CT health insurance laws predate PPACA (AP Photo/Bob Child)

The Connecticut Insurance Department’s requirement to approve a requested rate increase from a health insurer despite noting that the resulting medical loss ratio (MLR) would not comply with the Patient Protection and Affordable Care Act (PPACA) under its calculations for the individual market and despite public protests highlights one of the state-federal conundrums under the federal health care reform law.

Golden Rule Insurance Co. had requested an annual increase of 9.9% on three individual health plans that it is no longer marketing in the state. The insurer, part of United Healthcare, said it was seeking the increase based on its projections of rising medical costs. 

The insurer filed a loss ratio guarantee permitted under a Connecticut statute which requires the insurance department to approve the rates if filed with a loss ratio guarantee–it will rebate policyholders the difference if the company actually spent less on claims than it had projected for the year. 

However, the filing, according to insurance department health actuary, Paul Lombardo, fails to meet the federal criteria of an 80% MLR under the PPACA. 

The state insurance department’s review of this filing determined that the requested rates would produce a MLR of 76.7%, not meeting the federal criteria.

Under the PPACA, the federal MLR requirement is retroactive, meaning, indeed, the company can price high, but pay rebates in a future year, a strategy that some companies will use, according to Timothy Stoltzfus Jost, the Robert L. Willett Family Professorship of Law at the Washington and Lee University School of Law in Virginia and an NAIC consumer healthcare advocate and PPACA expert. Unless the premium increase is 10% or more, there is no review of the health insurance rate increase required by the U.S. Department of Health and Human Services (HHS). 

PPACA itself now requires insurers to explain any requests for increases over 10%. HHS now posts national rate increase information here. 

You’ll see a lot of 9.9% increases, Jost remarked.

However, he thinks, on balance, more companies will be keeping premium low so as to be more competitive, and end up not paying a rebate than will those strategizing to bank inflated (over federal MLR threshold) premiums. 

Connecticut and other states have laws on MLRs that do not mesh with the federal law, so carriers can get away with higher premiums for awhile, before rebates kick in.

The Department’s calculation believes that the 80% MLR benchmark is for Golden Rule’s entire individual market segment in Connecticut although the three listed forms in the Golden Rule filing do not represent their entire individual market. 

“We believe that Golden Rule should be pricing their overall individual market in Connecticut to an aggregate pricing loss ratio, that when adjusted for federal MLR considerations, is expected to meet the 80% MLR benchmark,” the department health actuary stated. 

But because of the state statute, and in spite of objections from the public, the department was forced to approve the new rates, which it did Aug. 15. The new rates take effect Nov. 1, 2012,  for 1,271 policyholders in Connecticut. The average premium will increase $380 a year or about $36 a month.

 “It is the department’s contention that Golden Rule should, in fact, be pricing its overall individual market segment to meet the federal benchmark, rather than filing loss ratio guarantees for smaller market blocks,” Lombardo, the actuary, wrote. 

The department stated it had received 21 separate comments from the public, which in summary, urged the department to disapprove the rate increase request, citing that Golden Rule has increased rates the last three years by over 30% and premiums have become unaffordable.

The public comments also stated that Golden Rule most recently provided refunds to policyholders as they overcharged these consumers, so asked why it was asking for rate increase.

This particular Connecticut state law is not pre-empted by federal MLR law because they do not regulate the same thing and therefore can co-exist, meaning the state law does not meet the legal requirements for pre-emption, a spokeswoman for the Connecticut Insurance Department noted.

For example, she stated, the Connecticut law that Golden Rule files under deals with rate filing and approval associated with policy forms – not minimum medical loss ratio requirements for a market segment. 

If Golden Rule does not meet its policy form targets, it must rebate to policyholders under states law; if it does not meet market targets, it must rebate to policyholders under federal law, she pointed out. The MLR is a financial measurement tool used in the PPACA to make sure insurers are spending enough on enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers’ medical claims PLUS activities that improve the quality of care, the company has an MLR of 80%. An MLR of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions. 

AS a counterpoint, ConnectiCare Insurance Co. recently filed a request to actually decrease premium rates–if only an on average 0.91% — beginning Oct 1, 2012. The company said the requested new rate reflects a drop in medical service usage by members over the past two years, particularly with hospitalization costs. The company said with the new rate it still expects to spend at least 80% of the premium dollar on medical services in order to meet the ACA standard for medical loss ratio.

Connecticut can and does reject other health insurance rate increase requests, as it did, also last week, for Mutual of Omaha on its long-term care insurance rate increase request of  an average increase of 18.7% for its long-term care plans and for affiliate United of Omaha’s requested an overall rate increase of 19.8%  for several of its long-term care plans. The state actuaries’ review resulted in a state rejection of  the requests on Aug. 17, after they determined that the actual demand for benefits and company’s cost of those benefits were well below what the company projected in its original pricing.

 Golden Rule/United Healthcare did not return a call for comment by presstime. 

Find the filing, brief summary and public comment section here at Health Insurance Rate Filings, see http://www.catalog.state.ct.us/cid/portalApps/RateFilingDefault.aspx 

 

CORRECTION: After this article was published, National Underwriter was informed by the Connecticut Insurance Department that its filing is not, in fact, out of compliance with PPACA:

“This is a rate filing for pricing – pricing is prospective, i.e., looking ahead on what the company expects to spend. The federal MLR is retrospective – based on what a company actually did spend over the past year. If Golden Rule doesn’t meet the 80 percent federal MLR next year based on what it spent this year for the entire market it will have to pay a rebate,” a representative for the Department.

The Department added that this is a case of two laws addressing two different things, but it is not, as the headline suggests, a case of the Department ignoring federal law. The filing is not out of compliance with federal law. Connecticut is required by state law to deem approved rate increases in the individual market that are filed with a loss ratio guarantee.