties to the case, as well as the Superintendent and members of the hearing panel. Other parties to the case also provide expert testimony from their own actuaries. This testimony may offer support for or call into question the assumptions and methodologies used by the insurance company’s actuaries. Actuaries may also offer their own alternative assumptions and methodologies. Different actuaries will use different processes and calculations when determining what rates are appropriate. Understanding some of these processes is the subject of the final section of this brochure. Rates There is no set method or calculation for an actuary to estimate what premium rates will work best, and the assumptions and methodologies vary widely. It is up to the Superintendent to consider the testimony provided throughout the hearing process and to determine which calculation is likely to be the most accurate representation of future experience. There are many factors to consider:
The actuaries’ presentations are often highly technical and complex, but the question they are trying to answer is straightforward: how much will the insurer have to pay out in claims on its policies? Any argument is only as good as the facts and data backing it up. That is why it is so important that intervenors make their case based on credible data that is time tested over an adequate period and uses a sufficient number of policies. Projections help frame the picture but there are no guarantees that the assumptions that are made are going to play out exactly as anticipated. Even if the picture is not entirely in focus, assumptions provide a general snapshot of the market for the rate period being considered. The most obvious factor influencing the cost of health insurance is the underlying cost of medical care and services, but the relationship is not that simple because other factors also have a significant effect. Total health care costs go up if the price of services goes up (price), if people use more services (utilization), or if people use more expensive health care services (intensity). Thus, claims costs depend on price, utilization, and intensity.
As a policyholder gets older, the need for medical care is expected to increase. Therefore, insurers are permitted to charge higher premiums, but state law limits how much variation is allowed. An insurer cannot charge its oldest policyholders more than 1.5 times the rate it charges its youngest policyholders for the same coverage. Aging is important because it affects how actuaries calculate trends. Actuaries need to consider the impact on claims and revenues and to examine whether this effect is appropriately reflected in calculations. Although aging has the potential to drive up claims, it also increases revenues if subscribers end up paying the higher rate associated with an older age band, so both factors must be taken into account when considering the effect of changes in the average age of a plan’s policyholders. Because Maine law limits the extent to which rates can vary by age, aging has a bigger impact on claims than on premiums. If aging is considered separately as a rating factor, adjustments must be made to the underlying cost trend to avoid double counting. Because rates of migration to higher deductible plans can vary by age, aging also has to be considered when examining these different plans.
If there are changes in an insurance policy’s benefit design, then the cost projections need to be adjusted to reflect those changes in order to get an apples-to-apples comparison between past experience and the actual cost of the future plan. Changes could involve the cost-sharing features of the plan (such as deductibles and copayments) or the types and amounts of health care services that are covered. Sometimes, the insurer or the policyholder decides to make certain changes. For example, policyholders might choose plans with higher deductibles or fewer benefits to minimize increases in premiums. In other cases, changes result from changes in state or federal laws, including laws that set minimum standards for coverage of certain services, conditions, or types of medical providers. Premiums Premiums, the amount of money collected on a regular basis from policyholders, are based on the cost of projected claims and administrative expenses, reduced to reflect investment income and rebates related to pharmacy claims. The insurer’s profit or loss is the difference between the premium plus investment income and the insurer’s claims and expenses. An insurer’s rate filing will include a breakdown of expected claims and expenses, plus the profit and risk margin the insurer is requesting, expressed as a percentage of premium. This reflects the insurer’s target profit and the risk that it might not realize that profit due to the uncertainty in predicting future claims and expenses. Premiums and expected claims are often calculated on a per contract per month (PCPM) or per member per month (PMPM) basis. Premium per contract per month is the average monthly premium per contract, which may be a family policy covering more than one person. Premium per member per month reflects the average monthly premium per person. The following offers a brief description of some of the most important factors that go into determining what premium to charge: Administrative expenses include expenses such as office space, salaries, commissions, office supplies, marketing, taxes (other than federal income tax) and assessments such as the Dirigo Health access payment, lobbying expenses, and cost containment expenses (which reduce the amount of healthcare services provided, including utilization review, fraud detection, disease management programs, and case management). Expenses are sometimes allocated by product line. Commissions are fees paid to people for selling or renewing the insurance. This helps pay for the agent’s time assisting people in choosing a policy and/or providing help once a person is enrolled. Investment Income is money an insurer receives from investments. Assumptions used in calculating expected investment income may be based on benchmarks such as the T-bill rate, the interest rate for short-term U.S. Treasury securities. Medical and pharmacy expenses are negotiated with health care providers such as physicians and hospitals, and with pharmaceutical manufacturers. Pharmacy arrangements often include rebates to the insurer, which are credited as a reduction in claims. Premium tax in Maine is 2 percent. Underwriting gain or loss is how much money is left when expenses are subtracted from premiums.
