Trends in Premiums in the Small Group and Individual Insurance Markets, 2008-2011. Trends for Prior Approval States and Other States

11/06/2012

The analysis showed a clear relationship between rates of premium increases in the individual market in file and use states compared to prior approval states (Figure 4). Premium increases were significantly higher in file and use states in 2008, 2009, and 2010 but significantly lower in 2011. Years and regulatory categories with inadequate sample sizes were omitted, so comparisons to states that require prior approval only for HMO plans are generally not feasible, and the rate of increase for 2011 is not significantly different from prior approval states. While average premium increases remained relatively steady between 2008 and 2011 for prior approval states, increases in file and use states fell dramatically in 2011 – from 12.9 percent to 8.1 percent.

Figure 4: Rates of Premium Increase, by Year, by Rate Regulatory Review - Individual/Conversion

Figure 4: Rates of Premium Increase, by Year, by Rate Regulatory Review - Individual/Conversion

† Data for 2011 are incomplete.
* Estimate is significantly different from prior approval at p < .05.
Note: Entries with fewer than five filings are not reported (N/R).
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.


In the small group market, there were a limited number of filings in the file and use states, so figures for 2008 cannot be reported (Figure 5). Premium increases in file and use states were significantly lower than prior approval states in 2009, 2010, and 2011. There were likewise a small number of filings from states that require prior approval only for HMO plans – while there were enough to satisfy the minimum threshold for sample size, estimates have a wide confidence interval. Rates of increase were significantly lower in HMO prior approval states in 2010 and 2011.

Figure 5: Rates of Premium Increases, by Year, by Rate Regulatory Review - Small Group

Figure 5: Rates of Premium Increases, by Year, by Rate Regulatory Review - Small Group

† Data for 2011 are incomplete.
* Estimate is significantly different from prior approval at p < .05.
Note: Entries with fewer than five filings are not reported (N/R).
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 could be due to factors outside the scope of this study, and merit further inquiry. Loss-ratio data in 2009 from the NAIC indicate that MLRs were higher in prior approval states, averaging 0.85, compared to those in file and use and “HMO-only” approval states (average of 0.78).26 One hypothesis is that subsequent premium increases after passage in non-prior approval states were lower to abide by the 80 percent threshold requirement. If MLRs were below 80 percent, and premium increases were sizable, carriers would have to send rebates to policyholders. MLR data from the filings collected for this project are insufficient to verify this explanation. We note that in states where medical inflation was above the national average, or carriers fared poorly in negotiating payment rates with hospitals and doctors, high premium increases may not lead to loss ratios that are below the 0.80 threshold.


26 Authors calculations from J. Abraham and P. Karaca-Mandic, “Regulating the Medical Loss Ratio: Implications for the Individual Market,” The American Journal of Managed Care, 2011; 17 (3): 213-215.

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