1. Welcome to Rate Review Training for Advocates Sponsored by Consumers Union and Robert Wood Johnson Foundation If you haven’t done so already, to hear audio please dial: (805) 399-1200 Code:275255#

2. Agenda Welcome Lynn Quincy Consumers Union Why 2015 Health Insurance Rates Need ScrutinyJay Angoff Mehri & Skalet What is a Rate? What is a Rate filing? Key Parts of the Filing: Medical Claims and Trend Administrative Expenses Profit and Surplus How Consumer Groups Can Participate Jay Angoff Real Stories from State AdvocatesVarious Why CMS Need to Hear From UsJay Angoff Q&AJay Angoff and others Wrap Up & Next StepsBetsy Imholz Consumers Union

3. Housekeeping Rules During Q&A, phones will be unmuted but please personally mute your phone unless you are speaking. Please queue up your questions in the chat feature- we will try to get to as many as possible Please do NOT put us on hold – everyone will hear your hold music.

4. 4 Rate Review for Non-Actuaries Taking the Mystery out of Actuarial Analysis and the Insurance Rate-setting Process Jay Angoff Mehri & Skalet, PLLC April 9 and 10, 2014

5. 5 Taking the Mystery out of the Rate Making Process: Structure of the Webinar I. What a rate filing is and what’s in it Elements of the rate filing and the issues they raise II. Consumer Participation in the rate review process Making rate-filings public Seeking hearings Participating in process to the maximum extent state allows

6. 6 A rate filing is a series of documents containing the information justifying, or purporting to justify, the rates the insurer seeks to charge. What is a rate filing?

7. 7 Pre-ACA Rate Filings: No mandated format but Key document: Actuarial Memorandum ACA Rate Filings: 3 Parts, but still Key document: Actuarial Memorandum

8. 8 What is the Actuarial Memorandum? Narrative explaining the different steps that go into calculating the rate Lots of Exhibits showing the data, assumptions, and calculations at each step A summary sheet showing how the steps fit together

9. 9

10. 10 Rate vs. Premium Base Rate (justification applies to this) X Rating factors (if allowed by State): Age Geography Tobacco # of covered family members = Final Premium

11. 11 What Goes Into a Rate?

12. 12 Key elements of the rate filing--Trend What is it? Rate of increase in medical costs What is it applied to? Amount paid out in past years How is it determined? Hard data, assumptions, estimates, predictions, “actuarial judgment” What are its different elements? Unit cost trend Change in utilization Deductible leveraging New benefits

13. 13 Deductible Leveraging Example: Provider Payment Increases from $2,500 to $3,000 Total increase is 16.7% …but insurer’s share is higher – 20%

14. 14 How to challenge trend--traditional methods Make sure starting point is reasonable Make sure data is not cherry-picked. E.g., what is most reasonable trend for 2014 based on the following: 2000200120022003200420052006200720082009201020112012 6.68.4 9.7 8.6 7.2 6.8 6.5 6.3 4.7 3.8 3.6 3.7 Make sure no double counting Source: National Health Expenditure Data Table: Average Annual Change In Personal Health Expenditures

15. 15 How to challenge trend--based on ACA Has actuary considered provisions that could reduce rates in 2015? E.g., Delivery system reforms, e.g., ACOs, VBP, EHR, PFP Lower payment to providers Healthier 2015 pool Weak enforcement

16. 16 Key elements of the rate filing-- Administrative expenses What are they? General administrative expenses Commissions Taxes, licenses and fees

17. 17 How to challenge administrative expenses Challenge their accuracy--compare to previous years’ and Annual Statement data Has actuary considered ACA expense-reducing provisions ? Nature of selling through the Exchange, and individual mandate Elimination of underwriting Taxpayer-funded marketing Likely decline in commissions Prevent pass-through of certain types of expenses

18. 18 Key elements of the rate filing--Underwriting profit Underwriting profit may not be necessary, because of investment income “Contingencies” or similar provision not necessary Effect of “3 Rs”--Risk-adjustment, reinsurance, risk- corridors

19. 19 Special consideration re non-profit--mainly Blue Cross--plans Surplus : The amount insurers hold over and above what they project they need to pay claims Surplus is good But there can be too much of a good thing For-profit v. non-profit plans: different standards may apply

20. 20 “Surplus” versus “Reserves” Reserves: a category of funds set aside for projected claims. Surplus: the amount insurers hold over and above what they project they need to pay claims.

