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Anthem 2012 Rate Increase Request:
In May 2012, Anthem Blue Cross and Blue Shield sent out notices to policyholders of a change in rates to be applied to individual health insurance policies. The average increase requested was 1.7%. If you received a notice, these questions and answers should assist you with understanding the factors that contributed to your change in premiums.
Q: I received a notice from Anthem and my premium has increased by more than 10%. Isn’t that illegal under Maine law? Also, if the average increase is 1.7%, why is my increase greater than that?
A: Maine law does not prohibit rate increases above a specific percentage. Due to recent legislative changes, individual medical insurance rate increase requests are no longer subject to Bureau of Insurance (Bureau) approval under certain circumstances.
If the average rate increase is below 10% and the company agrees to spend a certain percentage of each premium dollar on the payment of claims (the guaranteed medical loss ratio), there is no approval required. The Bureau does, however, review all rates for compliance with Maine law.
Anthem’s filed rates were a 1.7% average increase, so they were not subject to prior approval by the Bureau. Some increases are above the average due to changes in age factors that companies are allowed to charge. The maximum increase in the filing is 18.2% for those over age 60 with a $15,000 deductible. The maximum decrease is 17.5%.
Q: If rates are filed for review only, what does that mean?
A: An insurer’s rates depend on its medical claims experience (i.e., how much an insurer has paid out for its individual medical block of business) and current costs. In reviewing filed rates, the Bureau ensures that the company is correctly determining that they are exempt from prior approval and that calculations within the filing are accurate. The Bureau’s review is guided by Maine law which requires that the increase not be: 1) excessive, 2) unfairly discriminatory, or 3) inadequate.
1) Whether the rates are excessive depends upon projected medical claims, plus a reasonable amount for administrative expenses and profit. Insurers are generally required to meet a medical loss ratio of at least 80 percent. This means that 80 percent of premium dollars will be spent on the payment of health care claims and quality-improvement activities as opposed to overhead, marketing, salaries, and profits. Pursuant to state and federal law, insurers that fail to meet that standard may be required to pay rebates to consumers. In addition, assumptions in the filing that are made about how claims will change in the future are evaluated for accuracy and reasonableness.
2) The requirement that rates not be unfairly discriminatory means that differences in rates must be justified and based on factors that are permitted by law. For example, rates cannot be raised more for people who have health problems or who have had larger claims than for healthy people.
3) Rates also must not be inadequate. A rate is not inadequate unless insufficient to sustain projected losses and expenses and the use of the rate has had a tendency to create a monopoly or, if continued, will tend to create a monopoly in the market or will cause serious financial harm to the insurer.
Q: Did Anthem file its 2012 rates separately for each product?
A: No. Anthem’s initial filing was a combined filing for five products, resulting in an average increase of 1.7%. At the request of the Bureau of Insurance, Anthem provided a product-specific breakdown of the rate increase. See the table below for the average increase by product.
Q: Why are my premiums going up?
A: The root cause of the increasing cost of health insurance is the rising cost of health care. Both the price and utilization rates of health care services have been increasing and new procedures and new drugs have further added to costs. State agencies are working to figure out how to reign in ever increasing healthcare costs, for example by looking at how to implement a statewide electronic medical system so tests don't have to be duplicated each time a person sees a new provider or goes to a hospital. If medical cost increases can be slowed, premium increase requests will slow down as well.
Maine’s healthcare reform law also establishes the Maine Guaranteed Access Reinsurance Association, a mechanism for insurers to share the costs of covering people with expensive medical conditions. This has mitigated the requested increase that individual policies would have otherwise received.
The changes in how insurers use age to calculate rates likely contributed to your increase. Maine’s new health reform law gives insurers more flexibility to vary premiums according to age, geography, and tobacco use.
The changes in age rating will be phased in over time and will allow insurers to charge lower rates for younger consumers than they can currently charge – relative to others buying the same coverage – and higher rates for older consumers.
For renewing plans, the allowable ratio due to age was previously 1.5 to 1 and changed to 2 to 1 for this filing. This means that the premium for a policy issued to an older individual can be up to 2 times the amount charged to someone at the youngest age for that same policy. In January 2013, this factor may increase to 2.5 to 1, and 3 to 1 for January 2014.
Q: What is MGARA?
A: Maine’s healthcare reform law created the Maine Guaranteed Access Reinsurance Association (MGARA). MGARA allows insurance companies to share the costs of insuring individuals with more expensive medical conditions. Some policies will be automatically included in the program based on specific medical conditions, while other policyholders may receive a health statement to fill out regarding their current medical conditions.
To fund the reinsurance program, health insurers must pay $4 per member per month. This amount can increase by an additional $2 per member per month if the $4 assessment is insufficient to cover reinsured claims.
As a result of MGARA, Anthem estimates that total cost for its individual product claims will be reduced by approximately $11 Million.
Q: Why didn’t Anthem use the money saved because of MGARA to reduce my premium?
A: The savings due to the MGARA program were used for the benefit of all insureds through a reduction in the “community rate” (i.e., the starting rate for all insureds that is adjusted for allowable factors such as geography and age).
Without the MGARA program, Anthem estimated that the justifiable premium increase would have been 21.6% based on rising claims costs.
Q: What is a “grandfathered plan”?
A: A grandfathered plan is a health plan in which you were enrolled on March 23, 2010. Grandfathered status means that the plan is exempt from some of the requirements of the Affordable Care Act (ACA) , such as coverage of recommended preventive care without cost sharing. There are many ways, however, in which a plan can lose its grandfathered status including: significantly raising co-pays, deductibles, or coinsurance charges, or significantly reducing benefits.
If your plan is grandfathered and you choose to switch to a new product, this will change the benefits provided to you, as the new plan is subject to the ACA’s requirements. A potential new policy should be carefully compared to your current plan, as once you leave a grandfathered plan, you may not be able to return to your original coverage.
Q: What is a “closed block”?
A: A closed block of business is a policy type that an insurance company is no longer selling and no new policyholders are enrolled into the plan. The plan is still available for renewal for existing policyholders.
Q: I can’t afford my new premium. Are there any other options for me?
A: There are other individual health plans available, which may have lower rates. It is important, however, to compare the benefits of one plan to another. If you are paying less in premiums, that may mean a reduction in the services that are covered or a larger amount you will have to pay for specific services (examples: higher deductibles or coinsurance). For additional information on plans that are available, please see the Bureau’s brochure: A Consumer’s Guide to Individual Health Insurance.
Q: Where can I send comments about my rate change?
A: The Bureau of Insurance is accepting comments regarding the Anthem rate change. Comments may be submitted to:
Department of Professional & Financial Regulation
Last Updated: January 31, 2013
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