During the past 50 years, health insurance markets have been defined by two interrelated characteristics – rapidly increasing premiums and lack of transparency. From 2001 to 2011, the cost of a family policy rose 113 percent while overall consumer prices rose 27 percent.1 Yet, consumers face substantial difficulty in understanding this inflation-prone market. Typically, consumers cannot identify what products are available in the individual market, small group and large group markets; their cost; and the benefit design of each product.
The Patient Protection and Affordable Care Act (hereafter referred to as the Affordable Care Act), which became law in March 2010, includes provisions intended to safeguard consumers against both unreasonable increases in premiums and problems associated with the lack of transparency. To achieve these objectives, the Affordable Care Act (1) authorizes review of the reasonableness of rate increases; (2) requires that carriers meet minimum medical loss ratios (MLRs) described below; and (3) provides grants to states to improve protocols for reviewing proposed premium increases. Regulations issued by the United States Department of Health and Human Services (DHHS) related to rate review stipulate that insurers increasing premiums by 10 percent or more must justify such premium increases to either the state insurance department or DHHS. To improve transparency, the Affordable Care Act requires health insurance issuers offering individual, small group, or large group coverage to submit a report to DHHS each year with data on premium income, administrative expenses, and medical claims expenses.
To prevent insurers from retaining an unreasonable share of the premium dollar for administrative expenses and profits, the Affordable Care Act also requires insurers to meet target medical loss ratios (MLRs), which are the percentage of premium income spent on medical benefits and quality improvement according to the line of business. DHHS set the MLR target at 80 percent for individual and small group coverage. Carriers not meeting this target are required to provide customers with premium rebates.
In September 2010, the DHHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) contracted with NORC at the University of Chicago to conduct an analysis of trends in health insurance premiums for comprehensive major medical insurance products in the individual and small group markets from 2008-2011. To accomplish this analysis, NORC and its partners built a database of carrier rate filings from a sample of states. The project addressed the following research questions:
- How have rates of premium increases changed over time?
- How do premium increases vary by type of insurance product and by state?
- What percentage of premium requests have been denied or modified?
- How do MLRs vary by type of insurance product and by state?
- Have MLRs met state requirements?
- What are state trends in premium increases?
- How has the transparency of rate premium increases changed over time?
The remainder of this executive summary reviews the study’s methods, data limitations and key findings.
1 Cost increase for family policy: Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits 2011 Annual Survey,” p. 1. Overall consumer price increase: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt, Accessed July 30, 2012.
We compiled and analyzed data on rate increase filings for comprehensive major medical insurance products available from a sample of states. The total number of filings in the database is 2,809, of which 1,923 are from the individual/conversion market and 886 from the small group market.
We compiled data on rate filings from a number of sources, including photocopies made in person at state insurance departments and the use of public websites that provided documentation of premium rate increase filings in states where this resource was available. Many websites accessed became available only during the course of the study. During the study NORC discovered and documented several shortcomings in both the availability and quality of the filings necessary to answer the research questions. For example, the Illinois Department of Insurance produced a summary of recent rate increases in the individual market since 2005, but has not updated the information available since October 2010. In some states, such as Colorado, documentation captured from different sources produced data sets with discrepancies that were difficult to reconcile, as no source was clearly authoritative. Many filings we found were incomplete, missing information about product type, enrollment, or disposition following state regulatory review. These data limitations and others are discussed in more detail in the main body of the report and should be considered carefully when interpreting the study’s results.
We developed sample weights using data from the National Association of Insurance Commissioners (NAIC), the Medical Expenditure Panel Survey Insurance Component2 (MEPS-IC), and the filings themselves, to calculate national and state averages. When enrollment data were missing from filings, imputation methods were employed to populate those data. NORC conducted sensitivity analyses to assess how modifications in the approach to weighting or other decision criteria would impact the findings. We concluded that, had we made alternative decisions for weighting and exclusions, the resulting changes in our point estimates would not change the major findings or conclusions of the study.
2 The Medical Expenditure Panel Survey (MEPS) is conducted by AHRQ annually; the Insurance Component (MEPS-IC) draws a sample from both private and public-sector employers and surveys them on the health insurance coverage they offer.
Our analysis of compiled rate filings showed the following results:
- After the magnitude of premium increases climbed each year between the years 2008 and 2010, this magnitude declined 3.1 percentage points (from an 11.7 to 8.6 percent increase in premiums) in the individual market between 2010 and 2011. Also, between 2010 and 2011, premium increases declined in magnitude by 2.1 percentage points in the small group market. 2011was the first year in which carriers were subject to the Affordable Care Act rebate and MLR requirements. 2011 was also the first year states had funding from review grants providing states greater resources for review.
- In the individual market, the average premium increase was 9.9 percent in 2008, 10.8 percent in 2009, and 11.7 percent in 2010, and then declined to 8.6 percent in 2011.
- In the small group market, average premium increases declined throughout the study period, from 11.2 percent in 2008 and 2009 to 8.8 percent in 2010 and 6.7 percent in 2011.
- There was substantial variability across states in the average rate of increase. In the individual market, in states such as Nebraska, Wisconsin, and Oregon, premiums increased by rates of more than ten percent in most years.
- In the small group market, premiums in Florida, New Jersey, and North Carolina increased by more than ten percent in most years for which there were reportable data. 3 Other states such as Idaho and Kentucky saw premium increases of less than ten percent each year.
