Effects of Implementing State Insurance Market Reform, 2011-2012. Trends for “Prior Approval” States and Other States

06/07/2013

Our analysis shows a clear relationship between premium increase in the individual market and a state’s regulatory authority. Premium increases were significantly higher in “file and use” states than in “prior approval” states for both 2011 and 2012 (Table 16). States classified as having an “other” regulatory review status also experienced significantly higher premium increases than “prior approval” states in both years. However, this result should be interpreted with caution, as only five states were classified as “other” in the individual market. As described earlier in this report, we classified this set of states as “other” because their regulatory authority did not clearly fit into one category. For example, in the individual market Alabama has “file and use” authority for all products except HMOs, which need prior approval from the state Department of Insurance.

“Prior approval” states had the lowest premium rate increases in the individual market in both 2011 and 2012, a continuation of trends from 2008 to 2010. Although the magnitude of premium increase was lowest in “prior approval” states, we also found that this set of states had a 1.2 percentage point increase in premium growth rate from 2011 to 2012. In the same period, the premium growth rate declined by 0.3 percentage points in “file and use” states and by 3.5 percentage points in “other” states (Table 16). While they do not establish cause and effect, these findings show that rate increases dropped in the period of time immediately following implementation of more stringent rate review.

Table 16: Average Premium Increase by Regulatory Review, Individual/Conversion

State Regulatory Status Trends 2008 Trends 2009 Trends 2010 Trends 2011† SMR 2011 SMR 2012
File and Use 12.9%* 12.2%* 13.6%* 8.1% 8.8%* 8.5%*
Prior Approval 9.3% 10.5% 10.8% 8.9% 5.8% 6.6%
HMO Prior Approval N/R N/R N/R 9.9% N/A N/A
Other N/A N/A N/A N/A 11.1%* 7.6%*

Note: Entries with fewer than five filings are not reported (N/R).
† Trends data for 2011 are incomplete (see Methods section).
* Estimate is significantly different from prior approval at p < .05.
Prior approval – Rates are reviewed for HMO, PPO, and other plans and do not go into effect immediately.
HMO Prior Approval – Rates are reviewed for HMO plans only. PPO and other plans have file and use requirements only.
File and Use – Carriers file rates and the rates go into effect immediately. In some cases there may be retrospective review.

Similar to 2009 and 2010, in 2011 and 2012, the premium increase rate in both “file and use” and “other” states was significantly lower than in “prior approval” states (Table 17). “Prior approval” and “other” states both saw declines in premium increase rates from 2011 to 2012, but “file and use” states experienced an increase (Table 17). One contributing factor could be our limited sample size of “file and use” and “other” states. In the small group market, we classified only five of the 27 sampled states as “file and use” and four as “other.”

Table 17: Average Premium Increase by Regulatory Review, Small Group

State Regulatory Status Trends 2008 Trends 2009 Trends 2010 Trends 2011† SMR 2011 SMR 2012
File and Use N/R 3.4%* 4.1%* 6.9%* 1.6%* 3.9%*
Prior Approval 11.1% 12.5% 11.5% 8.4% 8.1% 5.5%
HMO Prior Approval 13.6% 14.1% 6.4%* 1.8%* N/A N/A
Other N/A N/A N/A N/A 4.4%* 4.2%*

Note: Entries with fewer than five filings are not reported (N/R).
† Data for 2011 are incomplete (see Methods section).
* Estimate is significantly different from prior approval at p < .05.
Prior approval – Rates are reviewed for HMO, PPO, and other plans and do not go into effect immediately.
HMO Prior Approval – Rates are reviewed for HMO plans only. PPO and other plans have file and use requirements only.
File and Use – Carriers file rates and the rates go into effect immediately. In some cases there may be retrospective review.

The lower rates of increase in “file and use” states in 2011 and 2012 could be due to factors outside the scope of this study, and further inquiry would be needed to assess a cause.

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