21. 21 How surplus is measured: the RBC ratio What is it? Ratio of an insurer’s actual surplus to the legal minimum it must hold to do business 200% is practical minimum 375% is Blue Cross Association minimum 500% is informal Blue Cross standard for “strong” Blue plan

22. 22 CarrierSurplusRBC Ratio CareFirst (MD, DC)$2.1 billion977% Regence (OR, ID, UT)$2.0 billion978% TN$1.2 billion1,023% HCSC (IL, TX, OK, NM) $7.9 billion1,083% NC$1.8 billion1,098% LA$1.1 billion1,099% FL$3.1 billion1,335% AZ$.8 billion1,493% CA Blue Shield$3.3 billion1,512% MS$.5 billion1,683% 2010 RBC Ratios of Selected Non-profit Blue Cross plans

23. 23 The 3 Rs--Risk-Adjustment, Risk Corridors and Reinsurance Concept underlying all three: If an insurer has bad experience, it gets paid Risk-Adjustment: If an insurer’s experience is worse than its competitors it gets paid by its competitors Risk Corridors: If an insurer’s experience is worse than it predicted it gets paid by the government Reinsurance: If an insurer has high cost claims it gets paid from a pool funded by small and large group insurers, administrators of self-insured plans, and other individual insurers

24. 24 How Consumer Groups Can Participate in the Rate Review Process

25. 25 Effective Rate Review Programs States with Effective Rate Review Programs, as found by HHS, review proposed rate increases ≥ 10%; in states without Effective Rate Review Programs HHS reviews rates proposed rate increases ≥ 10%. Most states review their own rates

26. 26 What Does it Mean to Have an “Effective” Rate Review Program? Under the ACA, having an “effective” rate review process only means the state satisfies HHS’s requisite process for receiving and evaluating rate filings. “Effective” rate review does not mean that the state or the Federal government will probe deeply on rates or has the capacity to block an unreasonable rate increase.

27. 27 ACA authorizes rate review, not rate disapproval The federal rules do not authorize HHS to disapprove unreasonable rates, nor do they authorize any state to do so that does not already have such authority.

28. 28 How consumer groups can participate in the rate review process Try to make rate filings public That are filed with HHS That are filed with state DOI’s How? Letters FOIA request In-person meetings Press Direct action See Trade Secret Memo

29. 29 HHS has the power to make rate filings in all states public

30. 30 How consumer groups can participate in the rate review process Try to get the DOI or HHS to hold a hearing In many states person aggrieved has right to a hearing In essentially all states Commissioner has discretion to hold a hearing

31. 31 Type Rate Justification Public ? Holds Hearings? 1No 2YesNo 3 Yes 4 What Type of State Are You In?

32. 32 How consumer groups can participate in the rate review process Even in least consumer-friendly states (Type 1 states): File comments If justified, challenge whatever in the rate filing is public based on publicly-available data. E.g., To challenge trend--use public data on trend To challenge expenses--use Annual Statement data on expenses To challenge underwriting profit--calculate total rate of return based on Annual Statement data

33. 33 How consumer groups can participate in the rate review process Even in least consumer-friendly states (Type 1 states): Ask for description/explanation of non-public information Ask AG or ICA to intervene Press

34. 34 Lemons into Lemonade Even in the most recalcitrant states, advocates should urge: 3Rs be considered as mitigating Accurate trend for 2015 (with no double counting). No underwriting profit for non-profit plans with excess surplus

35. 35 How consumer groups can participate in the rate review process Where the state has made the rate filing public, but declines to hold a hearing (Type 2 states): Consumer groups can take same steps as in least consumer friendly states and Do their own analysis of the filing and submit it to the Department

36. 36 How consumer groups can participate in the rate review process Where the state has declined to make the rate filing public, but holds a hearing (Type 3 states): Petition to participate in the hearing, and in particular To send out information requests To submit evidence and argument To question witnesses Participate to maximum extent permitted by the Department

37. 37 How consumer groups can participate in the rate review process Where the state both makes the rate filing public, and holds a hearing (Type 4 states): Consumer groups can do everything they can do in the three less consumer-friendly types of states plus Question the actuary based on data disclosed in the Actuarial Memorandum Recommend that the rate be reduced based on data disclosed in the Actuarial Memorandum

38. Additional Materials to Help: On : consumersunion.org/ratereview Exhibit A: 50 State Overview: Statutes, Type of Rate Review and Public Participation Exhibit B: 50 State Overview: Conditions under which Rate Review Hearings Held Exhibit C: 50 State Overview: Public Access to Rate Filing Exhibit D: 50 State Overview: Opportunity to Comment per DOI Exhibit E: State Decisions Renewing Non-Compliant Plans Exhibit F: Trade Secret Legal Memo And more to come…

39. 39 Acknowledgements Extensive review by Consumers Union Sponsored by Consumers Union and the Robert Wood Johnson Foundation

40. State Advocates Share Their Stories

41. Q&A

42. Wrap Up & Next Steps