- In the individual market, large carriers had comparable cumulative premium increases to smaller carriers from 2008-2011. In the small group market, however, large carriers tended to have lower cumulative premium increases than did smaller carriers over the four year study period.
- HMO plans had lower cumulative increases over the study period in the individual market than did PPOs and indemnity plans.
- The level of scrutiny given to premium rate increases by state regulators is difficult to measure, but some indicators captured by the study suggest it increased from 2008 to 2011. Depending on the state, premium increase requests may be implemented upon filing or are subject to review by the state. Premium increase requests are categorized as approved, disapproved or simply “filed” (the state makes no determination, but the increase goes into effect). The sub-findings below report the percentage of requests, among those subject to prior approval regulation, that were affirmatively approved (as opposed to “filed” or disapproved). Results are weighted by enrollment.
- Although most requested rate increases are approved, our data show some fluctuation in how regulators treated rate increase filings during the study period. In the individual insurance market, regulators approved 76.9 percent of requested rate increases in 2008, 79.3 percent in 2009, 83.1 percent in 2010, and 74.8 percent in 2011.
- In the small group market, 84.4 percent of requested rate increases were approved in 2008, compared with 64.0 percent in 2009, 68.6 percent in 2010, and 69.7 percent in 2011.
- Rate increases that go into effect may be modified by state regulators as part of the review process. Regulators modified a growing share of rate filings over the study period; these modifications nearly always reduced the magnitude of increases in premiums, and thus constitute one measure of the stringency of regulation.4 In most cases, regulators accepted the carrier’s proposed increase, but in some, the effective increase has been modified following correspondence between the carrier and regulator. Below we provide details on modifications to effective rate increases for filings that included information on both the proposed and effective rates.
- The percentage of requests modified by state regulatory agencies increased between 2008 and 2011 in both markets, rising from 13.7 to 20.6 percent in the individual market and 2.0 to 10.4 percent in the small group market. These modifications affected national estimates for the rate of increase, reducing the rate of premium increase in the individual market from 11.3 to 10.3 percent in 2009, 10.7 to 8.8 percent in 2011, and smaller amounts in other years.5 Rates of increase in the small group market were also affected, but by smaller amounts in all years.
- State regulatory authorities modified (reduced) a growing share of proposed premium increases in the individual market during the study period. Among states and years with sufficient data to report, state regulators modified (reduced) estimated premium increases each year in the individual market in Arkansas, Iowa, Maine, North Carolina, Oregon, Pennsylvania, and Washington. Modifications in the small group market made a smaller impact. In this market, among states and years with sufficient data to report, state regulators modified estimated premium increases each year in in Connecticut and Rhode Island.
- The transparency of the individual and small group markets improved over the study period, and much of this improvement likely derives from the Affordable Care Act.
- In 2010 and 2011, 23 states initiated public websites with information on carrier rate filings. Twenty-one of these states received awards under either the first or second cycle of grants authorized under the Affordable Care Act to help states improve their protocols for rate review.6 Launching public websites was a goal for many grantees.
- Since 2010, six additional states, -- Arkansas, Connecticut, Nevada, New Jersey, Nebraska, and South Carolina -- mandated that carriers file rate increases through the System for Electronic Rate and Form Filing (SERFF).7 SERFF provides a standard format making it much easier for one to read, collect, and compare data from rate filings.
- Data on medical loss ratios (MLR) were available for 40 percent of filings in the individual market and 36 percent of filings in the small group market. These figures changed little over the four study years. Due to the high percentage of filings with missing MLR data, the final report does not include an analysis of MLRs. Few states had MLR targets prior to the Affordable Care Act so it is not surprising that filings had little information on MLRs.
3 Data from a given state and year were reported only when filings represented at least half of NAIC-reported member-months (see Methodology section for details).
4 Many filings contain information on both the original rate increase proposed by the carrier and the effective rate approved by the state regulator. All analysis of rate modification is based on the subset of filings listing both the proposed and effective rate, as there is no way to determine if a filing missing the carrier’s original request was modified by regulators. As a result, filings from file and use states are excluded from this analysis, and the state- and national-level estimates of rate increase each year may differ from those elsewhere in the report.
5 These estimates differ from those in Finding 1, as the analysis of rate modification considers only the subset of filings listing both a proposed and effective rate (see Findings subsection “Approval Rates of State Regulators” for details).
6 The ACA allocates $250 million to states in order to assist them in improving their protocols for reviewing proposed health insurance premiums. The first cycle of grants, totaling $43 million, were awarded to 43 states (including the District of Columbia) and 5 territories in August 2010. Grants in Cycle II, worth approximately $109 million, were awarded to 29 states (including the District of Columbia) in September of 2011 to bolster further efforts and incorporate changes from additional rate review regulations passed in May 2011.
7 SERFF was developed by the NAIC, and provides a standardized format for rate requests, which facilitates reading rate filings and identifying pertinent information.
Given inherent limitations in the quality and completeness of the data, readers should view study findings with caution. Study results suggest significant changes in the individual and small group insurance markets since the passage of the Affordable Care Act. Twenty-three states launched public websites and six more required SERFF filings after passage, thereby increasing the transparency of health insurance markets. In 2011, rate increases were approximately three percentage points lower than in 2010 in the individual market and two percentage points lower in the small group market. State regulators were more likely to modify requested premium increases in 2011 than in prior years. These trends are consistent with more stringent regulatory oversight encouraged by the Affordable Care Act.