The Connecticut Insurance Department's requirement to approve a requested rate increase from a health insurer despite noting that the resulting medical loss ratio (MLR) would not comply with the Patient Protection and Affordable Care Act (PPACA) under its calculations for the individual market and despite public protests highlights one of the state-federal conundrums under the federal health care reform law.
Golden Rule Insurance Co. had requested an annual increase of 9.9% on three individual health plans that it is no longer marketing in the state. The insurer, part of United Healthcare, said it was seeking the increase based on its projections of rising medical costs.
The insurer filed a loss ratio guarantee permitted under a Connecticut statute which requires the insurance department to approve the rates if filed with a loss ratio guarantee–it will rebate policyholders the difference if the company actually spent less on claims than it had projected for the year.
However, the filing, according to insurance department health actuary, Paul Lombardo, fails to meet the federal criteria of an 80% MLR under the PPACA.
The state insurance department's review of this filing determined that the requested rates would produce a MLR of 76.7%, not meeting the federal criteria.
Under the PPACA, the federal MLR requirement is retroactive, meaning, indeed, the company can price high, but pay rebates in a future year, a strategy that some companies will use, according to Timothy Stoltzfus Jost, the Robert L. Willett Family Professorship of Law at the Washington and Lee University School of Law in Virginia and an NAIC consumer healthcare advocate and PPACA expert. Unless the premium increase is 10% or more, there is no review of the health insurance rate increase required by the U.S. Department of Health and Human Services (HHS).
PPACA itself now requires insurers to explain any requests for increases over 10%. HHS now posts national rate increase information here.
You'll see a lot of 9.9% increases, Jost remarked.
However, he thinks, on balance, more companies will be keeping premium low so as to be more competitive, and end up not paying a rebate than will those strategizing to bank inflated (over federal MLR threshold) premiums.
Connecticut and other states have laws on MLRs that do not mesh with the federal law, so carriers can get away with higher premiums for awhile, before rebates kick in.
The Department's calculation believes that the 80% MLR benchmark is for Golden Rule's entire individual market segment in Connecticut although the three listed forms in the Golden Rule filing do not represent their entire individual market.
"We believe that Golden Rule should be pricing their overall individual market in Connecticut to an aggregate pricing loss ratio, that when adjusted for federal MLR considerations, is expected to meet the 80% MLR benchmark," the department health actuary stated.
But because of the state statute, and in spite of objections from the public, the department was forced to approve the new rates, which it did Aug. 15. The new rates take effect Nov. 1, 2012, for 1,271 policyholders in Connecticut. The average premium will increase $380 a year or about $36 a month.
