Trends in Premiums in the Small Group and Individual Insurance Markets, 2008-2011. Findings

11/06/2012

Our analysis of compiled rate filings showed the following results:

  1. 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.
    1. 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.
    2. 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.
    3. 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.
    4. 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.
  2. 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.
  3. HMO plans had lower cumulative increases over the study period in the individual market than did PPOs and indemnity plans.
  4. 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.
    1. 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.
    2. 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.
  5. 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.
    1. 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.
    2. 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.
  6. 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.
    1. 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.
    2. 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.
  7. 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.

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