Holding Down Insurance Premiums:How PPACA Would Help

(And what else we need to do)

Michael Miller

Community Catalyst

January 2010

Key provisions in PPACA

• Minimum Loss Ratio standards

• Standards for rating on age and health status

• Rate oversight and other provisions

Minimum Loss Ratio

• MLR = % of premium devoted to medical care

• PPACA provisions– 2011 Insurers must report % of premium

devoted to medical care– Must pay rebates if fail to meet standards

• 85% large group market• 80% small and non group market

Key advocacy issues

• Creating a standard definition of medical expense

• What counts as quality improvement

• Evaluating each line of business separately (if they are not combined)

Age and health status

• Age limits 3:1

• No gender rating

• Rating on health status abolished but:

• Rates can vary by 1.5:1 for smokers

• “Wellness incentives” could also indirectly allow variation based on health status

What’s wrong with wellness?

• Two kinds of programs:• “participation based” (e.g. a required health

education class)—no limits on size of incentive; no change made by PPACA

• “health status based” (e.g. achieving target BMI or blood pressure)—incentive cap increased from 20-30% (or up to 50% w/ Secretary approval)

• Subsidies would not take wellness penalties into account

Key advocacy issues

• States can require stricter age bands

• Advocates can help shape federal rules on demonstration program to apply wellness discounts in non-group market

• States can prohibit “backdoor” experience rating in their states

Rate oversight

• State experience with rate regulation is mixed• Oversight can moderate rate increases and

push insurers to be more efficient and effective at cost containment, but:– Insurance Commissioners often deferential to insurers

(political will)– Public advocates outgunned by industry– Insurers have limited ability to restrain health costs– Quasi-judicial proceedings are less than ideal

organizing venue

PPACA Provisions

• Insurers required to report/ justify rate increases

• Insurance commissioners can recommend exclusion from exchange for pattern of excessive increases

• Exchanges rate plans on various factors including price

• Secretary may empower exchanges to exclude plans based on price/ value

Steps forward

• More transparency in rates

• More competitive pressure/ easier comparisons across plans– Actuarial “tiers”– Rating system based on quality and price

• More resources for regulators

• More resources for consumer assistance

Key Advocacy Tasks

• Make authority of exchanges to negotiate premiums with plans and condition participation based on price explicit

• States can require greater standardization of plans, making price comparisons easier

• Make sure exchanges have resources to scrutinize proposed increases (could sub that back to Ins. Commissioners)