This estimate is developed by looking at the current level of incurred claims and evaluating the trend, the rate at which claims costs are growing. It is important to keep in mind that even the baseline, the current level of incurred claims, cannot be determined with precision, and must be estimated using actuarial techniques. There are several reasons for this. One is that claims payments fluctuate randomly from month to month, and are also subject to seasonal cycles. Another is that the figure one needs to know is incurred claims – the total cost the insurer has to pay for people who are covered during a given period. However, the experience data consists of paid claims – the claims that have already been reported to the insurer and paid to health care providers and hospitals. Claims experience is often evaluated by looking at a claims triangle. Analyzing the claims triangle, one can estimate loss development patterns that relate paid claims to incurred claims. Another tool is allowed cost analysis. This looks at the total cost of covered health services, including the portion that the policyholder pays through deductibles and other cost-sharing mechanisms, as opposed to the paid costs, the portion that the insurer pays in claims. Unfortunately, the word “paid” is used to mean different things depending on whether it is compared to the “incurred” total (the part that has been paid already, not in the future) or whether it is compared to the “allowed” total (the part that has been paid by the insurer, not by the policyholder). Claim triangles may be based on either the amounts paid by the insurer or on the allowed cost. Allowed cost trends may be determined separately for different service areas such as inpatient, outpatient, professional and pharmacy costs. Trends in price and utilization may also be determined separately. Allowed cost trends track the actual growth in the underlying costs, including information that is hidden from paid cost data. The paid cost trend is reconstructed from the allowed cost trend by applying a leveraging factor. Deductible leveraging is the impact a deductible has on the percent of the amount paid. For example if the allowed payment is $1,500 and the policy has a $1,000 deductible, $500 is paid. If the underlying medical costs are growing by 10%, the allowed payment will increase by $150 to $1,650. However, that $150 represents a growth in the insurer’s claim payment from $500 to $650, which is a 30 percent increase in the insurer’s cost. The difference between the 10% and 30% in this example is the leveraging effect. The degree of leveraging is influenced by changes in the average deductible level. The higher the deductible, the more impact deductible leveraging has on the paid cost trend. This is one reason a health insurer may analyze allowed cost trends rather than the paid cost trends. Allowed cost trends are not affected by leveraging and therefore not distorted by changes in the average deductible. Trend factors may be developed in different ways. For instance, some actuarial methods may apply them directly to premiums while others may use them to project future claims which are then used to project aggregate required revenue and the rate changes needed to achieve that revenue based on projected enrollment. Trend assumptions must also take into account very specific points such as seasonality which can affect utilization of services. The reasons for observed trends must also be examined to determine if they are the result of recurring or one-time events. In order to register an accurate trend calculation, actuaries often use several methods to determine future claims expectations. As part of this process, large claims which are outliers are often removed from assumptions and a separate factor is used to account for expected trends in these jumbo claims. Is the insurer’s financial condition considered? An insurer’s financial condition is critical to ensuring solvency. Financial information helps the Superintendent in determining if a rate is excessive, inadequate, or unfairly discriminatory. Financial statements help the Superintendent understand if there was a loss and if so, if it was restricted to a particular year or years or if it was a persistent pattern over a number of years. Financial statements and insurance department filings also make it possible to determine whether there is adequate surplus. A point of dispute in rate hearings is the appropriate risk and profit margin, if any, to include as a component of the rates. This issue is the subject of two appeals that are currently being considered by Maine’s courts. What legal standards are considered? As noted earlier, insurance rates may not be excessive, inadequate, or unfairly discriminatory. Maine also has a medical loss ratio requirement of 65%. This means that the insurer must expect to pay out at least 65 cents of each premium dollar in claims. This is a minimum requirement, and recent history indicates that the payout for some health insurers in this market has been as high as 87 cents on the dollar. What happens after the hearing? Following the hearing, parties submit written responses to questions posed during the hearing. The Superintendent and members of her panel reviews the information that has been provided, the analyses, testimony, and data. A decision is then reached and announced in a Decision and Order from the Superintendent. As part of the Decision and Order, the Superintendent reviews the testimony point-by-point and offers an opinion on how it applies to the rate request. The explanation relies on laws and the Bureau’s interpretation of evidence presented. The Superintendent can either grant the request or deny it. If the Superintendent denies the rate request, she specifies a rate that would be approved without holding a further hearing. The insurer can file rates consistent with the Superintendent’s decision. If any party disagrees with a decision, it can ask the Superintendent to reconsider the decision. An insurer or intervenor also can appeal to the Maine Superior Court. If it doesn’t agree with that decision, it can seek an opinion from Maine’s highest court, the Supreme Judicial Court. Timeline Health Insurer Files Rate Request | Notice of Pending Proceeding, Hearing, and Public Comment Sessions—A Few Weeks After Filing | Public Comment Sessions—Usually several are held within 8 weeks after Superintendent’s Notice | Insurer’s Letter to Policyholders—Usually shortly after Superintendent’s Notice | For the roughly 60 days between Superintendent’s Notice and Public Hearing, the process of filing as parties to the hearing, discovery and requests such as confidentiality filings | Public Hearing—Usually approximately 60 days after Superintendent’s Notice | Superintendent’s Decision—Within 30 days after all relevant information has been presented as part of the hearing. This may be extended to 60 days if necessary. | Insurer’s revised filing—If original request is denied, insurer usually files revised rates a few days later. | Right to appeal—within 30 days after the Superintendent’s decision is issued.
2011 Public Comment Session and Hearing Dates
Monday, March 14 - Public Comment Session Tuesday, March 22 - Public Comment Session
Last Updated: September 27, 2010 |
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