Monday, August 31, 2015

qotd: Largest exchange insurers have 75% higher premium increases than other insurers

Technology Science (Harvard University)
August 11, 2015
Larger Issuers, Larger Premium Increases: Health insurance issuer
competition post-ACA
By Eugene Wang and Grace Gee


The Patient Protection and Affordable Care Act (ACA) has substantially
reformed the health insurance industry in the United States by
establishing health insurance marketplaces, also called health
exchanges, to facilitate the purchase of health insurance. The ACA has
increased transparency in insurance pricing and in issuer pricing
behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study
examines changes in health insurance premiums made by individual health
insurance issuers in 34 federally facilitated and state-partnership
health insurance exchanges.

Results summary: Our study shows that the largest issuer in each
marketplace had a 75% higher premium increase from 2014 to 2015 compared
to other same-state issuers. On average, the largest issuers raised
rates by 23.9%, while the other issuers only raised rates by 13.7%.
Moreover, the largest issuers' premium increase affects a larger
proportion of plans and do not seem justified from the standpoint of
incurred claims-to-premium ratio. Projected Index Rate from the rate
review process is used as a summary of an issuer's premiums across
different plans and Projected Member Months as a proxy for on-exchange
market share. Our findings suggest that even after the Affordable Care
Act, the largest on-exchange issuers may be in a better position to
practice anti-competitive pricing compared to their same-state counterparts.

From the Results

But can the largest issuers justify their higher premium increases in
2015 by claiming that they had higher incurred claims relative to
collected premiums in 2014, compared to other issuers? To test this
hypothesis… (technical details available at link)…

Note that this is very similar to the Medical Loss Ratio (MLR) as
formulated in 45 CFR §158.221, which is used to calculate the MLR
rebates issuers have to give to consumers if the MLR falls below 0.80
(i.e. they spent too little on medical expenses) in the experience
period. But the MLR calculation would require the denominator to include
only premiums collected in the experience period net of taxes, licensing
and regulatory fees, which data is unavailable in the URR (Unified Rate
Review public use files).

To test if the largest issuers in each state have higher incurred claims
relative to premiums in 2014, the following null hypothesis was tested…
(technical details available at link)…

After omitting states where data on the largest issuer was not available
(the largest issuers having only joined the exchange in 2015) and
omitting issuers without experience data (issuers can choose not to
input experience period claims and premiums data if they deem that the
data they have collected is not substantially representative), the test
statistic is eventually calculated… (technical details available at link)…

… with a mean of 0.02, which means that the largest issuer has a higher
claims ratio of only 0.02. Figure 9 shows that the claims-to-premium
ratio for the largest issuers is 0.85 while that for the other issuers
is 0.83. Since the test statistic is 0.50139 with a one-tailed p value
of 0.31092, we conclude at 5% significance level that there is
insufficient evidence to reject the null hypothesis in states where this
ratio could be calculated. The claims-to-premium ratio of the largest
issuer is not statistically significantly higher than other same-state
issuers. Even if it were significant, a 2.5% higher claims-to-premium
ratio is unlikely to be sufficient to justify the 75% higher premiums
increase that the largest issuer incurred.

From the Discussion

Overall, this study is important in light of recent market consolidation
efforts in the health insurance industry. This paper provides evidence
that even after ACA, the largest on-exchange issuers may be in a better
position to practice anti-competitive pricing compared to their
same-state counterparts. This evidence should be prudently considered in
any antitrust debate.


AMA Morning Rounds
August 31, 2015
CMS seeks emergency review of request for more insurance information

Congressional Quarterly (8/29, Subscription Publication) reported that
the Centers for Medicare and Medicaid Services "is seeking an emergency
review of its request to collect more information from health insurance
companies in connection with the medical-loss-ratio data and risk
corridor regulations, which both are part of the agency's effort to
fully implement the 2010 health law." The agency said it found a "number
of significant discrepancies in the 2014 benefit year submissions that
insurers made." CMS officials said in a filing with the Federal Register
"that they are concerned that the agency 'will be unable to verify the
accuracy of the submission and validate the data needed to operate the
MLR or risk corridors programs' if it doesn't get additional information."


Comment by Don McCanne

This is scandalous. The co-authors of this article, Eugene Wang and
Grace Gee (with Harvard degrees in Applied Mathematics), have shown that
the largest insurance issuer in each federally-facilitated and
state-partnered ACA insurance exchange had a 75% higher premium increase
this past year than did other insurers in the same states. But what is
really shocking is that they have shown that, based on claims-to-premium
ratios, these excess premium increases are in no way warranted.

This should not have happened since the Affordable Care Act requires
that at least 80% of the premiums be spent on health benefits (the
medical-loss ratio). Now we learn that the Centers for Medicare and
Medicaid Services found a "number of significant discrepancies in the
2014 benefit year submissions that insurers made" regarding
medical-loss-ratio data. CMS is seeking an emergency review of its
request to collect more information from the health insurers.

With the current merger activity of the nation's largest insurers, we
should be very concerned about their too-big-to-follow-the-rules
attitude. The insurers contend that they need higher premiums because of
their claims experience, yet they have failed to provide CMS with
adequate, accurate data to show that they are spending at least 80% of
the premiums on health care. This study strongly suggests that they are not.

It's time to throw out the crooks and establish our own single payer
national health program - one owned by the people. We aren't going to
cheat ourselves.

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